Back in 1995, I did my first stock picking.
I purchased Disney, Coke, and Glaxo Smith Kline.
As the above chart shows, Disney was the big winner. (Not so much lately though)
One hundred and forty-five grand aint too shabby.
My worst performer was Glaxo, but even it turned $25,000 into $43,000.
Here’s the thing, though…
I also purchased an airline which went defunct, and a lumber company that was acquired by Koch Industries and removed from the stock exchange back in 2005.
Lesson 1: Stock picking is hard.
Companies go bankrupt, ticker symbols get chopped from the index, and what is successful at one time can disappear a few decades later.
It’s true too that individual stocks can supercharge a portfolio.
Lesson 2: Beating stock market indexes is difficult.
Not one of these beat the index. Owning the S&P 500 would have been a better decision in each case.
This is probably why Warren Buffet tells investors to own the index. Back in 2007 he bet a money management firm that uses funds of hedge funds that an index fund could outperform them. Buffet was right:
The bet was this: Over a 10-year period commencing January 1, 2008, and ending December 31, 2017, the S&P 500 would outperform a portfolio of five hedge funds of funds, when performance was measured on a basis net of fees, costs and expenses.
Buffett, who chose the Vanguard Index Fund as a proxy for the S&P 500, won by a landslide. The five fund of funds had an average return of only 36.3% net of fees over that ten-year period, while the S&P index fund had a return of 125.8%.1
We don’t run a hedge fund at Johnson Wealth Management, and I didn’t know a thing about investing back in high school, but my experience then proved Buffet’s bet.
There is something else also…
I picked all these stocks back in high school, but it was with pretend money, with different monetary values written down in pen on yellow lined sheets of paper.
I still have a copy of that.
It was an exercise one of our teachers gave our class to teach us investing.
I’m grateful for it.
What lessons have you learned about investing over time?
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Sources:
- “Billionaire Warren Buffett swears by this inexpensive investing strategy that anyone can try” by Bob Pisani on 10/3/22. Accessed online: https://www.cnbc.com/2022/10/03/billionaire-warren-buffett-swears-by-this-inexpensive-investing-strategy-that-anyone-can-try.html