top of page

Day 361: A New Portfolio?

Mother's Little Helper portfolio was UP today +$599.47 (+0.07%).

Overall GAIN YTD: +$266,011.02 (+45.56%).

Our benchmark index, the S&P 500 is up +19.82% Year To Date.

Today is the final day of the 2017 Mother's Little Helper Portfolio. We started the year with an audacious goal of creating a DIY portfolio of stocks to see if we could beat the market. The portfolio consists of a selection of stocks, traded on U.S exchanges, that any individual could have bought on their own. Each stock was purchased with a roughly equal amount of money, I did not allocate more money to one stock vs. another (known as weighting). No sales or additional buys were made throughout the year, so whatever the cost basis was at the beginning of the year is what we accepted. I assumed a discount broker with a $6.95 commission was being used. I did not wait for prices to pull back to try and get better purchase prices, I bought on December 27th, 2016 and held all purchases. One company was bought out, Harmon, that cash was left in the account and not reinvested. Also dividends were paid into the cash account instead of being reinvested. So how did we do?

Starting balance: $583,903.19

Ending Balance: $849,914.21

Overall Gain: $266,011.02

Gain %: +45.56%

S&P 500: +19.82%

Beat: 2.30x

BETA Risk: 1.09

Average BETA for Pros: 1.15

Honestly I didn't know what to expect when the year started. I felt my stock selections were sound and had the potential to perform well. Using publicly available 12 month target prices from analysts I calculated back in December 2016 that the portfolio should grow 42%. Not only did our DIY portfolio outperform the broad market by a factor of 2.3 times, but did so with far less risk than the average of professionals. The S&P 500 has a beta of 1, our portfolio had 9% greater risk with a BETA of 1.09. The average for professionals was 15% riskier than the S&P 500 with a Beta of 1.15, or 6% riskier than Mother's Little Helper. Did those professionals have returns as high as ours? Some did, most didn't, especially after taking out their fees.

Over the past year I made lots of mistakes, but had more successes. The first portfolio I posted had several mistakes and yet it still outperformed the S&P 500 with a +26.32% return. I also picked four stocks for the 2nd half of the year just for fun because that's what all the financial news stories were in June. Our 2nd half portfolio is up +23.45% with a $7,880 profit. I openly talked about money and amazingly wasn't struck down by lightning. To prove a point I invested in an old school buy and hold strategy; I did not make short term trades. A 2004 research study showed that while high-volume traders were sometimes able to earn gross profits, the profits were usually not enough to cover transaction costs. In a typical six-month period more than 80 percent of day traders lost money, and only 1 percent of them could be called predictably profitable. There are 27,600,000 results for the Google search "Buy and Hold doesn't work". No matter how strong the evidence there will always be those who rally against the idea of buying companies with the potential to grow and holding them until they do. There will always be those who think they can time the market by getting in at the lowest price and existing right at the top. Anyone who executes on that strategy has experienced something known as 'luck'. You can't time the market, but it is possible to determine when specific companies are expensive, fairly valued or inexpensive. It's also not too difficult to determine if a company has the potential to grow and to gather up sound research that can show you how much a company might grow over the next 12 months. The later is investing, not luck. Most financial news is noise, being able to separate the news from the noise is a really valuable trait, cultivate it for your own investing. Buying a stock is the same as buying a business of any kind. If you were going to buy a local hardware store, a restaurant or a franchise, there are some basic due diligence steps you would take before investing your hard earned money. Look at the financials, consider the market potential, what are the prospects for continued growth? Does anyone want what the business has to offer? After looking at the business, then and only then should we consider the price to pay for the business. That's how you buy stocks. Yet without this final step of waiting to buy stocks when prices were more favorable, the portfolio still outperformed.

When pondering investments it's easy to look at all the numbers and ratios and forget what they really are; a college education, a house, a wedding, a retirement without financial stress, the resources to pay for unexpected medical bills, the trip of a life time, or some philanthropic desire fulfilled. Investing isn't just about making money, it's about multiplying our own efforts to have the resources to fulfill our obligations, meet our basic needs, prepare for the unexpected and pursue our greatest dreams. Investing isn't about working for money, it's about having our money work for us.

I've decided to run another portfolio for 2018. This portfolio is meant to be a starting point or a foundation for any investor. These will be the investments that you buy and hold for many years, possibly the rest of your life. In my humble opinion I think this new portfolio could work just as well for a child to save for private school and college as it could for someone in their 20's, 30's or 60's. You can create this portfolio in any type of account, add to it whenever you want and only maintain it once a year. This portfolio should outperform the S&P 500 in most years, but is intended to keep pace with the global economy and stay ahead of inflation.

Please check in tomorrow when I post the 2018 Mother's Little Helper Portfolio.

As Always

Stay Invested

Clay Baker

Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks that do not appear in the MLH portfolio: BA, BRK.B, CELG, CSCO, CTXS, CVX, DOW, DVAX, FB, IBM, NTES, NVDA, OMER, PFE, PG, RDHL, SCHW, TBT, THO, TWX, VEEV, VZ, XLNX, XOM, Bitcoin, LiteCoin

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

Featured Posts
Recent Posts
Search By Tags
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square
bottom of page