My Financial Journey

I’ve started become more aware of how good my investment performance has been of late, but one thing that kind of solidified it for me was not only comparing my performance against the SP500, but then also looking at my investment returns in actual dollar figures. I don’t know why but while I think its cool to have great investment returns and see my nestegg grow by so much each month, I really wasn’t all that blown away by what was happening. Then for some reason I decided to break down my investment returns in actual dollar amounts and for whatever reason kind of blew me away.

This was money that I got and didn’t have to work for (well technically). I mean its the whole point of investing and you are probably thinking “no kidding you idiot – that’s why you invest”, but sort of like a kid who can’t understand why if they take the money they got from their grandparents for their birthday and put in the bank the bank will give them more money for what appears to be no good reason – its almost magical. Well this is sort of how I view how much money I’ve made in the market for just taking some money, not spending it, and throwing it into the stock market.

Here are my $$ returns each year I have been investing.

2006 – $3,603.49
2007 – $2,576.67
2008 – $(35,108.72)
2009 – $22,455.55
2010 – $32,127.00
2011 YTD – $20,737.30

Total money made in stock market in career – $46,391.29

Total money made in last 28 months – $75,319.85

So as you can see of my current $193,285 nestegg 24% of that has come from investment returns or basically money that just fell out of the sky and into my account.

Now granted I sort of cherry picked the dates, but I have been on an absolute tear the last 2+ years have during that time have made over $75,000 in the stock market and in just the first four months of this year I have made over $20,000 or in other words over $5,000 a month.

This to me is what really opened my eyes and was like holy crap – thats a lot of money for really no work and while its not consistent at all and I could just as easily lose $75,000 in next eight months, I’m currently making enough money in my retirement accounts that in theory I could pay my mortgage, take care of my family of five, and still have quite a bit of money left over all for doing next to nothing. The best part about all of this is I am still very young and just getting started. Again I know this is not eye opening revelation for most people and I certainly am not counting on this kind of performance going forward, but it really was eye opening for me to see the power of compounding/great investment returns/ and passive income.

Going forward I think I am actually going to keep track of that value just like I do my total nestegg, because long term thats where the majority of my money is going to come from and like I said for whatever reason it was kind of an eye opener for me.

Below are the top 5 stocks that I owned for the entire year in 2010 and their performance during the entire calendar year

Netflix (NFLX) +218%
Chipotle Mexican Grill (CMG) + 141%
Under Armor (UA) + 101%
IPG Photonics Corporation (IPGP) + 89%
Whole Foods Market (WFMI) + 84%

Obviously Netflix had a tremendous year, but I had three stocks that at least doubled in 2010 and two others that were really close. I actually had another handful of stocks that were up 60-70% – like I’ve mentioned before the stock market returns were really remarkable this year and last year. Of the 5 stocks above I sold 25% of my shares in Netflix and the other 4 I have not sold and do not plan no selling anytime within the next 5+ years.

and now my worst 3 for 2010

Headwaters (HW) -29%
Mindray Medical (MR) -22%
Otter Tail Corporation (OTTR) -9%

I would have included 5 for my worst but those were the only three that I could find that were in the red for the year. Ironically Headwaters and Mindray were already my two smallest holdings going into the year. I only bought $100 worth of Mindray during the big downturn and am still up 65% on it. Headwaters was one of my first individual stock picks that I found on my own and am down 85% on it and just keep it around to remind me to do research on my stocks before investing in them 🙂

Otter Tail is a diversified holding company that does have a renewable energy unit and those stocks have been hit harder this year I am not worried about its long term prospects and the -9% doesn’t include the 5.24% it paid out in dividends this year.

What a fluky year I really expected to be able to find more stocks that were down for the year – must have missed one or two but couldn’t find any others on my list. I doubt I will ever have to many years like this again.

Back in March of this year I listed my top 15 investments for the first time. I figured this time around I might as well list my entire portfolio and what percentage of the portfolio each investment takes up. I figure this might be useful for me to look back on in the future and occasionally I will get a comment or an email asking what I am invested in (especially since I have been beating the market lately)

A couple comments about what’s happened since I put out my last list. #1 Netflix completely exploded. It became my first 10 bagger and despite the recent pullback and me selling $2400 worth of stock when it hit $200 a share it is still my largest individual stock investment despite me only putting $1000 into the stock.

The second thing would be that I sold some of my stocks and have 4.59% of my retirement nestegg in cash trying to time the market kind of. Because the market has been on such an incredible tare and because some of my stocks like Netflix have very lofty PEs and because I am not planning on putting a boatload of new money into the market until we figure out what we are doing with the house I thought it would be to sell small portions of some of the stocks that really ran up so I would have some money on the sidelines to take advantage of a stock market pullback should one occur. So far this has been a really bad decision and of the stocks I have sold only Netflix has pulled back – the rest have continued their journey upward. I am not too concerned about this as even in the case of Netflix I sold only 1/4th of my position and overall this cash on the sidelines is not hurting me too much. Whether or not I will be able to redeploy it at better values will be a learning lesson for me.

Anyway here is the list 57 total investments, 4 mutual funds, 52 stocks, and a cash position.

The investing great Peter Lynch in his book One up on Wallstreet tried to correlate investing success to baseball by referring to successful stocks as “baggers”

Here is the definition of a Ten Bagger from Wikipedia

Ten bagger is an investment term coined by Peter Lynch in his book One Up On Wall Street. This refers to an investment which is worth ten times its original purchase price, and was adapted from baseball where “bag” is a casual term for “base”, and extra-base hits like doubles, triples, and home runs are colloquially called two-, three-, or four-baggers.

So in other words everytime a stock appreciates in value 100% from its original purchase price it is considered a bag. So a home run (4 bagger) in this analogy is a stock that has gone up 300% and the infamous ten bagger that Peter Lynch was shooting for was a stock that appreciated 900% or more in value from the initial purchase price.

Now you might be thinking what the heck 300% sholdn’t that be only a triple? Well this is a common mistake that many people make when thinking about stock performance – remember a 100% increase means your stock doubled. So a 200% increase means your stock tripled and so on. A 1000% increase is actually an 11 bagger. Basically subtract one from my stock went up X times and you have the percentage.

Anyway the whole goal of investing to achieve that infamous ten bagger that Peter Lynch referred to is all about having the correct long term mindset when it comes to stocks. If you are an investor who is constantly churning your portfolio over and buying and selling as the stocks move up and down – you will likely never achieve a “ten bagger” Very few stocks appreciate 900% in a short period of time so this means that you would have to purchase your investment and hang onto it for a sufficiently long period of time and resist the urge to cash out or “lock in profits” after your stock had double, tripled, etc.

Well I recently realized I was getting pretty close to having my own ten bagger in Netflix so I decided to take a look at my portfolio and analyze how many “baggers” I had sitting in my portfolio. Here is the list

8 baggers
NFLX (764%)
6 baggers
NFLX (556%)
5 baggers
CSE (480%)
4 baggers
CMG (378, 306%) BH (305%)
3 baggers
DLB (212%) BH (207%)
2 baggers
DLB (190%,112%) BH (154%) BWLD(113%) DWSN (100%) IPGP (112%) QSII (141%,100%) SINA (115%)
1 baggers
DLB (78%) MIDD (75%) PCAR (77%) QSII (89%,75%,57%) UA (82%) ATVI 84% UNH (82%,70%) BWLD (52%) DWSN (60%) EBIX(62%,50%) GWR (60%) MORN (60%) MR (71%) SBUX (62%) VLCM (77%)

So a total of 74 bags if you add them all up. While its nice to be able to grab 14 bags with just 1 stock (somewhat luck) it is also nice to see that 20 other stocks that have become baggers for me.

EDIT: I am starting to question whether there is such a thing as a 1 bagger when it comes to this methodology

You’ll also notice that many of the same stocks have become baggers for me multiple times through multiple purchases. This is because I don’t invest all of my money in a stock at one point in time at one value point. I tend to invest in stocks over time and see if my original thesis is panning out. Sometimes I add more to a stock after it has already run up and in many cases I add to a stock after it has taken a big tumble. This is sort of the opposite of what many people do who throw all of their money in at one point in time and hedge their losses with a stop loss.

I never invest a 1/4th of what I would consider a full investment in a stock at once. This allows me to make my initial purchase right away without waiting for that magical price point. If its a great company and I think has good long term prospects I will buy it. Then I will study the company, follow it and learn more about it. I also greatly leverage the other people doing this same studying at the Motley Fool.

Prime example is Netflix – I originally bought Netflix on Dec 9th, 2005 for $25.94. I then held the stock for about 18 months and was down nearly 30% on the stock before I purchased again at $19.72 on Jun 22, 2007. My only regret is I didn’t stick with the stock on the way up and keep buying it – I always seem to find something else I thought was a better deal and never got back to purchasing the rest of my full position in Netflix – oh well I’m not going to complain too much 🙂

Spiffy Pops
Another interesting investor lingo thing almost happened to me yesterday – something called a Spiffy Pop. Spiffy Pop was coined by David Gardner of the Motley Fool as a stock that doubles in value from your initial purchase price in one trading day.

I bought Netflix for $19.72 on June 22, 2007 and on October 21st Netflix gained $19.54 in that one trading session.

So my stock gained 99.1% in one day from my initial purchase price – had it closed above that magical 100% that would have been considered a Spiffy Pop. It was up as high as $21.79 but ended up closing lower. Again a spiffy pop likely isn’t going to happen for an investor unless he is patient and lets his winners run.

What about you – do you have any ten baggers or spiffy pops?

I’ve never really discussed any of the investments that I have before, but on occasion I do get asked what I am invested in and thought this might be useful for me as a learning tool as I look back in time. This list is probably something I will only update once a year as it probably won’t change much.

Anyway these are my top 15 holdings in my various retirement accounts as of March 2010 and the percentage of my portfolio that is invested in them. Currently these top 15 holdings make up 75%+ of my portfolio – although I do have about 45 other smaller investments that make up the remaining 25%. As you can see the top 3 holdings are mutual funds that I hold in my 401k account – the rest with the exception of UMBIX are individual stocks. I in no way condone this type of investing and highly recommend that most people just stick their money in a low cost no-load index fund or lifestyle fund.

The IRS has announced that the contribution limits for 2008 will remain unchanged at $15,500, which sort of sucks. Apparrently the cost of living hasn’t increased for people who contribute to their 401ks 🙂 See details below.

Many of the pension plan limitations will change for 2008 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, for others, the limitation will remain unchanged. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $15,500. This limitation affects elective deferrals to Section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.

Source (thanks H B)