Still a Great Stock Picker
Back at the end of the year I read about Joe’s stock picks for a contest at Timeless Finance and decided to see if my skills still hold up, by picking a few stocks everyone loves to hate on the off chance that people get tired of the hating and decide we can all just get along after all. It actually took a bit of work to come up with all 4, which shows you how much I pay attention to the news.
So how did I do at picking the biggest losers? Let’s see the total returns in the first quarter:
- BBRY: +21.74%
- YHOO: +18.24%
- BP: +3.00%
- BAC: +5.00%
- Average: +12.00%
- S&P 500: +10.49%
- VTI: +10.96%
I consider VTI to be my benchmark for the US market since it’s what I use. This shows that I’m clearly a master of the market! It works out to an annualized excess return of 4.7% over the market which so far makes me a legendary mutual fund manager (as long as I can continue that for another 15 years).
Rob Arnott’s book on fundamental indexes points out an interesting twist to this. Since fundamental indexes historically have a higher return, lazy fund managers could run a “closet fundamental index” to get higher returns, and then use the regular index as a benchmark so they can claim that the normal outperformance of fundamental indexes is their own work.
To test this idea I looked up an ETF for the FTSE RAFI US 1000 index. It had a return of 12.59% in the first quarter. According to the fund data there was no tracking error over this time period so the index return was exactly the same as the ETF’s return. This doesn’t look so good for me, but as long as no one realizes this I am still better than the average active manager or indexer!
I wanted to test one other idea along with these. At the start I wondered what would happen if you went long Yahoo and short HP, since HP’s board seems to be running up the score on bad decisions lately. It turns out that HP had a first quarter return of 67.29%, so this trade would be standing at a net loss of 49.06%.