My Financial Journey

Well a bit of a bounce back this year after last years pullback that halved our nestegg. We greatly exceeded the performance on the SP500 this year which is the 11th time in 17 years and the 6th time in the last 7 years we’ve accomplished that. Overall any individual years performance is nothing to get too excited about, but we now have a 17 year track record to look back on. Long term performance is greatly skewed by recent performance, but we have now exceeded the total return of the SP500 by 375% over 17 years and this is entirely driven by the outperformance of our individual stock portfolio that has now exceeded the SP500 by over 1400%!!

We still however are not at all-time highs as our nestegg lost 45% of its value last year and while 50% plus returns are amazing – we needed closer to 100% returns to get back to what we gave back last year. This is why looking at anything in a short time window of a few years really isn’t really going to tell you much.

Also despite our insane outperformance by picking individual stocks we continue to contribute 100% of our money to index funds and high yield stable securities and have done so now for close to 10 years. I feel like we have gotten very lucky with our individual stock investments and I’m not convinced I’m the second coming of Warren Buffett so we continue to follow the original plan of having the vast majority of our investments be in index funds which is what I would recommend to anyone.

We do however currently have 60% of our money in individual stocks and this simply due to the fact that our stock portfolio has now averaged 17.75% annualized returns over 17 years which has turned a relatively small amount of investment into an insane amount of value. We will continue to let these investments do the bulk of the heavy lifting and over time I do see more and more of this money being converted over to index funds, but for now I still feel very confident about our long term investments and will let them run for the foreseeable future.

I also realize at this point the only meaningful thing I can do to our portfolio is to screw it up by thinking I’m smart and taking risks that if they pan out wouldn’t meaningfully change our lives anyway. With this being said if all of our individual stocks went to $0 we would still be doing pretty ok. Also almost all of our individual stocks are actually now pretty big household name companies with many sources of revenue and global reach so I feel like as time goes on our individual stocks are becoming more and more stable (if you totally ignore last years 68% drop for our stock portfolio 😛 )

In annual tradition I will list my best and worst individual stock performers for 2023.

My Best Performers
Bitcoin +154.96%
Crowdstrike +147.21%
Tesla +129.86%
Shopify +118.33%
Cloudflare +93.54%
Ethereum +92.82%
Amazon +77.04%
DataDog +68.37%
Chipotle +66.79%
Netflix +65.07%
Monday +57.26%
Apple +53.94%

Obviously a very good year overall for the entire market and a great year for some of my larger positions. I do have a few newish positions (only 3 years old) that had some strong performance with the cloud stocks (crowdstrike,datadog,cloudflare, monday) and the crypto that were high fliers this year, but what is even more telling for me is the massive performance by stocks I have literally held for over a decade in Tesla, Shopify, Amazon, Chipotle, Netflix, and Apple all coming in with 50% to 130% returns. Many of these are huge companies who have been growing rapidly forever and have made me loads of money already and here they are still in some cases almost 20 years after I bought them still propelling me rapidly to new nearly new highs.

This year will be the 20th anniversary of my first Netflix purchase and I’ve owned most of this bunch since the 2000s decade and some of them have gone up more than 100x in value from my original purchase. The only thing I had to do was do nothing. This is harder than it sounds as clearly we have to be staying up to date and listening to pundits and doing all kind of hard research in order to pick the best stocks and clearly the smart thing is to take profits off the table when a stock has had a huge run and companies can’t grow forever and it’s best to take money from those companies and invest in the next batch of up and comers and yeah……doing nothing is the hard part or at least it is initially.

I feel confident in the companies I’ve invested in and the leaders who run them. Picking out the best companies in the world is honestly not all that difficult. Great leaders running companies who only focus on making great products. You know those products when you use them. The first time you touched an iPhone, drove a Tesla, signed up for Netflix, ordered your first Amazon package, you knew deep down this was something at a completely different level that was going to change the world. Buy those companies and hold onto them forever – it will change your life.

My Worst Performers
Starbucks -4.78%

Starbucks is the only company who lost me money this year. Ironically after my sermon above I have never had a Starbucks coffee and don’t drink coffee so hard to get a strong conviction on this one other than I’m probably the only weirdo who doesn’t drink coffee and frequent Starbucks. I’ve also owned Starbucks since 2007 and it’s been a great performer for me over that time span.

As I mentioned in last years review, I really came to realize that all-time investment performance is heavily dictated by the most recent years performance. It’s just the nature of compounding. A really good or really bad year now will greatly influence my all-time performance, just because I am now dealing with much larger numbers. A 50% swing one way or another when your portfolio is worth $1M vs $10,000 moves the needle a ton and dwarfs all of the moves that were made in all of the years leading up to it. So bottom line one shouldn’t get too confidence or discouraged looking at long term annualized result as its greatly influenced by recent returns, which is kind of goofy.

So in that vein my all-time annualized stock return fell from 22.65% to 15.33% – which honestly is still quite spectacular and honestly higher than I had expected. The calculated risks that I talked about last year have at least in this short period of time looked like dumb decisions – keeping nearly half of my nestegg in a stock that is down 69% in the last year. Trust me I would love to have the few extra million that I had on paper last year, but this is a marathon and not a sprint and I still feel like long term I will outperform the market with these calculated risks.

I do however and have always acknowledged that I think I am probably more lucky than skilled and going through another one of these downturns will probably make me re-evaluate my investment allocations going forward. Not so much because I think that the approach is wrong from a profit maximizing standpoint, but from a risk/reward standpoint taking added risks and them paying off does not meaningfully affect my life where as if it turns out I am indeed just a lucky moron and I am completely wrong on most things going forward it can affect my life.

In annual tradition I will list my best and worst individual stock performers for 2022.

My best performers
Starbucks -14.98%
Chipotle -17.93%
Vanguard Institutional Index Fund -21.25%
Vanguard PrimeCap Fund -23.59%
Brookfield Infrastructure Partners -23.91%

Well obviously it was a rough year if I have to celebrate the investment holdings that didn’t lose more than a quarter of their value in the year. I really only had 3 investments hold up better than the market and overall it was a brutal year, but not to be unexpected

My worst performers
Upstart -90.86%
Fubo -89.26%
Shopify -74.54%
Tesla -69.20%

Now this list is equally brutal and to make matters worse Shopify and Tesla are on the list and going into this year just those two stocks accounted for 47% of my nestegg. Definitely hurts, but it is the price of admission. Also while it makes sense for me to do this in annual tradition, I do not buy investments with a holding period of 12 months. So while it might be terrifying to some to see every investment you own lose money and your largest investment drop by 69%, I tend to take a longer term view and am not changing anything because of this 12 month period the results were horrible. I held Tesla through many down years and again if we take a step back and zoom out just a tad bit things look pretty darn good.

Even if I only zoom out to 3 years Tesla has returned 329.50% during that time and if we go back 10 years we are looking at 5209.48%. Despite everything you see in the news and from the financial media, investing is a marathon and not a sprint and the ability to ignore the noise is what separates people who make money and who don’t. I look like the worst investor in the world if you only look at 2022, but I think if you come back and see how I’m doing in 2032, 2022 won’t even be a blip on the radar.

In annual tradition I list all of my investment holdings. I do not do much buying or selling, but the percentages have changed quite a bit in the last year due to market fluctuations. Last year TSLA accounted for almost 40% of my nestegg and now it only accounts for 24% and earlier this year it was over 50%!! As a result I have become much more diversified and well poorer 🙂

The other big change I would say in the last year is the amount of cash I have on hand. Now this is not primarily cash from selling – though I did take advantage of some tax loss harvesting at the end of the year, the vast majority of this money is money from a side business I started, some inheritance, and some crypto cash that I have as a start to my cash cushion. It’s very hard not to invest it given that many of my stocks are down 70%, but it is money that can be used for short term security or other short term needs. Historically this is money I would have never counted in my nestegg, but I think at this point in my life is something that I should track as it is something I would potentially leverage should I decide to stop working.

The other item I have not included in this list is in the last year I did invest $90,000 into a commercial real estate purchase with some other investors purely with the intention to learn. Now I hope I make money on the deal, but real estate is so hard to value that I will consider this money a 100% loss until some day when it sells. With leverage I personally view RE as a huge liability as if shit hits the fan you can lose like 5x your original investment where as the worst stock can only lose you 100%, but again I know there are tons of tax advantages and other benefits to real estate and while I’ve flirted it with it my entire career, I’ve always shied away because of the effort involved and the difficulty accessing the equity. I am not sure if this investment is going to change those opinions, but I was in a position in my life where I decided to give it a try.

Well this is another goal of mine which sounds counterintuitive, but in my October 2018 Retirement Nestegg Report I was commenting about how losing $100k in a month was a non event for me and then made this statement

My goal some day is to lose $1 million dollars in portfolio value.

Well today after a few weeks of carnage it occurred to me that I may have lost about $1 million dollars on paper and sure enough my portfolio set an all-time high on Nov 4th of 2021 and now today just 79 days later my portfolio has fallen more than $1 million dollars below that ATH. Mission Accomplished!!

A couple of thoughts on this.

I originally made that statement because in order to lose a million dollars you have to have a fairly large sum of money – hopefully quite a bit more than $1 million, but at least $1 million. So if someday I lost $1 million dollars that probably meant that I was doing pretty good and was in pretty good shape and the $1 million dollars was not going to be as devastating as it sounds. Percentages of big numbers are big numbers. They can work for you and against you and while I lost $1M in 79 days I gained more than $1M 64 days to hit that all-time high.

I also lost $1M and to be honest it really has added zero stress to my life. Like I mentioned I lost $1M and am back to the same portfolio I had in September. Easy come, easy go. Volatility and fluctuations in the market are normal and the price you pay for the performance. I never in my wildest dreams expected to be hitting the numbers that I have hit the last few years and so taking things down a few notches really doesn’t make me feel like I’m somehow behind schedule, in fact I’m still currently wildly ahead of schedule and have a sum of money that has me in great shape for the rest of my life.

Nothing has changed. I still own all of the same businesses I did 79 days ago and their business prospects have not materially changed. All of the factors outside of their control and my control have changed. Investor sentiment is a very fickle thing that swings wildly out of control in either direction, but at the end of the day it affects absolutely nothing other than the short term prices. Case in point for much of Tesla’s existence and them building up their company to one of the best business models in the world, investor sentiment was very much against their company and their CEO. None of that however affected what the underlying company was doing and the profits that they would be making in the future. Same with my portfolio. I feel very good about the prospects of my individual companies I own and the health of the largest companies that drive my index fund performance and over a 5 or 10 year period I will not even be able to pick out this spot on the chart of where I lost $1M. Just like the great recession does not show up on a long term chart of my nestegg growth.

Also while I am starting to tap into some of my nestegg for early retirement, do not need the vast majority of these funds for many years so the fact that my portfolio is up or down and hit a certain number today doesn’t mean anything to my future prospects unless I let it dictate my emotions and do something stupid and change my course. Just like no single day, month, or year made one iota of difference of where my portfolio is today. This is a long term game and while it’s nice to check in on progress from time to time you need to stay focused on the big picture and just keep doing the same small daily habits that have huge effects on your long term future.

I feel like I’ve made some crazy predictions on this blog and every single one of them have come true much faster than I ever could have imagined. I probably should make some grand prediction about how I can’t wait to have $10M or $100M dollars some day, but to be honest that would not change my life in any meaningful way. It’s funny how important financial metrics/numbers were to me or how important I thought they were, but as I’ve now hit that area of Financial Independence I realize that things like your time and doing things you enjoy with people you love is the only thing that matters. The numbers and metrics give you that freedom and once you have that freedom the additional dollars do not affect your life in any meaningful way. The sooner you can get to that number the greater the compounding affect it has on your life, but once you are there money becomes such a minor part of the equation.

If you are still on your journey to FI, use these short term dips as opportunities. I have no idea when the market will bottom out and neither does anyone else, I very well could be writing about losing $2M, but in the meantime I will continue to enjoy the things in life that matter.