My Financial Journey

Continuing on my tradition from last year I have calculated my cumulative investment returns from 2006 until now against the SP500. I actually had to make some corrections to my calculation as I had missed the SP500 dividends in the annual return for some years so my outperformance was not quite as big as I had previously stated.

Overall my nestegg returns are still besting the SP500 though not quite as handedly as before. One item of note is my individual stock investments have crushed the SP500 over the years but my overall nestegg has just barely edged it out. This basically means I’ve underperformed the index with my 401k investments – which is kind of disappointing.

75% of my 401k today is in index/lifestyle funds, but in the past I’ve probably tried to be too smart and like most people cost myself returns versus just doing the smart/easy thing and sticking it all in an index fund. This is something for me to keep on an eye on.

On the other hand my stock performance has been so good it probably makes sense for me to just quit my job so I can cash out the quarter million dollars I have tied up in my 401k.

Continuing on my tradition from last year I have calculated my cumulative investment returns from 2006 until now against the SP500. The good news is that I am still pretty handily beating the SP500, especially when it comes to my individual stock investments, but the bad news is that I trailed the market by a few percentage points this year. Given my massive outperformance last year I can’t be too upset about trailing by a few points.

During the 9 years I have been tracking my investments closely enough to calculate returns the SP500 has produced annualized returns of 6.47%. During the same period of time all of the investments in my Retirement Nestegg have produced 7.36% annualized returns which is nice to be beating the market. But where I am really proud of is that my individual stock picks which now make up more than half of my portfolio have returned annualized returns of 12.17% which is nearly double what the SP500 has returned. If I am able to keep this up financial independence is not too far around the corner

Here are my top stock performers for 2014.

BJ’s Restaurant (BJRI) 61.92%
Ambarella (AMBA) 59.05%
Under Armour (UA) 57.93%
Tesla Motors (TSLA) 47.17%
Intuitive Surgical (ISRG) 39.20%
Apple Inc (AAPL) 37.96%
Bidu Inc (BIDU) 31.19%
Chipotle Mexican Grill (CMG) 28.96%

Looking at the list I will point out that BJRI had made my list the last two years as a loser and it’s nice to see my patience and long term timeframe pay off with it being my biggest winner this year. Ambrella is a newer stock for me having first purchased last October and is riding the wave of video.

Under Armour is a favorite of mine and long term they will likely surpass Nike. Telsa and Elon Musk are going to change the world as we know it much faster than expected. Intuitive Surgical and robots will continue to revolutionize the way we do surgery. Apple is a behemoth and is totally ingrained in the way we interact with technology. China is coming online with crazy numbers of users and Bidu is a major player there. Finally Chipotle is completely changing the way we eat fast food and in my opinion are just getting started. They will someday surpass McDonalds in size.

And now for the losers.

3D Systems (DDD) -63.79%
Stratasys (SSYS) -35.57%
Ubiquiti Networks (UBNT) -34.00%
Amazon (AMZN) -22.03%
InvenSense (INVN) – 9.86%
Netflix (NFLX) -7.04%
Solar City (SCTY) – 6.05%

After 2 straight years of being in my top 3, 3D Systems had a rough year. Still 3D printing is in its infancy and 3D Systems and Stratasys will take advantage of this fast growing industry over the long term.

Ubiquity Networks is a small networking company who is making commercial grade equipment and selling it at consumer level prices. It’s users rave about its products and their CEO is pretty smart. Again a long-term winnner.

Amazon – Jeff Bezos will take over the world – end of story. The stock market only concerns themselves with short-term results which he cares nothing about. Keep going Jeff!

The last three aren’t down much but I will mention that despite its massive runup – Netflix has a long ways to go. So while my initial purchase is up nearly 18 times – I expect that long term that initial investment could end up being a 50 bagger.

Solar City like Tesla is going to take advantage of a huge trend of cheap electricity and improved batteries. The world is changing as we speak and these two companies are leading the charge. Just like BlockBuster never saw Netflix coming until they were bankrupt I have a feeling many car companies and utility companies will be the Blockbusters in the next 5-10 years.

While this arbitrary annual exercise really can’t tell you much about my stocks, I like the exercise as I honestly am surprised sometimes by the companies that make the two lists and it gives me a chance to revisit my investment thesis for these companies and hopefully as I look back on past years evaluations I will have learned something about my biases. Obviously right now I am a Elon Musk fan boi, but I honestly feel very strongly about what he is doing and plan to put the bulk of my investment money this year into his companies.

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.