Wednesday, January 7, 2015

My Investment Record to 2014

Each year I calculate my portfolio’s overall investment return. This used to be more important when I was actively picking individual stocks because it’s easy to delude yourself into thinking you’re doing well when you aren’t. Now that my portfolio is almost completely indexed, I continue measuring my returns. This forces me to review my less-than-stellar stock-picking record.

My 2014 return using the internal rate of return method was 14.12%. This includes index ETFs as well as a block of Berkshire Hathaway stock my wife still holds because we don’t want to realize the capital gain. Berkshire had a very good year. If my wife had held Vanguard’s large-cap value ETF (VTV) instead, our portfolio’s overall return would have been 12.67%. I consider this return to be our benchmark for 2014.

Sharp-eyed readers may find both of these return numbers strangely high considering that Canadian, U.S., and international indexes didn’t do this well. I measure my returns in Canadian dollars. With the Canadian dollar dropping significantly relative to the U.S. dollar, my returns on U.S.-listed ETFs got a significant boost. This currency boost was far more than enough to overcome a modest drag from unlucky timing of adding new money to my portfolio when markets happened to be up.

The cumulative 20-year growth of $100 in my portfolio compared to benchmark index returns each year is shown below. The returns have inflation subtracted out which makes these real returns. This shows us how buying power has changed over the years. I used a logarithmic vertical axis so that the distance between curves shows how well I did compared to the benchmark.

The first thing that jumps out is that I had a spectacularly high return in 1999. My roughly 12 years of active stock-picking began in mid-1998. I took insane chances during 1999 that worked out phenomenally well.

After 1999, the stock market was less cooperative. The benchmark didn’t make it back to 1999 levels until 2006. But my portfolio was well below 1999 levels in 2006. Things were even worse in 2007 and 2008. My stock-picking record from 2000 to 2008 could be charitably called sub-par. Other words that come to mind are ‘pitiful,’ and ‘why are you still picking your own stocks?’

It was around 2008 that I started thinking about indexing more. Luckily I didn’t make the switch until about mid-2010 because I had a very good year in 2009. Since mid-2010 my returns have been quite close to the benchmark returns because my portfolio has been mostly indexed.

Overall, my stock-picking record only looks good because of my 1999 luck. After that, I lost to the index badly. So, now I’m a happy indexer with some extra time on my hands that used to be taken up reading annual reports.


  1. Cool chart, Michael. I agree the thing that jumps out is the spike in 1999. I wouldn't have really examined the subsequent returns if you didn't mention them, but I can see now how your stock picking lagged the market somewhat after that. Makes the switch to indexing make sense to me now. As a rational guy, you realized extra work for no payoff makes no sense.

  2. @Gene: I keep experimenting with different ways of creating pictures where meaningful information pops out. I agree that you have to stare this one down for a while to see much other than 1999. Extra work for no payoff would be tough enough to take, but extra work for the privilege of losing money is painful.