My Financial Journey

In annual tradition I will list all of my investments in my retirement nestegg. In general these do not change much from year to year and I can say as much about this year. Most of the changes are due to stocks that are up and down as I do not shuffle my stocks much and my new purchases these days aren’t enough to move the needle much.

The first four items in the list are my mutual funds from my 401k and the rest of the stocks are in my IRAs and my new taxable account. I feel really good about my investment choices long term and I expect to outperform the market going forward over the long run.

I figured this is something I should be doing now that I have enough history to take a look at my investment performance over the long term versus the market. Since I have made the decision to invest solely in stocks in my IRAs I need to take a look to see if that decision is paying off or worth the trouble. I do track this with each monthly report as well as each yearly recap – but I have never taken the time to look at my investment performance since the beginning of time.

Now granted this year is very much in my favor so don’t anoint me as the next Peter Lynch just yet, but I have to say I was very pleasantly surprised to see how well I am doing when you stack it all together.

Since I started tracking my values on this blog in 2005 my investment performance for all of my investment vehicles (401k, Roth & Traditional IRAs) has resulted in a total investment return of 74.01% over the last 8 years for an annualized return of 7.17%. Meanwhile the SP500 over that same period of time has returned 29.81% or 3.32% annualized return. So my performance has been over double that of the SP 500.

Now since the vast amount of my 401k is an Vanguard Index Lifestyle fund that is closely tracking the SP 500 you will wonder how I outperformed the market so well. Well about half of my retirement nestegg is in my and my wife’s Roth IRAs which are invested 100% in individual stocks trying to beat the market. Over the same 8 year period of time my individual stocks have returned 160.55% total investment return or just under 12.72% annualized returns or over quadruple the returns of the SP 500.

Well unlike other years there has been some change in my investment holdings not necessarily what I am invested in, but as I have grown more confident in my stock picking ability (scary thing) I have begun to weed out positions I have felt less confident in or only owned a small position in and have reduce the number of stocks I own from 40 stocks to 30 stocks and have become much more concentrated in the stocks I feel much more confident about.

Now I am still certainly a long-term buy and hold investor and of the 10 stocks I sold I owned just about every one of them 5+ years and well given my investment performance this year I think things are headed in the right direction.

I will admit to one completely boneheaded moron move. In my 401k you will notce I own VTINX which is the Vanguard Retirement Income Fund – which basically owns cash and bonds and safe investments. Going into 2013 I was feeling smart (scary thing) and you know the market has been on a crazy run since 2009, so I knew the top was coming so I moved $20,000 of my 401k money into this basically cash fund as a hedge that I could then move into an all stock index fund when the market inevitably had its pullback. Yeah the market had one of its best years ever returning nearly 30% and I had $20k sitting in cash as a young person investing for a retirement 20+ years down the road. I’ve said it before – you are an idiot if you think you can time the market and there is a 100% chance you will hurt your investment returns. Unfortunately I didn’t listen to myself. In the grand scheme of things it probably only cost me $2-3k, but I am a moron and learned another lesson.

Here are my top 10 stocks for 2012

IPG Photonics (IPGP) +96.78%
3D Systems (DDD) +90.40% (bought in April)
Lululemon Athletica (LULU) +63.37%
Stratasys (SSYS) +62.94% (bought in April)
Amazon (AMZN) +44.93%
Middleby (MIDD) +36.34%
Under Armour (UA) +35.18%
Brookfield Assett Management (BAM) +33.73%
Netflix (NFLX) +33.63%
Apple (AAPL) +31.40%

Well certainly an interesting list for 2012 and not a large trend like there are some years. Came pretty close to having IPGP become a 2 bagger for me in a year and my #2 and #4 best stocks this year I only purchased at the end of April. I guess its nice to see some validation from Amazon with a nearly 45% return in 2012 after I made this statement in last years analysis of my individual stocks

“If there was one stock that I felt the absolute best about going forward it would definitely be Amazon which is currently my 7th largest position. I just feel that they do so many things right, have so many long term trends going their way, have a visionary leader, and innovative company spirit, and an absolute focus on making their customers happy. I think they will one day dwarf competitors such as Walmart and Apple.”

And now for the biggest losers

MAKO Surgical (MAKO) -49.03%
Dawson Geophysical (DWSN) -33.27%
BJ’s Restaurants (BJRI) -27.41%
Ebix Inc (EBIX) -27.06%
Activision (ATVI) -13.8%
Chipotle (CMG) -11.93%
Qlikview (QLIK) -10.25%

What is interesting about this list is many of they stocks I view as still having great long term prospects and I have really doubled down on a couple of them. This also can explain some of my underperformance this year.

MAKO my biggest loser is actually not a huge holding for me and they are of the more speculative/risky kind of stock so seeing them down 50% doesn’t suprise or necessarily bother me – that being said it is not a stock I plan to invest more money into either.

BJ’s on the other hand I have invested in very heavily as it has continued to drop and its actually my 7th largest stock holding at year end despite the drop. This is a small restaurant stock that has a long growth story in front of it and I am happy to get the discounted price now and have the patience to let it play out.

Ebix is an interesting stock and another one of my largest holdings and has received a lot of scrutiny about their CEO and their financial statements by a bunch of short sellers who have been very successful at driving the stock down, but again long-term I think they are a well run company that is growing by leaps and bounds and throwing off lots of cash so I am not too worried here either and have bought on the the drops.

Activision I have actually trimmed back on – I think it is still a great company and is undervalued, but wanted to use the resources in some of the other stocks that looked very appealing later in the year.

Chiptole I love and think they will continue to expand their concept and just continue to be awesome. I recently added to this position as well.

Qlikview is a more speculative situation. I do own a large chunk of their stock and believe very strongly in their product. Their management hasn’t done a great job executing lately and I think they are prime for a buyout by one of the bigger players, but would have expected more out of them than I have seen in 2012.

Well not a whole lot of change since last year. I did do some reshuffling in my 401k moving most of my funds to a Vanguard target retirement fund. As far as my stocks I haven’t really made any major changes from last year. It was kind of a weak year for restaurants and I’m pretty heavy in that area so that explains some of my short-term under-performance. New guys to the list are a couple 3D printing companies DDD and SSYS. Other than that its the same old same old.

Anyway here is the list 47 total investments, 5 mutual funds, 39 stocks, and a cash position.

Below are the top 8 best performing stocks I owned for the entire year in 2011 and their performance.

MAKO Surgical Corp (MAKO) +65.64%
Chipotle Mexican Grill (CMG) +58.82%
Buffalo Wild Wings (BWLD) +53.96%
Starbucks (SBUX) +43.20%
United Health Group (UNH) +40.35%
Panera Bread Company (PNRA) +38.80%
Whole Foods Market (WFM) +37.54%
Green Mountain Coffee Roasters (GMCR) +36.49%

It definitely looks like restaurants, food, and medical care was in for 2011 looking at my best performing stocks. Also noticed that this performance is quite a bit different than last year where I had 3 stocks that were up at least 100%. Overall though I feel very good about having these good performers last year and it shows you that despite the market being relatively flat if you find the right companies you can make significant performance gains no matter what the market is doing. Looking at these stocks I really feel good about the whole group long term and while some like MAKO, GMCR, and CMG may have some pretty lofty valuations currently I think they are all good long term companies that are pretty well run. MAKO and GMCR are probably the riskiest of the bunch.

Netflix (NFLX) -60.56%
Dolby Digital (DLB) -54.26%
Exelixis Corporation (EXEL) -42.33%
Infinera Corp (INFN) -39.21%
Southern Copper Corporation (SCCO) -38.08%
PACCAR Inc (PCAR) -34.65%

And here is the flip side – top performer of 2010 Netflix was absolutely crushed in 2011 and did some serious damage to my investment performance in 2011. Another big dagger for me was the implosion of Dolby Digital that I had always felt was one of the titans in my portfolio and not a really risky stock, Netflix I knew had some room to fall, but Dolby caught me by surprise. The main reason for Dolby’s fall this last year was that it looks like Microsoft is going away from using Dolby technology in Windows 8 which is currently a good chunk of their licensing revenue.

Netflix on the other hand was forced to make some pretty strategic decisions this last year to compete in the streaming arena long term and in the process did about as poor of job as possible making this transition palatable for their customers. It’s almost like Reed Hastings was abducted or lost his mind or was shorting his own company and spent about 2 months doing everything possible to completely tick off an alienate his customer base which as we have found out is not good for business.

Long term though assuming Reed has not gone completely insane I still like Netflix’s chances though their recent actions have given me a much large pause for concern – Netflix’s magic was all about making their customers experience a seamless and enjoyable one and they have taken a number of actions recently that has gone completely against that – hopefully they learned their lesson. Netflix and Dolby were my two largest stock holding at the end of 2010 and still represent a large component of my portfolio.

It’s been a year since I last updated my investment holdings so I figured January every year would be a good time to do this. In general my investments will not change much from year to year as I pretty much only buy stocks and do not sell very often, but I do make changes occasionally or tidy up my holdings so this will be a good place to see what changes have happened in my portfolio in the last year and what my current portfolio allocation looks like based on new investments and individual positions market changes.

In the last year I have actually entirely sold off about 10 stocks. I did have many small positions buying small increments when I had free trades with Zecco and the market was falling so nicely in 2008-2009. When Zecco announced they were getting rid of free trades I decided to use all 10 of mine up and clear out some smaller speculative positions before I transferred my accounts away to TradeKing. I also had a few companies get bought out and have made a few decisions to cull positions I maybe no longer felt as strongly about, but in general it is extremely rare for me to sell a stock.

Looking at my current allocation I feel pretty good about it – in fact I feel like in the last year I have done a good job refining my portfolio to reflect my ever evolving investment philosophy and knowledge base and for the first time I really feel somewhat comfortable that I might know what I am doing (scary scary thought).

My four largest positions are the mutual funds I hold in my 401k, after that I feel very good about my 15 biggest stock investments that account for over a third of my retirement nestegg. If there was one stock that I felt the absolute best about going forward it would definitely be Amazon which is currently my 7th largest position. I just feel that they do so many things right, have so many long term trends going their way, have a visionary leader, and innovative company spirit, and an absolute focus on making their customers happy. I think they will one day dwarf competitors such as Walmart and Apple.

Anyway here is the list 47 total investments, 5 mutual funds, 42 stocks, and a cash position.