Did I Beat the Market?

Years ago, some friends and I started an investment club, which were popular at the time and which was a great opportunity to learn about investing at an age when we could make a real difference in saving for college for our kids, retirement, and so on. Eventually the club ran its course, but we had some fun, made some money, and learned a lot.

Once the club dissolved, I used the same analysis techniques we used in the club to pick a small personal portfolio of individual stocks.

Ever since I made those investments, I’ve had a item on my master to-do list to regularly revisit my investment choices to determine whether each choice in the portfolio is still a good investment. But, somehow, I never get around to it, so for the most part the portfolio has sat there riding the various waves of the market.

A great deal has been written in recent years about how individual investors, over the long run, cannot beat the market. I decided to test this theory by measuring the performance of my modest portfolio against the market over the same time period, using this site.

I actually wrote the above before I ran the numbers, expecting that I would be trailing or at best equal to the market. But since I purchased my first individual stock, I’m actually beating the market by about 5%. Yay, me!

But the question is whether that gain is worth the risk and time. It took time to research the stocks–whether or not I consider that time worthwhile depends on what I got out of it. The experience may have been valuable just for the learning. However, to the extent that I’ve failed to be very active in my portfolio management suggests that I don’t value the time compared to other activities.

Risk is probably the bigger factor. I own nine stocks*, and I’ve been able to beat the market in part because none of them have collapsed. I’m one corporate scandal away from decidedly not beating the market. An index fund, on the other hand, would be doing 95% as well, but it would be resistant to one company tanking the portfolio.

*Intel, Dentsply, Teva, Rio Tinto, Corning, Cummins, China Automotive Systems, Tessera, and VSS

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