Another post that I am not sure what to make of the numbers. I’ve always had a smaller percentage of my retirement nestegg allocated to individual stocks. I know that individual stocks are loaded with a lot more risk and the track record for even the professional money managers is very very poor when it comes to individual stocks. Most of the highest paid investment fund managers cannot beat the market over time.

Despite this I have always enjoyed learning about companies and what the future holds and overall I think I was blessed with a pretty laid back demeanor that helped me from getting too high or too low with the various fluctuations in the market. Ultimately I think this is why so many investors fail – even the highly educated well paid ones. They let their emotions get the best of them and make decisions based on emotions instead of logic.

I have 15 years under my belt now and I see the same themes happen over and over and over again in the market. The market as a whole completely overreacts to ever new bit of news and individual investors swing widely from always seeming to throw money into far fetched get rich quick investments when it seems that there is no way the stock or market could be pushed any higher and then when things inevitably catch up with reality and stuff starts to slide the other direction they sell out completely until the next get rich quick bubble forms.

What I think is missing from a lot of investors is the long term perspective and an educated idea of where the future is headed. Like I mentioned above people get so caught up in the short term fluctuations and don’t take a look at the longer big term picture that is much easier to see and predict.

People also repeatedly think that things are going to stay the same and that is one thing that will never happen. So they always always greatly underestimate the new companies thinking the veteran industry leaders will crush them whenever they want. But the David and Goliath story plays out again and again when the little known upstart with a good idea and a lot of ambition ends up crushing the industry behemoth who is too slow to react or can’t react as they are afraid to disrupt themselves. Netflix vs Blockbuster, Tesla vs the auto industry, Amazon vs brick & motor retailers, etc.

All in all yes any of these stories could have turned out differently had the current #1 took the innovation seriously, but they don’t and they won’t again in the future. Just like it’s obvious you should pour money into the market every time there is a 30% correction – but people don’t. Ultimately it’s always fear that gets the best of people and companies. Fear of change, fear of disruption, fear of losing money, fear of losing out on making money.

Anyway as you can see below somehow the last 15 years I’ve managed to crush the market returns with my individual investments. Now the big caveat there and something I didn’t fully realize until this year is your long term track record is really only as good as your most recent returns. Big numbers have a huge effect on overall performance. Just last year my long term annualize performance was 13.92%, three years before that it was 10.72% which still outperformed the SP500 over that same period of time, but not nearly as impressive.

If next year is a down year my returns will drop significantly. Which means I shouldn’t get too big of a head after one year of spectacular performance. I feel very confident that I will never see another year like this year the rest of my life. So I should really evaluate going forward how much of my money should be individual stocks despite the fact that I currently look like I’m the next Peter Lynch.