An Investment Portfolio That Has Gained 24% in the Last 12 Months (and how you can copy it)
This is an updated version of a letter I sent in July 2017 when I reported a 28% gain, and October 2018 when I reported a 26% gain.
Several years ago I became interested in the stock market. Since then, I’ve been fortunate to learn a lot of valuable lessons about investing in stocks and I’ve managed to have some success.
For the first couple of years I played around with different ideas (and lost some money), until I eventually settled on an investment philosophy that lead to a 28% return in the first year and 19.5% per year over the past 3 years.
Below is a screenshot from my brokerage account. You can see how things improved after I changed strategies:
Here are the results between April 30, 2018 and April 30, 2019 (the yellow bar is a second account I opened in 2017):
To put the above numbers into perspective:
- The average investor in stocks averages about a 4% return per year.
- The S&P 500, which is the bench-mark index by which investors measure their performance, has averaged a return of approximately 10% per year.
- The best investors in the world typically average 20% to 30% per year over a period of decades.
There’s no guarantee that my portfolio will continue to average the high returns that it has. But over the long-run, there’s an almost 100% correlation between the price of a stock and the performance of the underlying business. The companies I’m invested in have had an average growth rate of approximately 23% over the past 20 years, as a group (in terms of Earnings Per Share + dividends). And approximately 26% over the 10-year period prior to when I first began investing in them.
For further perspective:
- $100,000 x 23% per year for 20 years = $6.2 million ($3.8 million adjusted for 3% annual inflation).
Past performance doesn’t guarantee equal success in the future. But if the companies I’m invested in do even half as well over the next 10 to 20 years as they did over the past 10 to 20 years, my portfolio will still out-perform the S&P 500 historical average. (As long as I don’t over-pay for future shares.)
I’ve adopted my investment philosophy primarily from Warren Buffett, who is widely recognized as the greatest stock market investor of all time. His business partner Charlie Munger, and investing legend Peter Lynch have also left a big impression on me. Sir John Templeton also deserves notable mention. I’ve studied them in earnest over the past several years and have taken their wisdom to heart.
The idea is to identify companies that will become more valuable over time. To borrow a term from Buffett, it’s about identifying companies that have a “durable competitive advantage”. In other words, it’s about investing in companies that have an advantage over their competitors, and that are able to sustain that advantage over a long period of time.
The idea is to buy such companies at a fair price (or at a bargain, if you can), and hang on to them for a long time. Ideally, until they lose their competitive advantage, or you find something better.
If you’d like to follow along with what I’m doing, you can. I’ve put together an investment newsletter. Here’s how it works:
- Whenever I buy or sell a stock, I’ll immediately notify you by email (within minutes of the transaction). I’ll tell you exactly what stock it was, what price I bought or sold it at, and the reason why.
- Upon subscribing, you’ll also get a report/checklist detailing the investment principles I follow. You’ll get specific details, including what numbers I look for when analyzing a company and some of the intangibles to consider. You’ll also find out about what companies I’m currently invested in, and why.
A couple of caveats:
- If you plan on following what I do you’ll need to have a long-term outlook. This includes the willingness to ride-out the ups and downs of the market and go long stretches (sometimes several months) without buying or selling shares.
- Currently, I’m invested in U.S. and Canadian stocks only. This may change in the future, but I’ll likely always be primarily invested in those two countries. Make sure those two markets are available to you from where you live. It’s also important to know if your country has a tax treaty with the U.S. and Canada regarding stocks.
You might find this newsletter/notifier model more affordable than putting your money in a hedge fund or mutual fund. Hedge funds typically charge “2 and 20”. Which means they’ll take 2% from you every year regardless of their performance, plus an additional 20% for gains above a certain point (usually for gains above 6% to 8%).
With hedge funds, sometimes you don’t even know what you’re investing in. Even if they tell you, it may be so complicated that you won’t understand it. And some of them turn out to be Ponzi schemes.
Mutual funds typically charge 2% to 3% in annual (hidden) fees, regardless of performance. You saw the impact that a 3% annual inflation rate can have on investment returns. Imagine another 2% to 3% in annual fees eating away at your returns.
The majority of hedge funds and mutual funds consistently under-perform the market indexes (Dow Jones and S&P 500), particularly when fees are taken into consideration.
The alternative I’m proposing is a flat rate of $300 per year (and you have complete control of your investments). Here’s an indication of how the fee will affect your portfolio in relation to the amount of money you might be putting into stocks:
- $200,000 | $300 = 0.15%
- $100,000 | $300 = 0.3%
- $50,000 | $300 = 0.6%
- $25,000 | $300 = 1.2%
- $10,000 | $300 = 3%
Subscriptions are automatically renewed every year until you cancel (which is easy to do). There are no refunds.
P.S. You’ll receive the report/checklist mentioned above within 24 hours, via email.