How are Your Stock Market Returns?
“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. ” Warren Buffett
Updating our personal portfolio has fallen lower and lower on the priority list. Like many of you, I’ve piled a lot on my plate (I promise, no more stories about our epic move this summer 
) and so I put off updating our personal assets. I have one account that is not a retirement account but a brokerage account at TD Ameritrade which contains both stocks and more recently ETFs. Over the past several years, I’ve moved to a more passive investing style after many years of stock picking. This transition entailed selling individual stocks (FDS, FDX, GRMN, LNTC) and replacing them with ETF’s (GWX, VBR, VWO, EFA, VNQ).
For a complete look at our personal asset allocation and holdings you can go to The Friedberg Family Portfolio.
While updating this investment account today, I became curious about the return I would have had, if I hung on to the stocks I sold over the last few years. I hoped that all the stocks I sold back in 2009 in order to harvest some losses and capture a gain, would be priced lower than when I sold them. That would have vindicated my decision to sell. After all, even though I was selling some of them to take the losses on my taxes, I would have held on had I believed they had more upward than downward potential.
Much to my dismay, three of the four stocks I sold were up 15 to 39% as I checked their prices on September 21, 2011. The fourth was about the same price as in 2009.
In order to further evaluate my decision, I reviewed the ETFs I bought with the proceeds. Fortunately, they were up significantly as well.
I decided not to spend the time doing a time and money weighted return calculation to determine whether I would have been better off holding the original stocks rather than buying the ETFs. A ballpark calculation that the replacement holdings went up as well took the sting out of the price increases of our sold stocks.
THE LESSON
I’ve been investing for a long time. And, am a student of finance and Modern Portfolio Theory. This unscientific exercise reminded me of an historical fact; over long periods of time stocks go up. In the aggregate, patience and time in the market is rewarded. I’m not sure if I would have been better off holding the original portfolio or not, but I’m pleased that our stock holdings have risen these past two years, in spite of the recent downturn.
This exercise also reminded me that even though the market is currently swooning, putting funds in stocks which are selling at low valuations to their historical averages is when the real money is made. Invest at the top, and you will lose. Invest when others are fearful, and you will win in the long run. As Warren Buffett so aptly put, befriend the market gyrations in order to profit from them.
ACTION STEPS:
Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.
- Read a bit about investing, even if you’re not ready to start investing yet. (For starters, download my free eBook, 20 Minute Guide to Investing, located at the top right of the page).
- Prioritize some of your funds for stock market investing. There’s no time like the present. Just make sure to read, 10 Steps to Take Before Investing, first.
- Don’t be afraid of stock market volatility, as long as you don’t need your investing dollars for the next 5+ years, you will likely profit by investing now.
Hungry for More? Read What Other Bloggers are Writing About Investing
- Keep Investing Simple by PT Money
- Ethical Investing 101 by Prarie Eco Thrifter
- Beginning Investing with $50.00 by Buy Like Buffett
- How to Start Investing; for Newbie Investors at Money Help for Christians
- It’s Magic, Why Index Funds Come Out Ahead Every Time at Bank Nerd.ca
For a quick overview of Investing Strategies, pick up my FREE eBook; 20 Minute Guide to Investing (top right of the page). If you like what you’re reading, sign up for my RSS feed or email subscription and follow me on twitter so you get the word immediately.
Do you review your stock/mutual fund sales and evaluate your prior investment decisions?
image credit; edfredned
Excellent post Barbara. I have to disagree about going back and reviewing what you’ve sold vs. new holdings. I prefer to look at the portfolio as is and determine if it still meets the needs of the client in question. This is not to say that I don’t sometimes second guess recommendations that I have made or that I am always right, hardly. Rather I’m just not sure how constructive or instructive this type of review really is.
Roger Wohlner recently posted..What Does My Fidelity Freedom Fund Invest In? – An Update
Good points! I rarely go back and when I do it is for a specific reason. In my particular case, I will be shifting my asset allocation roughly 15% for 2012 to prepare for retirement. At least that is what I think will do.
krantcents recently posted..KC Awards: Weekly Recognition
I don’t go back and look but sometimes the stocks are in the news so you can’t help hearing the price. Way back in the early 90′s before the Gulf War a friend and I discussed buying a share of Berkshire Hathaway which was a cheap $5000 a share then. I was making barely over minimum wage at the time and couldn’t come up with the money to even buy one share. Even though the stock later went up to over $100,000 I don’t feel too bad about since I probably would have sold it well before then.
Andy Hough recently posted..Investing with Credit Cards
I have to agree that there’s no point in looking back when looking forward is plenty. Barb I’m glad your choices worked out well for you!
Maggie recently posted..Zuppa Toscana: the Perfect Dinner for a Cool Night
I do keep tabs on some stock that I sold a couple of years ago to build up my portfolio. I try to not do it too often, as sometimes I get sick at how much one particular one has risen.
101 Centavos recently posted..Not The Usual Round Up of Random Links
I agree – jump into the market when other people are fearful, as long as you are investing for the long haul. It is always hard when you try to second guess yourself. I think you are better off that you didn’t do a complete comparison. Sometimes you can over analyze.
20′s Finances recently posted..5 Ways to Cut Costs – Week 8
@Roger-The theory is to learn from one’s prior decisions, but truth be told, it would take way too much time and analysis to do an adequate evaluation. That’s why I usually go with your theory and analyze our current portfolio for suitability as well.
@Krantcents-Good luck with the asset allocation decision. Let us know what you decide.
@Andy-Love your attitude. It’s not profitable to second quess yourself.
@Maggie-Well put1
@101-Yes, I initially felt kind of disappointed when a sold stock was up a large precentage!
@20′s – I agree, more analysis wouldn’t have helped with anything!
I use to, but not so much anymore. I wish I had held onto Netflix longer, but then again it’s starting to fall now that they made some bad moves…
Great post! I reviewed and tortured myself with old stocks that have zoomed to the moon. Very unproductive and I’m kicking this habit to the curb. A healthy review is fine, but beating yourself up with an ugly stick is not.
Buck Inspire recently posted..Does It Pay To Be Mean, Captain Kirk?
It’s kinda like Christmas, looking at one’s portfolio with these markets! It’s like a lump of coal, or the best toy you could ever imagine!
I look a couple times a week out of habit.
Financial Samurai recently posted..“We Are Wall Street” E-mail Fights Back Against Main Street
Sometimes I do, but I try not to be bothered by it! Helps if you have an exit clause before you buy!
Moneycone recently posted..Using PayPal To Send Money? The Deal Just Got Sweeter!
@MR-I’m always happy if a stock I held tanks!
@Buck, I like your style-”kicking the habit to the curb” “beating with an ugly stick”; very colorful!
@Financial-Either way, I try to keep my equilibrium, don’t get too up or too down depending on the portfolio direction.
@Moneycone-Good point, I do a written analysis periodically and include sell criteria.
Barb part of my answer was based on the fact that I don’t typically use individual stocks, but rather funds, ETFs, or closed-end funds. In any event I feel that investment decisions should be based primarily on one’s asset allocation which is ideally based upon their financial plan. With stocks, in my opinion the best time to decide when to sell a stock is prior to buying it. Establish an upside and downside sell price, stick to your discipline, and don’t look back. Just my opinion, but regret and second guessing can actually hamper futire investment decisions. Thanks again for bringing this and other key financial issues to the forefront.
Roger Wohlner recently posted..“Sweater Vest” and Financial Advisors
Ouch. It is probably best to not do this, but I would probably be like you and feel inclined to check it out.
Melissa recently posted..Link Love, September 24, 2011
Yeah, in long term, almost all stocks will be up — at least, that what I can see from Warren Buffet stocks. Of course, we should choose the good stocks when the price is right for it.
Dana recently posted..Sept 26, 2011 IDX/JKSE Analysis: Bearish, Bearish and Bearish!
Interesting post Barb… I appreciate your perspective. I remember investing as a teenager and having my advisor pull out the graph of how the stock markets had done since the early 1900s… and he’d continually remind me that stock prices go up if you just “buy-and-hold.” That was the rationale he’d present to me when I’d question why my stock had dropped 50% and I was still holding based on his advice.
While I’m willing to concede that this overall markets have had this pattern over time, I’d caution people about believing the same about individual stocks. You see, I once owned Ballard Power… if I look at that today, I’d be broke if I was still holding it… as I would with Oilexco or Prometic. The list goes on and on.
If one is going to adopt the “buy-and-hold” strategy based on the belief that markets (and stocks) rise over time, please continually rebalance… just my one cent!
Doctor Stock recently posted..Sunday Stock Exchange
@Dana-Valuations are so important. High PE stocks have a good chance of a low return over the next several years. Reversion to the mean and all!