The year 2013 was a stellar year for stocks. The key stock indices have seen record increases: the S&P 500, which showed its best performance since 1997, increased by almost 30%; the Dow Jones Industrial Average saw a similar increase; and the NASDAQ Composite Index performed even better, ending the year with a return of more than 35%.
Looking at these numbers, one must really ask how their portfolio has done. If your portfolio had similar returns—well done! If it lagged, here’s something to note: hedge funds returned only 7.4% for the year. They lagged by almost 23% compared to the broader market return—the most since 2005. (Source: Bit, K., “Hedge Funds Trail Stocks for Fifth Year With 7.4% Return,” Bloomberg, January 8, 2014.)
Two key stocks that beat the returns of key stock indices and the returns given by the hedge funds many times over this past year were Gray Television, Inc. (NYSE/GTN) and Tesla Motors, Inc. (NASDAQ/TSLA).
Gray Television, Inc.
In 2013, this stock opened at $2.28. On the last trading day of the year, it closed at $14.88. If you held Gray Television stock in your portfolio for the entire year, your profits per share would have been $12.60, or just over 552%. (Source: StockCharts.com, last accessed January 9, 2014.) This return is similar to beating the hedge funds return by almost 75 times and beating the returns posted by the S&P 500 by 18 times. Below is the chart that shows this stock’s precise move.
Chart courtesy of www.StockCharts.com
Tesla Motors, Inc.
Tesla Motors opened at $35.00 in 2013. On the last trading day of the … Read More
One of the basic rules that investors should follow when it comes to portfolio management is to not have a bias. What biases eventually do is either hinder investors from making better decisions or cause investors to not even recognize an opportunity that can take their portfolio to new heights.
For example, take the Affordable Care Act, more commonly referred to as “Obamacare.” A friend of mine, who is saving for his retirement, has a bias when it comes to this topic. He says it’s not worth it for Americans, and it’s just another expense to add to the budget. It won’t stick around for long, he believes, and we will eventually end up back at where we are now.
He has his reasons, and as a result, he doesn’t want anything to do with companies that are in any way related to the Affordable Care Act–which includes pretty much the entire health care sector. “I don’t want to expose my portfolio to anything like this,” he said.
Recently, we were having a discussion and he told me that he “missed out on one big investment opportunity for [his] portfolio.” I asked him what that was, and he answered with another question: “Have you looked at the health care sector at all lately?” Please look at the chart below to see what he meant, and what he regrets.
Chart courtesy of www.StockCarts.com
The chart above provides a general idea about how the companies in the health care sector have done. This exchange-traded fund (ETF), which tracks the sector’s performance, is up nearly 100% since the Obamacare law was signed by … Read More
Over the Labor Day weekend, I met up with my old friend, Mr. Speculator. As always, we had a debate about portfolio management. We had a long conversation about what really is the right way to manage your investments—and, for that matter, if there is any. Should investors invest 40% of their portfolio in bonds and 60% in stocks? Should it be the opposite? Or is there another possible combination?
He said, “Moe, I am a firm believer in going for the fences every time for now, but do you really think I will continue to have the same approach in the long run?” (Turns out, there’s actually a rational investor in Mr. Speculator.)
“The answer is very simple: no,” he added. “When it comes to portfolio management, investors really need to realize there isn’t really a one-size-fits-all approach. I take risks now because I can afford to, but for those who are close to retirement, this is certainly not the way.”
I disagree with Mr. Speculator on many aspects of portfolio management, but on this, I can’t help but agree. Portfolio management differs from one person to another, and the amount of risk an investor should take also operates the same way.
A person who is 50 years old and has accumulated a significant amount of funds in their retirement account should not be taking the same risk as a person who is in their late twenties.
A person who has saved money for their retirement and are closing in on their golden years should be conservative with their investments. They should have more of a focus on assets … Read More