TomB16 investing blog

Good question, Chris. Thank you.

The market doesn't always go down at the end of the year but most years it does. The market doesn't always go up in january either, but usually it does.

Every year, people are surprised at the december dip and then again surprised at the january run. Lol.

I frequently buy at the end of the year but only on discounted limit orders that are left open.

7 of the last 10 years have featured discounts on our favourite companies at the end of the year.

 

Good question, Chris. Thank you. We all have to find our comfort level so I will share a bit of mine.

Twice in the last two decades, I've been in a situation where one stock is over 50% of our holdings. Both times, it felt wrong but I didn't sell anything.

The reality of the way I invest is our companies are bought out and cash returned to our accounts every year or two. I don't have a specific formula regulating cash allocation. I just look for the best value and I let the winners run.

I come from a family that lived well below the poverty line. Based on hard work and long hours, I've been a big earner most of my life. I've also been a big saver all of my life. Even in university, I saved money.

As the balance grows, I feel better but, as individual stocks grow, I feel less comfortable. Each time our largest holding crosses into a new power of 10, I've had to reconsider our risk tolerance. Do I really want $X of our money controlled by a small group of executives?

That chunk of money is the work product of a significant portion of our lives. I am not cavalier with it.

Much like walking near a window on the 100th floor causes me to reassure myself it's the same as walking near a window on the 1st floor, I do find myself pretty self conscious at times. This has been part of my investment journey but I've made sure it doesn't define it.


Back to Tesla.

Five years ago, I thought Tesla had a 50% chance of success. I was starting to consider investing in the company.

Four years ago, I saw a 70% chance of success and jumped in with a rather large amount of money that was still less than 1% of our portfolio. At that time, I would not have been OK having the amount of value we now have in Tesla. I would have sold it.

None the less, between the 15x gain and two additional large injections of cash, Tesla is now our second largest holding. I'm totally comfortable with it as I now see the company as 95% chance of success.


We absolutely haven't gotten rich quickly by anyone's standard but each month when I do our statistics, I can be quoted as saying, "Are you shitting me?" I never dreamed we would hit this level. Part of the path of getting here has been adjusting expectations and risk comfort.

 

History.

My first stock purchase was made in 1983 with $2400 saved from a high school job. Transaction fees were $150 back then. There were no discount brokers. Instead, you would call around and ask brokers if they would give you a transaction discount if you made all your own decisions.

A mature investor I knew was paying $70 per transaction. The best rate I could negotiate was $90. In retrospect, I may not have had as much leverage as my investing mentor of the time.

By the mid 1980s, I kept track of trades using Lotus 1-2-3. I could have bought a new car for what I spent on an IBM PC AT, WordPerfect, and Lotus 1-2-3. My first business was built on that computer. Even back then, I viewed money as fuel that drives the vehicle of business. To this day, I have never purchased a car from a dealer.

The 1980s were a high flying time in the markets. I did extremely well managing the crash of 1987, thanks to the guidance of someone who is still alive today and continues to be extremely successful. By 1990, everyone thought they were investing genius. It was the same market hubris as 2018. The early 90s brought wild returns. I recall tripling my money, one year.

In 94, I bought both an apartment block and a house. Cash. I felt like I owned the city. I carried a very small amount of one mutual fund from 94 to 98. It was a pittance. I was all R-E, then.

The apartment investment didn't work out well. It was sold in 1998. The best I can say about it is I almost broke even.

All of my trading and performance data was lost in the mid 1990s and again in 1998. I recall a hard disk crash and subsequently not being able to read a backup CD-ROM. It was demoralizing, at the time.

Currently, I have historical data that goes back to 1998, two months before a big blob of real estate money came into my trading account. By then, I was at a discount brokerage and trades cost 20 bucks.

I don't care to reveal too much detail but my market performance from 1998 to date is 14.91% annual gain.

I got heavily back into R-E investing in the late 2000s when prices were low. This time, I didn't empty all of my investments. I split the money, about 50:50 R-E/markets. For about 8 years, I was a couch potato investor with the market side. That was unfortunate. R-E is very time consuming.

2010, a good year for most, saw me losing 0.3%. Another good year in 2011 saw me losing 0.01%. This was due to onboarding my current wife's finances. Her investment "advisor" got her into a couple of major dogs. She gave me full control of her finances from early on. Once the dogs were sold, she started doing very well.


In retrospect.

I have done very well with R-E investing. I have no right to complain, however, I would have done much better if I would have stuck with a long term value investing plan from the 1980s with no R-E detours.

We stopped saving money in our late 40s. That's when we decided it was enough.


Current situation.

Year to date, net worth gain is 27.91%. That includes some R-E that isn't doing all that great and I do have a couple tiny tranches of stock that have been brutalized by COVID. I like the companies and I never sell based on poor market performance so they will stay.


The future.

Moving forward, our returns will go down. There is no way to maintain this return. Our investing is going to become more conservative with less companies. My goal is 4 companies by 2023.

We have substantial cash, right now, which will either be re-invested if there is sufficient market pull back in the next six months or it will be spent a bit more flamboyant than we normally would in our early retirement. We are not trying to create a legacy for future generations.


If I were doing it again.

Starting again, I would not expect 14.91% return. A competent value investor can expect between 8~10% average annual gain. We all hope for more but a value investor can only reasonably plan for 8~10%, IMO.

 

I may be the only person on this site who would like to see a market pull-back. Prices are too high, almost exclusively.

Timing the market.

Holding back money to use in a crash scenario has been an unsuccessful strategy for the last 10 years. There is no room for debate on this. It might be the correct strategy right now, I have no way to know if a crash is imminent, but the odds of it being the correct strategy at any given time are far below even odds. In other words, you would be far better off to leave your money in the market and take the pain when markets correct.

At 15% return, value doubles every 5 years. A 50% market correction means that holding back money for spending during a crash requires that crash happen within 5 years, just to break even.

Again at 15% return, you would need a 15% dip within the next year to make holding back money for discount shopping a good strategy. This is far more likely to hit for quite a few individual stocks, IMO.

For broad indices, timing crashes has been conclusively proven to be a fools errand.


At this point, we have held back quite a bit of cash. I'm well aware this isn't the best way forward, from a pure growth point of view. Why then, do I do it.

- Retirement income risk is highest if there is a crash immediately following retirement that forces the sale of assets into a heavily discounted market. If you look at FIRE calculators or if you do your own projections, like I do, the failures are always when someone retires in August of 1929, or just before any crash. These simulations are always based on a slow and steady withdrawl.

- Risk can be reduced by entering retirement heavy with cash. This would be a mistake during the accumulation phase of nest egg growth, as it comes at the expense of long term growth.

- We are in the throws of historic business disruption and I believe this will accelerate in the near future.

- As a value investor, I've found a few values this year and hit them hard but I would rather prices come down to acceptable multiples so I could leave my DRIPs turned on and ignore my portfolio.

 

For what it's worth, I no longer view S&P 500 as a general purpose investment vehicle and will stop suggesting it.

 

I'm not sure how to answer that, specifically.

Its not that i think people who invest in the s&p will lose big. I have no predictions of gloom and doom. I just dont see value in it. Too many sectors are on the precipice of disruption. They do have a few of the new guard on the index, and they will add more as companies prove themselves. That is a reactionary position. Its going to lag badly until things shake down.

I dont recommend against sp500. I just dont recommend it. For now, i will return to the small handful of companies i understand and stop recommending indecies to anyone.

 

Here are our year end numbers. We had a nice little Santa Claus rally, within our little portfolio.

2020 return within our investment portfolio is now at a difficult to believe 34.01%. Our largest holding is under a buy-out announcement since Tuesday. Tesla hasn't hurt our portfolio performance, either. These are our largest two holdings.

I wonder how the people who thought I was dumb as a box of rocks for buying Tesla heavily in 2016 and 2019 did, this year?

I need to mention, we haven't outperformed the market every year. This is a nice year.

Also, having to replace core holdings with new companies is hard work and scary. Each time this happens, the numbers get bigger.

Speaking of bonds, all three of our corporate bonds are way up. The December 31 payments are in our accounts and the quotes are down a bit but still up 3.5% on the year. Perhaps this means the market anticipates low rates until 2027 when our longest maturing bonds return their capital. We have two series that pay 5.5% and one that pays 6.5%. It's a bond ladder without many rungs.

If you are a value investor, as I am, and you find well run companies with attractive books and a great looking future trajectory, you are buying a company that is going to be bought out. I'd rather have a great performing company than the cash. I am exactly opposite of a trader. Give me 6+% distribution and 5% equity gain every year for a couple of decades and I will be happy.

Elon, thank you for making our future sparkle like a boat trailer towed on the freeway after losing a wheel.


Our cash position is currently 23.68%

WBI is currently 185.28%

Our DRIPs mostly remain off.

 

Every time I bought a tranche of stock, I bought the company I felt was the best value at the time.

What I look for in a company: honest, hard working, smart (in that order)

What I look for in value: valued based on 5 year net profit, I look for a discount that varies inversely with projected growth


If I had come into money at different times, our portfolio would be different. I make the best decision I'm capable of at the moment and then hold until I decide I no longer like the company based on the above cited reasons.


Important: If I had our net worth in cash, I would not buy the same companies in the same ratios. What was a great buy in 2009 might not be a good buy at all, in 2021. Meanwhile, I purchased a company in 2019 that I had been watching for over 10 years. It finally came into my estimated value zone.


So, unlike nearly everyone else, my advice is, "Do not do what I do." I wouldn't.

 

I hope I've been helpful. Thank you for the kind words.


Here is a history of my emotional trajectory.

Each time one of my core holdings is bought out, we sell a property, or we somehow come into a bit of money, I find myself daunted by the job of putting that money to work. "How can I possibly manage to find a company that will do as well for us as the last one did?" "Where will I find another great company?"

Each time one of our holdings sets a new "even number" record value, I find myself trying to work through questions like, "should I trust that much of our nest egg to any company?", "should I break off a piece and put it in something else to spread risk?"


These are things I've had to work through. I have always pushed forward and, somehow, it has always worked out. Not everything I touch turns to gold. Some portion of our success has been luck.


Everyone has to work through their own issues. That is the foundation of investing.


Also, I'm sharing more now than I did a few years ago, when I first joined the site. I also happen to be doing better now than I did a few years ago. Let's not jump to the conclusion I can pull in 34% returns at will. This is an anomaly. When am I going to find the next Tesla? When am I going to find the next well run REIT? Who knows.


I did not post my returns for the purpose of alpha leadership. My message remains the same. Investors need to think for themselves. The more objective an investor is, the better his portfolio will perform.

So, my fellow Stockaholics, don't follow me and don't expect me to follow you. I will share a bit of my world and people can take it or leave it, just as I will onboard other people's perspective as I find value.


Happy new year, B Russ. Congratulations on your own portfolio. I'm aware you did very well in 2020 and I'm delighted for you.

 

I will probably be a bit lower profile, for a while. We have Internet but we're on vacation and my time is not focused on the markets, at the moment.

I won't be following every piece of evidence that Tesla has reduced the internal resistance of their cells by 0.05 ohms.

Don't worry. Tesla are working like animals on production, expansion, and product development. They are accelerating, in all three areas.

Meanwhile, CNBC is putting people like ex-Ford CEO on the air to explain to us that Tesla is a short term phenomenon.

Trust in Elon Musk. He has been right 95% of the time. Don't put any value into the words of people who have been wrong 100% of the time but have the pulpit and insist they are right.


... and I'll tell you this. I don't think the performance of my portfolio will be the least bit impacted by a 2 month hiatus from watching it closely. That is the sign of a long term investor.

We do have a few long term, limit, buy orders in place. I left them open until March. If a crash happens, we will be well taken care of.

A well thought out, long term, strategy is always better, on balance, than shooting from the hip.

 

Sold all Tesla at $807. Bought at $36.80 in 2016 and added a bunch at roughly the same price in 2019.

My investing is about to get so boring, I switch to read-only on this site.

In short: Did it. Won. Have a kick-ass retirement. Now I need to make money trickle out each month while keeping up with inflation.

I doubt anyone will be interested in that.