Who is “Paul”?

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”?

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.

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.