Saturday, August 25, 2012

Am I Good at Picking Stocks?

I am not attempting to beat the stock market when I choose stocks.  I am simply trying to build my passive income over time so that I can retire comfortably at an early age (late 40's).  I've been dividend investing for about 2 years now and have never sat down to compare my results to the market indexes.  It won't change my strategy, but I decided it was time to see how my choices have done.

This is a chart showing each purchase individually compared to the DOW.  I chose the DOW since it's a good representation of the type of stocks I like to own.  This is a price comparison only, it doesn't take dividends into account.  Check the last column to see how each purchase has performed.  0% would mean it matched the DOW.  Right now the DOW is 13,158

On average my picks have performed 4 percentage points better than the DOW.  Again this is just price, it gets better when you include yield.  I'm still not sure if it means I'm a good stock picker or it's just that investors have flocked to the dividend stocks I was buying in 2010-2011.  I don't know the answer.

Looking at the chart you'll notice my BWP and MCD picks were terrible.  I wanted MCD to be in my portfolio so badly that I overpaid for the priviledge.  BWP is a case of chasing yield.  Actually due to the massive yield, BWP is total return positive but I could have done better elsewhere. 

Take away point: Valuation is important, don't overpay for stocks. 

You'll make a lot more money buying when the market is low, but there is always something with a favorable valuation.  Right now I'm looking at INTC.


  1. Even though there are a few negatives, I think you've done well.

    I agree that valuation is important. I continue to learn how to become a better judge of value and buy stocks at attractive valuations. I have also overpaid for some stocks in the past, in part because I was too impatient to own them, but at least I recognize what I did and can learn from those experiences.

    One of the things I'm slowly teaching myself is patience: If there is a stock I want to buy, but the valuation is too high, the best approach might be to do nothing and just wait. I get anxious about sitting on cash (I always want to invest it right away), but I am realizing that holding cash for a while is no big deal. That's part of the reason why I've only made one purchase in the past 3 months.

    Of course, the market could help me out by declining sharply in the next few weeks. :)

    1. Yes there are quite a few negatives. Really not a surprise. I do not expect every single purchase to outperform. I don't need to be right every single time to accomplish my goals, it's okay.

      I can't stress enough how important valuation is. I'm learning as I go, but have figured out that being patient is key. Agree with you 100%. I don't mind sitting on cash, but do feel compelled to make at least one purchase every month. I plan to use the excess cash when valuations are favorable.

  2. I agree, INTC is starting to look attractive again. I sold my holdings of Intel earlier in the year, but wouldn't mind getting back in. No cash at the moment.

    1. The last time I bought INTC it was below $20 so it's difficult for me to buy more at these levels. If it goes to $23 or low $24 I might just increase my stake. There's no rush, but I will buy something in September. I'm hoping the market retreats a bit. We'll see...

  3. Its interesting to note that stocks that pay decent dividends tend to hold up better in a declining market than stocks that do not pay a dividend. I think the results that you have obtained on your stocks over the last two years is excellent. I would not worry to much about the degree that your stocks have increased or decreased over a two year period. It could be a little luck and a little skill.