Why I'm Moving Back To 90% PP / 10% VP
Posted: Fri Dec 14, 2012 11:03 pm
I was using 90% PP / 10% VP for a long period of time until recently. I decided a few months ago to take off a long period of time between consulting engagements for personal reasons and part of my "free time" led me to attempt to beat the PP.
Essentially, for the last two months I ran a portfolio that was 50% stocks, 15% gold, 25% LTT, 10% cash. Somewhat PP-like but definitely not PP. If anything, it was 50% PP/50% VP, except for the biggest change:
I sold all my stock index funds and built my own "index" of individual securities. The plan at the time was to avoid index funds and build my own because:
a) I felt I could beat the index which is forced to buy crap stocks like Facebook, Best Buy and Sears Holding, of which I want no part of
b) I felt I could sector-pick and tilt my index away from crappy sectors and towards "good" ones
c) Over a long period of time, I'd have lower fees than an index fund because if I reinvest dividends and don't trade much, it's approaching expense-free
Turns out I was correct on 2 of 3 (wrong on item "c"), at least over the last 6 weeks. I ran an "index" of 30 securities, and inclusive of the $7/trade brokerage fees, I beat the SP500 by 2% over the last 6 weeks with low beta. I won't bother calculating it exactly but I'd estimate a beta of 1.1
On any individual day, my group of stocks would move very close to the SP500 and beat it slightly. For example, SP500 up 0.5%, my "index" up 0.7%. I beat the index on 3 out of every 4 days on average and on days I lost, it was similarly very close.
Interestingly, the individual stocks appeared to have high betas. Over the 6 weeks, two stocks hit +20%, several hit + or -5%. Most hit +/- 1%. Overall, I did very well.
The reason I'm stopping is because it was driving me crazy. I have a no-stress attitude, and especially so while I'm winning/beating the market. However, I'd look at Google Finance (that was tracking my stocks), no less than 200 times each day. I'd make a few small trades every week to "balance" things out and tweak them further.
I had a list of 50 other stocks I liked but initially felt were too highly priced when I built my index, so I was watching for dips.
I'm very happy to have beaten the market over 6 weeks and feel that I can likely continue to do so going forward, although not as successfully as this. Annualized, I beat the market by almost 18%... but of course I can't guarantee the same performance over a full year as I did over the last 6 weeks.
It's also noteworthy that I took a full week, working about 40 hours of research to select my initial 30 stocks... and I'm embarrassed by the fact that I missed several things in my research that only became apparent after a week in.
Basically, I'm cashing out my chips, going back to 90% PP with 10% VP and going to stop obsessing over things.
I don't think I can ever go full PP because there's always opportunities that I "see" in the market, and given my successful track record over the last 10 years, I can't completely ignore them. My true VP is up 30% over the last year (not counting the "index" I made) and typically runs about 15% to 20% per year.
However, it's with great risk and lack of guarantee, and also with a moderate amount of stress. As of today, I sold almost all 30 of my index stocks and switched back to TSM. I have a feeling things are going to be crazy in 2013 and I'll be less stressed to be in pure PP than to screw around.
Essentially, for the last two months I ran a portfolio that was 50% stocks, 15% gold, 25% LTT, 10% cash. Somewhat PP-like but definitely not PP. If anything, it was 50% PP/50% VP, except for the biggest change:
I sold all my stock index funds and built my own "index" of individual securities. The plan at the time was to avoid index funds and build my own because:
a) I felt I could beat the index which is forced to buy crap stocks like Facebook, Best Buy and Sears Holding, of which I want no part of
b) I felt I could sector-pick and tilt my index away from crappy sectors and towards "good" ones
c) Over a long period of time, I'd have lower fees than an index fund because if I reinvest dividends and don't trade much, it's approaching expense-free
Turns out I was correct on 2 of 3 (wrong on item "c"), at least over the last 6 weeks. I ran an "index" of 30 securities, and inclusive of the $7/trade brokerage fees, I beat the SP500 by 2% over the last 6 weeks with low beta. I won't bother calculating it exactly but I'd estimate a beta of 1.1
On any individual day, my group of stocks would move very close to the SP500 and beat it slightly. For example, SP500 up 0.5%, my "index" up 0.7%. I beat the index on 3 out of every 4 days on average and on days I lost, it was similarly very close.
Interestingly, the individual stocks appeared to have high betas. Over the 6 weeks, two stocks hit +20%, several hit + or -5%. Most hit +/- 1%. Overall, I did very well.
The reason I'm stopping is because it was driving me crazy. I have a no-stress attitude, and especially so while I'm winning/beating the market. However, I'd look at Google Finance (that was tracking my stocks), no less than 200 times each day. I'd make a few small trades every week to "balance" things out and tweak them further.
I had a list of 50 other stocks I liked but initially felt were too highly priced when I built my index, so I was watching for dips.
I'm very happy to have beaten the market over 6 weeks and feel that I can likely continue to do so going forward, although not as successfully as this. Annualized, I beat the market by almost 18%... but of course I can't guarantee the same performance over a full year as I did over the last 6 weeks.
It's also noteworthy that I took a full week, working about 40 hours of research to select my initial 30 stocks... and I'm embarrassed by the fact that I missed several things in my research that only became apparent after a week in.
Basically, I'm cashing out my chips, going back to 90% PP with 10% VP and going to stop obsessing over things.
I don't think I can ever go full PP because there's always opportunities that I "see" in the market, and given my successful track record over the last 10 years, I can't completely ignore them. My true VP is up 30% over the last year (not counting the "index" I made) and typically runs about 15% to 20% per year.
However, it's with great risk and lack of guarantee, and also with a moderate amount of stress. As of today, I sold almost all 30 of my index stocks and switched back to TSM. I have a feeling things are going to be crazy in 2013 and I'll be less stressed to be in pure PP than to screw around.