10 years ago, I was a member of The Green Lantern Investment Club. The club met once a month, put in real money (monthly minimum of $25/person), and attempted to learn how to beat the S&P 500 through superior buy-and-hold stock picking. Unfortunately, due to changing personal lives, lack of patience, and the general hassles of bookkeeping and taxes for a legal partnership, we wound down the club near the end of 2006, 4 or 5 years after starting it.
The other night I was on my way home from home reminiscing about the club and wondering how we would have done if we’d stuck it out.
I came home and looked up our portfolio from the last meeting. I then looked at what buying and holding would have liked look vs. SPY.
When I looked at our group’s total allocation and projected things out, our gain with the stocks we held in 2006 were 100.21% vs 52.96% of SPY, so we clearly would have beaten our goal! I did not calculate what these would have been with dividends, but I suspect it would have been further in our favor. So score a clear win for the Green Lantern Investment Club!
We also looked at two other stocks, which we did not purchase — one of which would have improved our results and one which could have changed the game. We kicked the tires on both IMAX and AAPL. Based on the prices at the time of the group presentation we would have been sitting on a 260% gain in IMAX and a 1,171% gain on AAPL! Taking our normal starting position size and adding it to the mix above, we could have easily seen a result of 230%!
Woulda coulda shoulda.
So that’s all well and good, but the real reason I wanted to commit this to paper was to get a level deeper on the takeaways.
#1: Swing fewer times. Obviously, our group was fairly concentrated. While I wouldn’t want to restrict myself to 8 holdings, you probably don’t want 100 either. Wait for your fat pitches and get to know your companies, their initiatives, and the people who run them… really well. You’ll be in a better position to call bullshit when you have to.
#2: Patience grasshopper. While HD, NVS, MMM and BRK.B didn’t feel like they were “winning” for us month in and month out after we picked them, they clearly had the stuff we thought they did and they’re all still great companies.
#3: Don’t sandbag your winners. Most of us trim from our winners to feed our other ideas that aren’t working out as well. We have an innate desire to see our losers scratch back to positive when we are nearly always better off letting the hot-hand keep going. We liked DPMLF a lot, but I’m super happy we didn’t ever get to the point (since our group wasn’t around anyore) where we thought about pulling money out of HD to feed DPMLF.
#4: Only sell when your company thesis is busted (which should be very infrequent). The tables above show us taking a huge loss (-78.27%) on mining company DPMLF. I have no idea if our group would have picked up the warning signals and sold in time to cut some of these losses. It almost doesn’t really matter.
So, those are all things I think I knew before, things I learned from the Motley Fool early on in my investing career. Unfortunately, they are also all rules I have frequently violated because I thought I knew better. I was wrong. It’s time to get back to simple.