I consider access to a wide variety of information to be one of the most important factors for investing success and I’m always on the lookout for great sources of investing information. I’ve mentioned in the past how useful resources like Twitter, The Motley Fool, and Seeking Alpha have been for me in terms of generating investment ideas and helping me to do research. I’m happy to announce that I have found another one: Stock Card
What is Stock Card? Put simply, it’s a site that combines clean visuals with easy to understand stock research. For example, check out this Stock Card widget for my largest position and biggest winner: Shopify (SHOP):
And that’s just the widget. If you go to their page on Shopify, then there is a lot more information available there as well. They also have screeners, filters, and alerts to help investors stay up to date with their positions. It’s a really neat resource that I look forward to using more and incorporating into the blog.
In addition to all of that, Stock Card also has multiple portfolios and stock picks from successful investors where they track the performance against the S&P 500.
Sound familiar?
Hopefully it does, because I am excited to announce a collaboration between Paul vs the Market and Stock Card where the Freedom Portfolio will be included on their site. Want to check it out? You can see it here.
Full access to the portfolios on the site is restricted to VIP subscribers. If you want to check it out, they offer a 14 day free trial. If you like what you see and want to continue past the 14 day free trial, then you can get 10% off your subscription by using promo code “paul”.
Going forward, I’ll be updating the Freedom Portfolio on the Stock Card site in addition to providing my normal transactional posts and quarterly updates here. In the meantime, if you are looking for a good investing resource tool or for new stock ideas, I encourage you to check Stock Card out.
President’s Day was this past Monday and so this seemed like as good a time as any to make a brief list of some of the CEOs of companies in the Freedom Portfolio that I most admire. Why? I’ve long thought that we as a society spend too much time and energy admiring (or possibly hating) the President and oftentimes give them far too much credit for things like the economy and the stock market and even larger things like our standard of living. On the flip side, I think we don’t spend nearly enough time appreciating the entrepreneurs and business leaders who take risks and are constantly driving innovation forward.
Who has done more to improve the life of the average American? President Obama? Or Steve Jobs, without whom you might not have a tiny portable device that serves as a camera, GPS, handheld gaming system, phone, and also provides access to the entirety of humanity’s knowledge at your fingertips? President Bush? Or Jeff Bezos, who helped drive down prices, changed 2 day (and now 1 day) shipping from a luxury to something expected, and turned voice assistants from something out of Star Trek into reality? Who will do more to save the planet? President Trump? Or Elon Musk?
An argument can be made for both sides, but I personally skew a little more towards the CEOs. With that being said, here are five CEOs from companies in the Freedom Portfolio that stand out to me (alphabetical by last name):
The Five
Jeff Bezos: Founder and CEO of Amazon (AMZN) – Notwithstanding some questionable moves in his personal life, it’s hard to find a more impressive entrepreneur and innovator alive today than Jeff Bezos. He turned a tiny online seller of books into a $1 trillion company that now sells almost anything (and allows others to sell almost anything) and can deliver it all in just a few days. Oh, and they’re also the leader in cloud computing and the third largest online digital ad platform in the US. I love his “Day 1” philosophy and how he seems to be determined to never stop trying new things no matter how large Amazon gets. Truly an incredible leader.
Reed Hastings: Founder and CEO of Netflix (NFLX) – It takes a lot of guts and foresight to start a business as crazy sounding as sending DVDs through the mail and allowing people to keep them as long as they want (or on the flip side, churn through as many as they want). If that is where the story stopped, it would be impressive enough, but not only did Reed Hastings start a company which has revolutionized how we consume media, but he has also reinvented it multiple times in the process.
The first reinvention was having the guts to pivot the DVD-by-mail business into online streaming before it was obvious that it was the future. The second was having the foresight to start investing in original content so that the company wasn’t so reliant on content producers. The third is having the grand vision to not just be content with the US market, but to try to become the leader internationally as well.
Bonus points for being humble enough to be able to admit when you were wrong and to reverse course (*cough*qwikster*cough*).
Bob Iger: CEO of Disney (DIS) – I wish I had a clever pun to make involving Iger and King Midas, but it really feels like everything he touches turns to gold. Just look at the acquisitions made under his watch:
Pixar
Marvel
LucasFilm
21st Century Fox
That’s an incredible amount of content that has achieved huge box office success, critical acclaim, or oftentimes both. While the jury is still out on the last one, I’m very excited about the future potential of Hotstar and there’s little doubt that acquisition helped strengthen the appeal of Disney+ and Hulu. And that brings us to what might best define Iger’s legacy at Disney: the bold entry into streaming with Disney+, Hulu, and ESPN+. Like I mentioned with Reed Hastings previously: it takes a lot of guts to move into streaming. While the creation of Disney+ didn’t require as much foresight since the path had already been charted with Netflix, it probably did take even more guts to disrupt an even more established company and move away from what had been a pretty lucrative arrangement. I think it’s clearly the right move, although only time will tell.
Glenn Kelman: CEO of Redfin (RDFN) – Earnings calls can sometimes be dull affairs, so it’s refreshing to hear a CEO drop phrases such as “It’s on like Donkey Kong”. Those are the kinds of small gems you often get from the self-described “goofy” CEO of Redfin. From the few interviews I’ve read, he also seems like a genuinely humble, honest, and down-to-earth guy. In a world where many CEOs are often described as abrasive or hard to work with or even jerks, that’s a nice change of pace.
But all that would be unimportant if he couldn’t also walk the walk. Luckily, I’ve also been impressed by how visionary and focused on the customer Glenn Kelman has been as CEO of Redfin. They’ve gone from simply a low fee brokerage paired with a well designed website to attempting to fundamentally disrupt the real estate market with things like Redfin Now, Redfin Direct, Redfin Mortgage, Redfin Concierge Service, and much more. There are so many different ways for Redfin to win and grow moving forward and I’m excited to see how it all plays out.
Tobias “Tobi” Lütke: Founder and CEO of Shopify (SHOP) – Obviously, the fact that his company has grown 10 fold while I have been a shareholder endears me to Tobi Lütke more than a little bit. I love his vision as CEO of Shopify of “arming the rebels” against the Empire that is Amazon (despite also being an Amazon shareholder) and also love the bold initiative of creating a fulfillment center network to compete with Amazon.
The admiration goes beyond that, though. Lütke is accessible in a way that many other CEOs of his stature aren’t. He is active on Twitter and has on more than on occasion even live-streamed himself playing Starcraft on Twitch. He even offered an internship to a professional Starcraft player based on their gaming achievements alone. As somebody who still plays Starcraft despite its waning popularity, I can’t help but love that. But even beyond that, he seems to have a pretty healthy idea of work/life balance and that 80 hour work weeks aren’t necessary for success. In a world where it seems like we sometimes over-deify those who put in long hours, it’s nice to see an example of the other side.
Honorable Mention
Elon Musk: CEO of Tesla (TSLA) – Musk is obviously an incredible entrepreneur and innovator and as Tesla shareholder I am extreme grateful for what he has managed to do. However, even I have to admit that his behavior sometimes leaves a lot to desire and flirts with the lines of legality and ethics. That’s why I couldn’t quite put him on this list.
Jack Dorsey: Found and CEO of Square (SQ) and Twitter (TWTR) – Look at that title. Not only did Dorsey help start two incredibly successful companies in Twitter and Square, but he’s currently serving as CEO of both. That’s very impressive. So why didn’t he make the list? For starters, he has a bunch of odd behaviors that I have trouble relating to, like only eating one meal a day (or fasting entirely on weekends) and taking ice baths. Some have even taken to calling them disorders. But the larger issue is that I still have a little doubt regarding his abilities as CEO. Twitter still lags badly behind Facebook in most metrics despite being a highly relevant platform and Square has seemingly floundered a bit since high regarded CFO Sarah Friar left. Maybe both companies would be better off without a part-time CEO?
In fact, I’ll bet they’re a bigger deal than you realize.
It’s always tricky comparing the size of different industries, but at this point it feels pretty safe saying that the video game industry is bigger than the movie and music industries combined, and the gap is projected to only increase in the coming years. Major esports events already draw more viewers than the Super Bowl. Read Dead Redemption 2 had a bigger opening weekend of sales than Avengers: Infinity War (although that record was later smashed by Avengers: Endgame). Netflix (NFLX) considers Fortnite to be a bigger competitor than HBO and Activision Blizzard (ATVI) spent more money to acquire the maker of Candy Crush than Disney (DIS) spent to acquire the Star Wars franchise.
So yeah, video games are kinda a big deal.
I’ve loved video games for as long as I can remember. I had an Atari 2600 as a kid, and then later an NES which got an incredible amount of use. In college, the most popular pastime when hanging out with friends was playing the Nintendo 64 and since then it’s been the Xbox 360 and Xbox One. It’s not been just consoles, either. I got hooked on computer games like Warcraft 2, Alpha Centauri, X-Com, Knights of the Old Republic, and many more.
While I don’t play video games nearly as much as an adult now that I have a job and a family, I do still count it as one of my favorite hobbies. I have very fond memories of saving Clementine, surviving a suicide mission, and saving Earth from an alien invasion. I’m thrilled to see video games grow in acceptance and no longer be considered a niche activity that are only done by geeks (something that I proudly consider myself).
However, while the industry would appear to be healthy when looking at things like revenue growth and the increasing popularity of esports, there are some dark clouds hovering over it that has had me concerned about the future of the industry and if it can survive.
Many articles have been written about how incredibly difficult it can be working in the video games industry and how commonplace burnout can be. The increased cost of developing games has led to a push to find new ways to monetize them, such as through lootboxes, downloadable content, micro-transactions, and others. It has gotten to the point where some decry that it feels like incomplete games are being sold, with new maps and functionality added later (for an additional cost).
Additionally, those higher production costs make creating non-sequel / original / new IP games an even riskier proposition than before. And if the game doesn’t easily lend itself to becoming a franchise (like Call of Duty or Madden), then it puts additional pressure on that single game to perform. Bioshock Infinite was an amazing game that I wish there were more of, but it didn’t seem to sell enough copies to offset the high production costs. So despite getting critical acclaim and being by all accounts a hit, the developer had to shut down. Yes, there was some well received DLC, but despite the name, the game didn’t lend itself to new versions coming out every year.
Those same high production costs lead to another problem: Loads of filler content will be added to games so that publishers can claim hundreds of hours of playtime in order to justify the price of the game.
Filler content has become a bigger issue for me in recent years, although it’s hard to tell if that’s just because I’m more sensitive to it due to valuing my free time more, or if it’s because changes in the gaming industry have made it a bigger issue. Either way, I’m not the only one to notice. I don’t agree with everything from this Kotaku article, but I do agree with the idea behind the headline of wishing that more games respected my time, especially these days now that I have so little of it. I prefer concentrated content versus dilution. I love the Dragon Age and Mass Effect games, but it feels like each subsequent iteration gets filled with more and more meaningless fetch quests. In many ways, I respect and enjoy games like Firewatch that have a specific story to tell and wastes no time telling it.
So there are some dark clouds over this otherwise very promising industry. What’s the solution? Could the industry be ripe for disruption?
It certainly seems like it.
Google Stadia launched just this week, largely to negativereviews. For those who don’t know, Stadia is Google’s (GOOG) cloud gaming service which effectively does away with expensive gaming consoles in favor of doing the processing in the cloud and streaming the resulting video back to you. While the technology behind it is neat, and I’m amazed how far internet speeds have come in my lifetime, it also struck me as a solution in search of a problem. Full priced games and monthly subscription cost didn’t seem to offer much savings over buying a console, and performance is generally worse. In fact, given how eagerly Google has been shutting down various services lately, there is also a very real risk of buying a game and not being able to play it if/when they shut the service down. In fact, if I was a betting man, I would take the under on the service still existing 3 years from now.
But that’s just one of many disruptive efforts underway.
Not too long ago, Apple (AAPL) launched their new Apple Arcade service. Google has its own gaming subscription, as does Microsoft (MSFT) with their game pass. Even publishers like EA (EA) are getting into the subscription game with EA Access. In the case of the latter two, those efforts are trying to capitalize on the shift from purchasing physical media from a third party to buying (or renting) digital copies straight from the source. One only has to look at the five year chart of Gamestop (GME), which has lost nearly 90% of its value during that time, to see how powerful that trend has been. But the shift from physical copies to digital copies is part of an even larger shift away from the idea of owning games and instead subscribing to a gaming service.
In other words: the Netflix model.
Netflix helped to accelerate the shift away from movies being something physical that you bought and owned (a DVD or Blu-ray disc) to something more ethereal that people pay a fee to access and once they stop they no longer can watch it. Video games are already part of the way there. Xbox Live Games with Gold kick-started the idea that you pay a monthly fee for a service which will give you access to certain games for free each month. Now, Game Pass seems like the final culmination in Microsoft’s attempt to move to a Netflix model.
So what changes? I honestly think the shift to a subscription model could be good for the industry and for gamers. Businesses often prefer subscription revenue because it turns something that is “lumpy” (ie, the business gets a ton of money when it releases a new game, or movie, or piece of software but makes little to no money between releases) into something that is more consistent and reliable.
For a game developer, getting revenue based on subscriptions instead of big releases might help smooth out a few issues. Maybe it makes it easier for more developers to have the patience of Blizzard and release their games “when it’s done” instead of rushing an unfinished product out the door. Or maybe there’s less of a need to keep going back to “crunch time” to get that new release out to keep the lights on. Perhaps there is less pressure to artificially create a type of subscription revenue by having loot boxes or other in-game purchases. In fact, maybe the subscription services themselves at some point ban (or heavily discourage) in-game purchases outright in an attempt to garner goodwill from the gaming community.
Perhaps more importantly, I wonder if this could help encourage companies to take a chance on games that have passionate, but smaller, target audiences instead of always going for as broad a market as possible. Right now, in order for a game to be a financial success it has to appeal to a broad enough group of people to sell enough copies. But what if there was a way to measure the depth of people’s interest in addition to the breadth?
Imagine a game that appeals to a small, but very passionate fan-base. Perhaps if the game was sold through traditional channels, it would sell 1 million copies, which isn’t quite enough to recoup costs and turn a profit. However, imagine those fans are so passionate that they would sign up for a subscription service just to play that game. It’s not unreasonable at all to think that a company like Microsoft might pay the developer more than a million copies would’ve netted them in order to have exclusive rights to that game and acquire those million subscribers. We’ve seen something similar happen with Netflix where they have revitalized things like comedy specials and brought back cult hits (but not ratings darlings) like Arrested Development. Not every Netflix show has to appeal to everybody, as long as for each subscriber they have a handful of shows that really appeal to them.
Done right, this new era of subscription video game services has the chance to really unleash a bunch of niche games catered to more specific audiences with creative new game-play and original IP. Or, it could all go wrong and lead us to a new hellish gaming dystopia. The truth will no doubt be somewhere in between, but I choose to believe it will lean more towards the former. Time will tell.
Okay, so it’s a children’s book, but still… I wrote a book!
It’s called Penny Invests, and it’s a picture book aimed at children to try to teach a little bit about the basics of investing in a humorous and lighthearted way. Anybody who knows me knows that I have long been concerned about the low levels of financial education in America. It’s something that everybody needs to know, yet it so rarely is taught in schools. Bad money habits can be passed down from generation to generation.
I’ve been using my own kids as guinea pigs to try to drop little nuggets of financial education into the bedtime stories that I’ve been telling them, so you can rest assured that this has been focus grouped extensively.
My hope is that this book can spark an interest in kids to save and invest and to delay gratification for the greater long term gain. And maybe some adults can learn a thing or two as well. I know it’s cliche, but if my book can convince just one child to start saving and investing at an early age, then it will have all been worth it thanks to the wonders of compound interest.
Below are links to Amazon, where digital and physical copies of the book are available to purchase. Note, that all of the links in this post, including the links below, are affiliate links. If you purchase anything through the links then I will get a modest fee in return. Considering I get paid a royalty for each copy of the book sold, though, I’m not sure how much of a concern that would be for anybody.
I hope you’ll give the book a try, especially if you have young kids (and if you don’t, I assume it would make a great gift!). I would also love to hear any and all feedback and would greatly appreciate if you could leave a review on Amazon or here on this site (or both!).
Bitcoin, and cryptocurrencies in general, were all the rage in 2017. Bitcoin went from around $1k to a peak of around $20k during 2017 before the bottom fell out and it proceeded to lose around 80% of its value in 2018. Entering 2019 it was above its 2018 lows but still hanging out below $4k and the past few months have seen another resurgence as bitcoin is currently sitting around $11k.
There’s little doubt in my mind that bitcoin and all cryptocurrencies were in a speculative bubble in 2017. However, I also don’t believe that is reason alone to dismiss bitcoin. If you had bought any bitcoin outside of a very narrow band of about a month in 2017 you are likely pretty happy right now. If you had bought (and made sure to “HODL“) a few years before that then you are likely very happy.
I haven’t spoken much about bitcoin here because Paul vs the Market is more focused on stocks as opposed to alternative investments. At the same time, I realize many people are interested in bitcoin, especially when they see articles about how fast it is going up in value.
As the headline spoiled, I do own some bitcoin through a few different vehicles. Because it feels more speculative, I don’t really consider my bitcoin holdings to be an investment for retirement on the same level as the positions in the Freedom Portfolio, which is why I’ve never counted it. If I did count it a part of the Freedom Portfolio, then it would be roughly a Serenity level holding at today’s roughly $11k per bitcoin price. Don’t let that be too misleading, though. The majority of my bitcoin holdings were purchased years ago when bitcoin was valued in the hundreds of dollars and not thousands, so the size of my holdings more represents the crazy price appreciation bitcoin has had and not necessarily my conviction in bitcoin.
That is a point that is definitely worth reiterating: bitcoin is very speculative and risky. I would be absolutely shocked if Amazon (AMZN) lost 90% of its value a year from now. I would be fairly surprised if one of my riskier stocks like KushCo (KSHB) or Jumia (JMIA) lost 90% of their value in a year. However, I wouldn’t at all be surprised to see bitcoin lose 90% of its value a year from now. The only money that I have put into bitcoin is money that I would be comfortable losing.
There are a number of reasons why I own bitcoin. Part of the reason is a fascination with the technology. Part of it is political. I consider myself to be a libertarian who would love to see an alternative digital currency that wasn’t controlled and manipulated by a central bank or government. There’s also a bit of a lottery ticket appeal to bitcoin. There is a chance, albeit an incredibly remote one, that bitcoin appreciates to a crazy high valuation. I very rarely buy lottery tickets, so holding a small amount of bitcoin helps to scratch that “irresponsible gambling” itch.
But the biggest reason by far that I own bitcoin is the diversification it provides. Although I try not to be overly focused on domestic companies and to look to international markets for diversification, the simple fact of the matter is that an incredibly high percentage of my net worth is tied up in the United States and the US dollar. I work for a US based company and am paid my salary in US dollars. My house (which a significant chunk of my net worth is tied up in) is in the US. The majority of my investments are in US-based companies and my emergency fund and CDs and savings accounts are all in US dollars. If there were to be some monetary disaster or hyper-inflation tied to the US dollar, I would be dangerously undiversified.
Maybe that sounds like a crazy unlikely scenario, but I’m not so sure. I don’t want to get too political, but there are a number of worrisome potential catalysts. The national debt of the United States has ballooned recently during a time of relative peace and economic expansion. What happens when one of those ends? We have a dysfunctional government that keeps shutting down and playing chicken with the debt ceiling before kicking the can down the road once again. The United States benefits from the dollar being the dominant reserve currency, but what if that changes? The Federal Reserve has maintained a low interest rate environment for years now. Does that hamper their ability to deal with future recessions?
Maybe I’m being paranoid. I hope I am. But to me, putting a tiny percentage of my net worth into bitcoin as a hedge is something that helps me sleep just a little bit better at night.
I’m willing to bet that sleeping better at night isn’t something that is often associated with owning bitcoin.
Recently, while talking about anchoring, I mentioned the government attempt to break up Microsoft (MSFT) back in 2001 and how it looks silly now in retrospect to think that bundling Internet Explorer with Windows would give the company too dominant of a monopoly.
Well, breaking up “big tech” is back in the news these days thanks to democratic presidential candidate Elizabeth Warren’s proposal entitled “Here’s how we can break up Big Tech“. She is by far not the only candidate to have proposed breaking up larger tech companies or increasing regulations on them.
The US government isn’t the only regulator to worry about. In recent years, the EU has levied a few pretty hefty fines against Alphabet (GOOG) and Apple (AAPL) and rumor has it they have their eyes on Amazon (AMZN) and Facebook (FB) as well. Additionally, India has begun putting in place regulations which effectively handicapped foreign companies like Amazon from doing business in the country.
This isn’t a political blog, so there’s no need for me to go into my thoughts on how wise these actions are. However, government regulation and threats to break up companies is a very clear factor to consider when investing as it can quickly change the narrative around an investing thesis. I mentioned previously that for the most part I tend to avoid investing in some of the larger companies (Amazon being the glaring exception) and this is among the many reasons why. Success attracts attention from the government and that attention is rarely favorable.
One of the “Cons” mentioned when I wrote about “Why Amazon is my Largest Holding” was “government intervention” and this is precisely the reason why. If two years from now we have a President Warren and there is real talk about lawsuits to split Amazon Web Services off from Amazon or to ban them from running advertising then that is a very large blow to the growth story for the company.
It’s far too early to anticipate what will happen in an election so far away, but the situation does bear monitoring. I’m still confidently holding my Babylon 5 level position in Amazon, but for the first time in a long time I can see a scenario where I might want to trim that position a few years down the line.
I was looking forward to some big news from Netflix (NFLX) this week that might propel the stock higher… I just wasn’t expecting it on Tuesday. Netflix is releasing earnings this Thursday, January 17th, but this morning they also announced their largest price increase since launching their streaming service 12 years ago. Wall street seems pretty pleased with the news, as the stock has jumped up 5-6% as a result. That’s just enough of a boost to knock Netflix up to a Babylon 5 level holding in the Freedom Portfolio. For those who have been keeping track, this is the first time the Freedom Portfolio has had 2 Babylon 5 level holdings at the same time and the first time a non-Amazon (AMZN) company has been a Babylon 5 level holding. Congratulations are definitely in order for the best lifetime performer in the Freedom Portfolio, even if it is always a little bittersweet since Netflix has also been my biggest investing mistake.
While I’m thrilled with the share price increase, I’m a little more concerned than wall street. Competition in the streaming space is heating up with NBC now announcing an offering, Hulu hitting impressive subscribers milestones, rumors of Apple entering the space continuing to fly, and, oh, by the way, Disney (DIS) is coming. Wall Street seems to be assuming this price increase won’t hurt their subscriber count. I’m not so sure. Netflix used to be a no brainer for my wife and I, but with them losing more and more content that we took for granted and there being other subscription services that we are also interested in subscribing to, we’re being forced to re-evaluate.
The one good thing that I am taking away from this, though, is that I am more confident that their earnings release on Thursday is going to be pretty good. If they were seeing anything concerning regarding subscriber growth, I can’t imagine they would be trying to push through a price increase, let alone this big of one. Hopefully Netflix can have their subscribers and… eat them too? Maybe that wasn’t the best analogy to use.
When the market seems to be dropping precipitously every other day, it can sometimes be hard to keep perspective. By my rough calculations, the Freedom Portfolio is down around 15% in this month alone, so I can certainly sympathize with the pain some people are feeling.
But I think it’s important to keep perspective. For example: Netflix (NFLX) reported their third quarter earnings last week and by almost every measure crushed it. At certain points after hours it was up 15%. At that point, if I had told you I had a time machine which would’ve let you buy shares of Netflix before they released their earnings, would you take me up on my offer? I suspect most people would’ve jumped at the chance. Well, you’re in luck, because not only can you buy shares of Netflix at the price before that 15% jump, it’s actually at a significant discount to where it was before their earnings release. After a wild week and a half, the net result of Netflix’s amazing third quarter earnings report is that it is down around 10%.
It’s a similar story with Amazon (AMZN). Just a few months ago it was the second US company to hit a $1 trillion market cap with a stock price over $2,000. If I told you then that you could buy shares for 20% cheaper at around $1600 a share, would you have been interested? If so, then you’re in luck, because there just so happens to be a sale going on.
I’m not saying to go out and buy these companies now, nor am I saying that they won’t go down more. I’m just saying that perspective matters a lot in tumultuous times like these. Just a few months ago, I imagine many people were wishing they could’ve purchased these companies at these prices. But now that they have the opportunity they’re scared. It’s natural. There’s a lot of fear going around right now. But as Warren Buffet famously says, “Be greedy when others are fearful”. A little bit of greed right now might pay off big time over the long term.
The Freedom Portfolio is down over 5% today – I’m not even thinking of selling anything
This seems incredibly redundant after yesterday’s post, but it’s not every day that the NASDAQ is down more than 4% and the S&P 500 down over 2.5%. These can be scary times and the urge to sell to avoid any further losses can be intense. I don’t know what the market will do tomorrow and I doubt if anybody knows. Maybe it will rebound to recoup most of today’s losses. Maybe it will continue to drop. What I do know is that historically, over the long term, the market goes up more than it goes down. That’s why I’m not selling a single share today and have no intention of selling any shares anytime soon. I don’t know what tomorrow will bring, but I like my chances on what the next few years will bring.
That would be me, the author of this blog. I’m a husband. I’m a father to two beautiful girls. I’m a gamer and a geek. While I’m a Hokie in real life, I think I would’ve been a Ravenclaw had my acceptance letter to Hogwarts not gotten lost. I’m a Trekkie. I listen to Zathras. I hang with the Scoobies. I’m team Cap. I’m a Black Belt and a Browncoat. I’m an INTJ.
Most relevant to this question: I’m an investor. I’ve been investing in individual companies in the stock market for over 14 years, since I got my first job out of college and had disposable income to work with. I believe that everybody should be investing.
What is “the Market”?
In the general sense, when I say “market” I’m referring to the universe of all publicly traded companies around the world. That can be a surprisingly difficult thing to track, though. So for the purposes of this site, I am specifically referring to the S&P 500 index, which is commonly used as a benchmark for investment performance. The S&P 500 index is a market capitalization weighted index of 500 of the largest American companies. The market is my competitor. It is the Goliath to my David.
Why “versus”?
I believe I can beat the market.
We’re going to question every word of the name, huh? Fair enough. Have you ever heard the saying, “You can’t beat the market”? It’s advice that is becoming more and more common these days, and for good reason. Stock picking fund managers have largely been losing to “the market” for a long time. As a result, passive investing has become very popular recently, where people eschew trying to pick individual stocks and beating the market in favor of performance that simply matches the market.
So what does this have to do with the “versus” in “Paul Versus The Market”? Because contrary to popular opinion, I believe that I can beat the market. A bold proclamation? Possibly. Braggadocious? I hope not. I believe, and I am on a mission to prove, that an individual investor with a long term mindset who is in control of their emotions can beat the return of the market.
Why should anybody listen to you? What are your qualifications?
Yeesh, why so confrontational?
First, let me list all the things that I am not. I’m not a professional investor by any definition. I have no official training or certifications. Nothing that I write here should be construed as investment advice. Furthermore, while I worked at The Motley Fool for a little over 3 years, it was never as an investment analyst. I am a big fan of the Fool and am no doubt heavily influenced by my time there, but everything that I write here are my thoughts alone. I’m just a regular guy trying to squeeze the best performance possible out of his retirement accounts and enjoying the game of investing.
Now that that’s out of the way, here is why I think I just might have a shot at beating the market:
A few years ago, I started an experiment. By pure chance, I had two separate retirement accounts that were no longer receiving cash infusions. One account was entirely invested passively in Vanguard funds where my aim was to try to match the performance of the market. Vanguard has been at the vanguard (sorry) of the passive investing revolution and is famous for their low-fee index funds. The other account was entirely actively managed by me and invested in individual companies. I saw an opportunity to easily compare the performance of those two retirement accounts to see if I could, by actively buying and selling individual companies, beat the market. Here are the results from the past 3 years:
Vanguard
S&P 500
Individual Stocks
2016 Return
8.53%
8.69%
10.81%
2017 Return
25.38%
19.53%
33.68%
2018 Return*
-1.90%
1.12%
29.87%
Total Return
33.47%
31.37%
92.39%
* (2018 return is year-to-date since 2018 isn’t over yet)
Let me get the caveats out of the way right now. This is definitely a small sample size and I would be the first to admit that I certainly am not expecting to nearly triple the market over the long term. Furthermore, I entirely suspect that in a down year, I would see my individual companies drop more than the market by virtue of the type of companies I tend to favor. I fully expect that there will be years where I lose to the market, sometimes badly. The hope is that over the long term, those years are more than made up for by the up years.
In other words, this certainly isn’t ironclad proof that I can beat the market. Still, beating the S&P 500 by over 60 percentage points over two and a half years is nothing to sneeze at and it gives me hope that beating the market might not only be possible, but also potentially lucrative as well.
What is your investing style?
The short answer? I’m an aggressive investor with a high tolerance for risk. I prefer my retirement accounts to be 100% invested in stocks at all times. No bonds. No cash reserves. I don’t shy away from international stocks.
I believe in diversification, but I’m also comfortable with letting some of my winners grow to be large positions in my portfolio because I don’t want to miss out on selling a big winner too early. I did that once before when I bought Netflix (NFLX) in 2004 and I never want to do that again.
I was investing during the Great Recession and I didn’t panic and sell. On the contrary, I was trying to find every dollar that I could to purchase positions in companies that I saw as being on sale.
I try not to miss the forest for the trees but taking a long term outlook. Short term movements in stock prices seem far too erratic and random for me to even attempt to predict. I’ve seen stocks down big when the market opens only to go up over the course of the day and end up much higher. I’ve also seen the reverse. In both cases it often wasn’t clear why the market had such a big change of heart.
Over the short term, the market is emotional. Over the long term, the market is logical.
What I’ve come to find is that over the short term, the market is emotional and reacts to things that often aren’t important or are speculative at best. Maybe the CEO cried in an interview. Maybe a competitor announced poor earnings. Maybe an analyst downgraded the stock. Maybe geopolitical tensions halfway across the world have increased. Some of these might be impactful to the long term prospects of the company, some might not. Either way, these types of things are nearly impossible to predict, so I don’t bother trying.
Where short term market movements are emotional, long term the market is logical and can’t help but reflect the performance of companies. Where the short term seems to be filled with nothing but noise, a long term view can help filter the noise out. That’s why I like to invest in companies for the long term. I find it simplifies things and gives me fewer things to worry about.
I love the chart above because I think it does a great job of encapsulating exactly why buying and holding stocks for long periods of time is so superior to jumping into and out of positions on a daily/weekly/monthly basis. The chart shows the probably that somebody would’ve lost money investing in the S&P 500 over different time horizons. As you can see, a holding period of one day is almost a 50/50 coin flip, while there was no 20 year period where an investor would’ve lost money.
“Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.”
Peter Lynch
I don’t believe in timing the market. People, even experts, are terrible at predicting market crashes. For years now, countless experts have been saying that companies are overvalued and a market crash is coming. In some ways, they’re right. Eventually there will be a downturn. The problem is that while people are waiting for the crash, they’re missing out on big gains. As Peter Lynch said: “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.”
That wasn’t a short answer.
That’s not a question.
Fair enough. Okay, I get all that, but I still don’t understand the purpose of this site.
Simple. I love investing and am excited about the challenge of beating the market over not only the next few years, but the next few decades. I wanted a place where I could document what I am doing and what my thought process is. In essence, I intend this to be an investing journal that I open to the public. I’m not going to be trying to sell any newsletters or teasing any secret stocks primed for explosive growth. Nor will this be an attempt to pump and dump penny stocks.
What will I be writing about? For starters, I’m going to lay out my entire portfolio of individual stocks that I mentioned above, along with rough allocation percentages. The goal is to, over the next few months, talk a little bit about each company and why I like them. After that? It’ll be whatever strikes my fancy that seems relevant. I’m sure I’ll often be reacting to news and earnings reports for the companies in my portfolios. I expect I’ll get deeper into my investing philosophy and maybe discuss some trends that I am excited to invest in. If and when I decide to buy or sell stocks, I’ll almost certainly be explaining my thought process.
I wanted to do this not only for myself, but also to share with others. In many way, I see investing as a game, and games are great fun when played with other people. For the past year or so, I’ve played something I like to call “fantasy investing” with some friends of mine. The premise is simple: Each player chooses 5 distinct companies that they believe will outperform the market over the next 12 months. The percentage gain (or loss!) is then compared to that of the other players at the end of the 12 months and a winner is crowned. I haven’t won yet, but I have had lots of fun with it.
I would love to develop a community of like-minded people who are exchanging ideas and constructive criticism and all working towards becoming better investors. So please, if you have any thoughts or suggestions or criticisms at all, please don’t hesitate to comment. If we get enough people, maybe we can even do a version of fantasy investing.
I especially would love to hear from beginners or from anybody who has questions about terminology that I might use. The investing world is full of complicated sounding terms that I believe unfortunately scare off a lot of people. I re-wrote large sections of this very post after realizing I was leaning too heavily on terms that people might not know the definition to. I very much believe that there is no question that is too stupid to ask. Seriously. If I’m using terminology that my audience doesn’t understand, that’s not your fault, it’s mine.
Sounds good. Any final words?
Just that I’m excited by the challenge in front of me and looking forward to taking this journey with all of you. Please bookmark this page, subscribe by email or RSS, follow me on Twitter or whatever the cool kids are doing these days.
