First, I firmly believe beating the market over long period is extremely difficult, there are a lot of pitfalls along the way, and even when you do that the margins are likely to be not enough to make a huge difference. Unless of course you make a wild bet on a single stock a significant chunk of your assets and risk losing out. To do this systemically while keeping the risk in check is what it makes it very hard.To indulge this, I opened an account with TD Ameritrade on June 23rd, 2021 and invested $25k. This was 5% of my total investment portfolio at that point. I used this account to do options trading, invest in leveraged ETFs, and generally day trade stocks I was interested in. I researched the investments and taught myself all types of options techniques.
As of today, the account is worth $23,876. The S&P is up 24.3% in the same timeframe, so if I invested the same $25k in VOO, it would be worth about $31k.
Anyway, I just thought others might be interested in my experience. I’m not saying I’m the most skilled investor - I’m certainly not. Still, I’m a reasonably intelligent and informed person, and I couldn’t really make this work.
I’m still keeping the account (now with Schwab) open, but I’m trying to move most of the investments to safer options. I’ll allow myself a little fun money to play around with when I get a “hunch” about something, but at least half of it is going to wind up on VOO.
That said, I think your mistake was trying too many things and may be too much complexity. To outperform the market you got to narrow your focus to one or two core competency areas you can focus, and you have to reduce complexity. Once you then have something like this, and pull this off, you got to keep the gains and have with an exit plan, that will keep your gains over market forever. In other words to beat the market, the best way is to go with what is making it perform well, but may be spice it up a bit.
I don't think of trying to beat the market, since I know it is competitive, instead I had an intellectual curiosity to see if I can pull something off and if I do what lessons can I learn from it. I don't need a lesson in underperforming the market, because I already know that path. Instead, I want to learn a lesson in outperforming, so I can understand why it is not the best approach. To try this, I focused on selecting a handful, under 10, individual companies that were down in value in 2022. I considered those companies to be high quality, but facing temporary issues, they were down 40%, 50%, 70% in value and I figured they won't go bankrupt, in fact there was a margin of safety. I bought them over a 3 to 4 month period, patiently waiting until price came to what I wanted to pay. Then hold it. Out of those, I then sold off a few that were not core holdings, which were 4-5 stocks. I still hold those. The original investment has returned 50% collectively since I started buying in Oct 2022 (it was fully funded by Fed 2023), in the meantime S&P 500 returned 25%. Out of the 5 core stocks, 4 have doubled original, and 1 has quadrupled. I am now waiting for right day to sell half off all of those, so I take out original investment from those as well. After that, the gains are all done, and it's recorded permanently so I can't lose.
Overall, I have doubled the return of index in that period, but by just holding the winners from the index in this period and not the whole index (90% of portfolio is diversified so I am not betting the farm). I think it was chance, but it was chance in the right direction, playing along the market. It doesn't really matter it that was skill or luck to me. I will liquidate these at some point, or may be not, just leave it at a level like 5% where these 5 stocks can't break anything.
What I learned is, I can on the edges, at some specific times when things look extreme, pick up may be a few things to gain an edge. But I can't do this regularly, or if I try to do this every year then I will fail. In fact, I can't find anything today, and I know for sure if I try anything more it will only dilute what I did. Basically, don't try too much is the lesson, and you may have a fighting chance. End of the day, it won't make a huge difference to my life, as I made an extra $100K in profits, which will help me reduce risk a bit sooner. Otherwise I will still get there, by keeping AA risk higher for longer.
Statistics: Posted by Elysium — Sat May 25, 2024 6:21 pm — Replies 27 — Views 2424