Tag Archives: conservative

Couch Potato Portfolio Returns For 2015

With 2015 now in the books, it’s time to look back on the year that was. It was another year of surprises: after the gurus continued to predict higher interest rates, the Bank of Canada shocked almost everyone by lowering the overnight rate twice in 2015: first in January , and then again in July . That spelled another year for higher than expected bond returns. And while it was a disappointing year for equities in almost all regions, the plummeting Canadian dollar caused the value of foreign equities to soar. All in all, a diversified portfolio did quite well in the ” year when nothing worked .” Yet another reminder of why it is so important to hold all of the major asset classes all the time and ignore the noise. Let’s look at the details. The building blocks Here are the returns of the individual TD e-Series funds and Vanguard ETFs that are the building blocks for Options 2 and 3 of my model portfolios : Now let’s put these blocks together and see how the model portfolios performed. At the beginning of 2015 , I expanded the TD e-Series and ETF models to include five different asset mixes, ranging from Conservative (30% stocks, 70% bonds) to Aggressive (90% stocks). Here are the returns for each version: TD e-Series funds Conservative Cautious Balanced Assertive Aggressive 30% equities 45% equities 60% equities 75% equities 90% equities 5.26% 6.36% 7.45% 8.55% 9.65% Vanguard ETFs Conservative Cautious Balanced Assertive Aggressive 30% equities 45% equities 60% equities 75% equities 90% equities 4.97% 5.72% 6.46% 7.21% 7.95% Why the differences? The first question that leaps out from these numbers is why the TD e-Series portfolios outperformed the ETFs across the board. After all, the e-Series funds carry management fees that are roughly 0.30% higher. There are two main reasons: Different Canadian equity indexes. Vanguard’s VCN and its TD e-Series counterpart both track the broad Canadian market, hold roughly the same number of stocks, and use a traditional cap-weighted strategy. However, their index benchmarks are different: Vanguard’s ETF tracks the FTSE Canada All Cap Index , while the e-Series fund tracks the S&P/TSX Capped Composite . The indexes have slightly different rules governing which companies are included and the weight assigned to each. As a result, from year to year, their relative performance will vary slightly and randomly. This year, the S&P index won out. Over the long term, these differences have tended to even out . The ETF portfolios include emerging markets. The ETF portfolios get their foreign equity exposure from Vanguard’s VXC , which holds roughly 10% in emerging markets. This asset class was essentially flat in 2015: returns were a little above or below 0%, depending which index you tracked. The TD International Index Fund includes only developed markets, which performed much better on the year. Again, this is simply a random result that worked in favour of the TD funds this year. Over the long term, adding emerging markets to a diversified portfolio should be expected to boost its expected return, though it may also increase volatility. Later this week, I’ll take a closer look at the 2015 performance of the Tangerine Investment Funds , the simplest of my model portfolio options.

Value Investor Interview: Huzaifa Husain

Note: This interview was originally published in the December 2015 issue of our premium newsletter – Value Investing Almanack (VIA) . Mr. Huzaifa Husain is the Head of Indian Equities at PineBridge Investments based in Mumbai. Since he joined the asset management company in 2004, Mr. Husain has been a key member of the team advising the PineBridge India Equity Fund (a Dublin domiciled India offshore fund). Prior to this, he was an Equity Analyst at Principal Mutual Fund and SBI Mutual Fund. Mr. Husain received a Post Graduate Diploma in Management (PGDM) from Indian Institute of Management (IIM) Bangalore and a B.Tech from the Institute of Technology (Banaras Hindu University). In this interview for the Value Investing Almanack , Mr. Husain shared how he found his calling in value investing, and reveals key insights about his investment strategy and the underlying thought process. Safal Niveshak (SN): Could you tell us a little about your background, how you got interested in investing so much to choose it as a career? Huzaifa Husain (HH): In 1997, when I completed my management education at IIM Bangalore, SBI Mutual Fund offered me a role as an equities analyst. Thus, began my career in equity investing. My management education did not prepare me for equity investing. We were taught how to mathematically manipulate numbers, especially daily stock prices, most of which had no conceptual backing. I remember in my first year on the job, I tried every possible trick – charts, CAPM, etc. – in the textbook to figure out how to predict which stock will do well. I failed miserably. One day a friend of mine told me to read the letters of Warren Buffett. That is possibly the best advice I ever got in my life. After that day, my investment philosophy has relied entirely on understanding the company, the people managing it and its prospects. Stock prices do not have any information other than what one can buy or sell the stock at. SN: Do you believe in the concept of circle of competence? If yes, how have you built it over the years? HH: Yes, of course. The success rate of doing an activity which is within the circle is much higher than that which is outside the circle. The circle is not a rigid one, though, and keeps expanding, albeit rather slowly. My first task in the late nineties was to research equity stocks in the pharmaceutical sector. So, I bought a drug index book and catalogued nearly all major diseases and the drugs used to cure them. These drugs were then mapped onto the companies which produced them to understand company fundamentals. Then, when Indian pharmaceutical companies started targeting generic markets in US in early 2000, I studied the Hatch-Waxman Act, various generic court case judgments, etc., to understand the potential opportunity and risks. Thus, I gained expertise into the pharmaceutical sector. Slowly I expanded it to another industry – telecoms – and studied the various technologies such as CDMA (Code-Division Multiple Access), GSM (Global System for Mobile Communications), etc. I also then brushed up my accounting knowledge as it plays an important part in understanding financials. In those days, there was a heavy debate on ESOP (employee stock ownership plan) accounting in the US and so I read and understood the corresponding accounting standards (FAS 123). Slowly and steadily the circumference of the circle expanded to include more industries, different accounting policies and different ways to evaluate management. The only way the circumference of the circle expands is by constantly accumulating experiences – either directly or by learning from others. SN: What are some of the characteristics you look for in high-quality businesses? HH: A high-quality business should require very little capital but generate a lot of capital and it should be able to maintain these favorable economics for a long time. The reasons for a business to achieve these economics are numerous. Most important is the management’s focus on improving its competitive advantage compared to its peers. A pertinent question here would be why are such practices not copied by others? One big reason is the culture of an organization. A culture of success is not as common as one would assume. There may still be cases where the best efforts of the management to succeed may still come to nothing. This can happen when competitors are irrational. This can also happen when the business itself is very complex. It is easy to estimate the costs and risks of making and selling shoes. It is probably not so easy to estimate the costs and risks of constructing a dam. SN: How do you assess a management’s quality, especially given that disclosure levels are not high and standardized in India? HH: Management quality is assessed on two dimensions – ability and integrity. Ability encompasses the way the management deploys the cash it generates. It could invest back into the business to strengthen the competitive positioning of the business, it could buy another company in the same business, it could invest in a new business or it could buy a company in a different business. One should be able to assess the ability of the management by evaluating the management’s actions of deploying cash. Integrity encompasses the way it treats shareholders. A management with high integrity will return excess cash back to shareholders. It generally would not overstate its financial numbers; most probably, it will understate them by reporting its numbers conservatively. In my experience, there is a high correlation between usage of conservative accounting policies and high integrity. I think disclosure levels in India are generally quite high and I have not faced any problem in judging the past history of management decisions. A simple discipline can be observed here – if the management is not willing to be transparent and honest, move on. SN: Well, let’s talk about valuations. How do you think about them, and how do you differentiate between ‘paying up’ for quality versus ‘overpaying’? HH: Good opportunities in investing are rare. A good opportunity is like searching for a needle in a haystack. One can, of course, wait for a day when there is a strong wind which will blow away the hay and make it very easy to find the needle. But then one has to be very patient as such days are few and far between. On the other hand, one typically will find opportunities to buy either a lousy business at cheap valuations or a good business at fair valuations. I would go for the latter. How much should one pay for a good business? Of course, I do not believe in overpaying because I can always put my money in a fixed deposit without risk. So, one should carefully evaluate various scenarios in which the investment can make money. I can try and put in some numbers for the future, find out cash flows, discount them with the next best alternative rate you can get and finally add a buffer to the price. It is quite educational if one does this simple exercise which some call reverse discounted cash flow (DCF). One important factor in doing this calculation is to make the right assumption of how much capital is required in the business. Generally, a good business which can generate high returns will not require a large amount of capital. Hence, such a business will have to pay the cash out, which means in applying a DCF model, the benefit of compounding will be absent and that would make a huge difference to the value. SN: How do you determine when to exit from a position? Are there some specific rules for selling you have? HH: One would exit for basically two reasons. First, if the original hypothesis itself turns out to be incorrect. One example is when we bought a company which was a market leader in the domestic industry and was generating a lot of cash flows. The industry was growing very fast and so was the company. It was available at reasonable valuations. Then one day, the management decided to take the cash on the books plus take on debt and buy a company internationally which had poor economics. The management thought it could take such a company and make it competitive. Unfortunately, it paid a price which presupposed that it would succeed in doing so. Hence, there was no upside left even if they succeeded. And the existing domestic business cash flows were now being used for this purpose instead of investing in the domestic business which needed enormous capital to grow. Since, this was a ‘game changing’ event, we decided to sell it. Second, something better can be done with the sale proceeds. This is tricky. It requires two decisions – selling an expensive name and buying a cheap name. We do it rarely as we do not think there are so many good companies out there that one can keep churning without lowering the quality of the portfolio. If we do it, we ensure that the valuation differential between the stock being sold and the stock being bought is quite significant. SN: Do you believe in investment checklists? If yes, what are the most important points in your checklist? HH: I do have a checklist. Broadly, there are three main items on my checklist – quality of business, quality of management, and price of the stock. An important aspect of this checklist is that it is applied sequentially. The reason is because a good manager may struggle to generate good profits out of a bad business. Paying a low price for a lousy business may also not turn out great. Hence, only when a business is deemed to have strong economics and quality management, is the price evaluated for attractiveness. SN: Apart from the qualitative factors, what are few of the numbers/ratios you look for while assessing the business quality? HH: A reasonable idea of how much capital is required to run the business is critical. The nature of capital employed – fixed versus working – makes a huge difference to the way the business is run. The returns generated on the capital employed irrespective of the leverage employed will demonstrate the quality of the business. Aggregating 10-20 years of financials gives one a good idea of how the money has been utilized. Cash flow efficiency (cash flow divided by profit) demonstrates the conservative nature of management in reporting their numbers. SN: When you look back at your investment mistakes, were there any common elements of themes? HH: Among the three things I look for in an investment – business, management and price – most mistakes happen in evaluating management. This happens especially if the management does not have a public history which can be evaluated. The typical management behavior which hurts investors is their overconfidence. Business managers rarely will admit that they cannot deploy the cash which the business is generating. They will find some or other use for cash and eventually deploy it in a poor business. Hence, it is best to use a higher threshold for management quality in case the business has historically retained most of the cash it generates. Also, public history of management is a very good guide. Don’t expect the management’s behavior will change because you bought the stock. It almost never will. SN: What tricks do you use to save yourself from behavioural biases? What are the most common behavioural mistakes you make? HH: Most mistakes in investment stem from lack of knowledge. When one is walking in the dark, other senses become heightened. Similarly, when one is operating in the field of investments and one does not know what one is doing, the basic human survival instincts (being with the crowd – herd mentality, avoiding danger – loss aversion, etc.) kick in. These instincts sometimes may mislead one in stock markets which is a massive melting pot of human emotions. Many advocate changing behavioural responses. I think if you try to do that you are up against thousands of years of evolutionary survival strategies. Instead, focusing energies on accumulating knowledge is a more reasonable task. SN: That’s a wonderful insight, so thanks! Any specific behavioural biases that have hurt you the most in your investment career? HH: Nothing specific. Over time, a better understanding of how incentives drive human behavior has helped me decipher the happenings around me. SN: How can an investor improve the quality of his/her decision making? HH: If the investor’s knowledge of the company is among the top 0.001% of people who have some kind of understanding of the company he/she is investing, the chances are that the decisions would be good. Hence, read everything you can lay your hands on relating to the company and its business. We actually do that when we buy a consumer durable or an automobile. I remember even though my father was no engineer, he used to ask people on two wheelers at a traffic signal what the mileage was before buying one. It is absolutely astonishing how much information one can glean if one puts in a slight amount of effort. The next aspect is that the investor should realize markets are not always rational. I feel this is easier said than believed. Investors while buying believe that the price is mispriced but once they have bought they forget that it can remain mispriced for a long time. Many would want the mispricing to be corrected as soon as they complete their purchase. Many would also pat themselves on the back if it does happen. But short-term movements of a market are near random. Hence, be prepared for the worst. For example, the investor should be prepared for a huge drop in the stock price post his purchase. It may or may not happen but if it does, he should be mentally prepared to act rationally. SN: How do you avoid the noise and the overload of information that is available these days? HH: If you carefully analyze the information overload, most of it is very short-term focused. Hence, if the time horizon of the investment is long, one needs to employ a filter which can eliminate short-term noise. After all, a company publishes only one annual report and declares four quarterly results every year. That is not much. SN: How do you think about risk? How do you employ that in your investing? HH: As an equity holder, one would lose all one’s money if the company goes bankrupt. Hence, avoid companies which have large debt loads. Avoid investing in a poor business. It is bad to lose money investing in a poor company. But it is worse to make money investing in them. The reason is, once you make money playing with fire, the chances are you will be attracted to it more often, and sooner rather than later, it will burn. Hence, avoid investing in such companies irrespective of the valuations. Remember no matter how well you think you can guess the future, it will not be as you predict. Hence, be prepared. SN: What’s your two-minute advice to someone wanting to get into stock market investing? What are the pitfalls he/she must be aware of? HH: Making money by equity investing is very difficult. Treat the stock market as a bazaar. Go with a list of things to buy. Make the list at home just as one would make a grocery list based on your nutritional needs. Don’t make decisions by watching the changes in the prices of stocks just as one would not decide to buy lemons because their prices are going up. Spend a lot of time deciding what to put on that list. One way to do it is to inculcate a phenomenal amount of curiosity in researching companies. SN: Which unconventional books/resources do you recommend to a budding investor for learning value investing and multidisciplinary thinking? HH: It is dangerous to read books especially on investing without reading about business history. It may cloud one’s view. Hence, I would recommend all budding investors read annual reports of companies for as far back as they can find. Read them across various companies over various time frames. They should be able to understand how companies have behaved over business cycles, how their valuations have changed, why did they succeed, why did they fail, etc. Once a vast amount of business history is read and understood, all one needs to read are the letters of Buffett and Poor Charlie’s Almanack to build a framework. Beyond that, remember what our vedas say on multidisciplinary thinking – आ नो भद्राः क्रतवो यन्तु विश्वतः (Let noble thoughts come to us from all sides). SN: What a wonderful thought that was! Any non-investment book suggestions you have that can help someone in his overall thinking process? HH: I find books written by Malcolm Gladwell quite interesting. Living Within Limits by Garrett Hardin has many interesting concepts on growth. The Corporation that Changed the World : How the East India Company Shaped the Modern Multinational by Nick Robins literally chronicles the birth of capitalism. Reading judgments from the Supreme Court of India helps one understand how our Constitution works. An example would be the Kesavananda Bharati case which I believe should be a must read for every citizen of India. Reading various government ministries’ annual reports, regulatory reports (RBI as an example), global central banker speeches, global anti-trust filings – all these help one understand how different aspects interact. Finally, a study of human history is quite important. I would recommend Glimpses of World History by Jawaharlal Nehru. SN: Which investor/investment thinker(s) so you hold in high esteem? HH: Warren Buffett. Many have generated good returns in investing, but he has done it over larger and larger sums of money. He has never paid a dividend since 1967. That is what makes him a genius. SN: Hypothetical question: Let’s say that you knew you were going to lose all your memory the next morning. Briefly, what would you write in a letter to yourself, so that you could begin relearning everything starting the next day? HH: Personal life: Everything Professional life: Nothing SN: What other things do you do apart from investing? HH: Spend time with my family. SN: Thank you Huzaifa for sharing your insights with Safal Niveshak readers! HH: The pleasure was mine, Vishal.

The Making Of A Value Investor: The 2015 Edition

Summary Looking back at the last 18 months this is what I learned, in the order I wish I learned it. I discuss my thoughts on: framework, where to search for stocks, how to analyze them, portfolio sizing, etc. I share some of my favorite books and Seeking Alpha authors. I started my quest to becoming an investor during the Summer of 2014. Since then, I have read countless books, chosen financial markets as my major, met multiple hedge fund managers, became a contributor for Seeking Alpha, and most importantly started investing. Along the way I have learned much. Looking back at the last 18 months, I asked myself, if I had to do it all again, where would I start? This is my best answer, my try at a roadmap, and a few lessons I learned along the way. If I learn as much in the next year, I will be satisfied. I hope this will be helpful to readers just starting out. I also hope it will help readers get to know me as a Contributor. I. A Value Investor’s Framework. Warren Buffett’s notoriety helped me get started. As I was facing the mountain of information available in books and online, it was extremely overwhelming to figure out where to start. So I picked Buffett. My rationale was straightforward: This guy obviously figured it out, so what are his tricks? What are his secrets? Quickly enough I was led to Graham’s book: The intelligent investor. You’ll meet very few people with an interest in the stock market who will admit to not having read the book. Everyone has an opinion on it too: some say it is the cornerstone of value investing. Others say it’s outdated, and that there is no such thing as net-net anymore. I read it. The real lessons were in between the lines. The magical secret that I thought would make me a zillionaire by the end of the month didn’t exist. My key takeaway is that being a successful investor is function of your state of mind more than the tools at your disposal. Source: Sheknows.com If you don’t understand value investing in 5 minutes, you never will. – Ben Graham Simple, but it is a concept which is at the core of value investing and my beliefs as an investor: Buy something for less than it’s worth. The difficulty resides, of course, in determining how much something is worth. For that you will need several tools, and you will need to think in a way most people don’t. As such, being a value investor doesn’t apply only to stocks, but to buying groceries, shopping for clothes, and how you choose to spend your time. The eternal question is: Am I getting more than I’m giving? You can’t do the same things others do and expect to outperform. Unconventionality shouldn’t be a goal in itself, but rather a way of thinking. – Howard Marks. This is an oversimplification of the framework within which I have chosen to analyze the markets and securities. Here are my favorite books for anyone who wants to embrace this mentality and view of the world. Howard Marks: The Most Important Thing Seth Klarman: Margin of Safety George Clason: The Richest Man In Babylon George Soros: The Soros Lectures II. Where To Look For Securities? Source: Featurepicks Understanding the framework is one thing, operating within it is when the fun starts. If we group together all securities listed on the NYSE, Nasdaq and TMX Group, there were a total of 9012 as of January 2015. It is unlikely that any of us will ever have time to sift through all of them to find a mispriced gem. As such, we must find places where there might be a structural or emotional reason which justifies a discrepancy between price and value. In a market there must be a buyer for every seller, and a seller for every buyer, and understanding what motivates your counterparty is key. Try to imagine what the person on the other side of the trade was thinking. – Leon Levy It is Seeking Alpha’s contributor Chris Demuth Jr. who first got me to think this way. He takes pride in ” looking for non-economic counterparties “. There are many places one can search to reduce the amount of securities you need to look at to find an opportunity: worst performing stocks on any given daily session, spinoffs, mergers, upcoming inclusions or recent exclusion of major indices, articles in Wall Street Journal or Barrons (If you are going to subscribe make sure you get a discount, and once the discount is up call them to cancel, they will give you another), people you talk to, and authors on Seeking Alpha. You want to be looking in places where any of these apply: Your counterparty is panicking, and you can provide the liquidity they need at the price you want. Your counterparty isn’t looking, maybe there is no or little Wall Street/Bay Street coverage? Your counterparty doesn’t have a choice, like an S&P 500 ETF (NYSEARCA: SPY ) having to sell all of their position in the 500th stock when it becomes the 501st largest stock. Or like dividend funds having to sell their position when a company cuts the dividend, or spins off a division. What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so. – Mark Twain Flip the question, what does your counterparty know, that just ain’t so? There are three books I would recommend you read to help you find the best people to buy and sell from. Joel Greenblatt: You Can Be A Stock Market Genius Leon Levy: The Mind Of Wall Street Ken Fisher: The Only Three Questions That Still Matter Immature poets imitate; mature poets steal. – T.S. Eliot Here on Seeking Alpha, we are lucky enough to have among us some great minds. Sift through different authors, find authors who have a style you like. Think for yourself, but feel free to steal ideas, trust me the stocks don’t care whether your hard work found the opportunity or someone else’s did. These are my 3 favorite authors, but based on your style, there are many others which can offer you what you need. In no particular order: Also, look up value funds in your town. Send them an email, have a chat, ask questions, build relationships. Motivate your friends into learning more about investing, you’ll be doing them a favor. Everyone you know with a common interest in investing might have a great idea for you. III. How To Analyze The Stocks You Find? Source: Crossfitinvasion Once you have found a security with a reason to justify its mispricing, you will want to figure out what is the company worth. As an investor you will come to look at stocks as companies, not as lottery tickets. In doing so you will have to analyze companies’ business models and industries. It might seem like a daunting task and you might not have access to professional industry reports (I don’t), but a few quick searches on Google will help you gain the insights you need. Warren Buffett says he looks for companies which have large moats around them, companies whose returns on invested capital remains above their cost of capital for a long period of time. You will also want to analyze the management and strategy of the companies. To help you understand great business models and great management, there are two books which I recommend: Michael Porter: Competitive Advantage Mckinsey: Value, The Four Cornerstones of Corporate Finance. You will gain many insights from reading biography type books of successful investors. Time Horizon is a framework for patience. The two are almost the same thing but the first helps with the second. Knowledge and time horizon team up so you can more easily be patient. – Frederick Kobrick I enjoyed these: Peter Lynch: Beating the Street Mark Stevens: King Icahn Frederick Kobrick: The Big Money Peter Cundill: There’s Always Something To Do Obviously you will need to have a working knowledge of corporate finance, accounting principles, and valuation models. I use comparable ratio analysis as a guide to how a company fares against the competition. I will question any discrepancies in multiples within an industry to understand why some companies command higher relative prices than others. There usually is a good reason. I will also perform a DCF valuation of stocks I analyze. My thoughts on such models are mixed, since the output is only function of the inputs. Bullsh*t in, Bullsh*t out. When I talked to Natcan’s previous CEO Pascal Duquette, he told me of a time when he had to value an oil rig which was privately owned by a fund he worked for during his career. He had all the information, from the number of workers, to the amount of planned production. After just two years, his previsions of earnings were off 25% because one input hadn’t been correctly modeled. On the other hand a business’s value is equal to the present value of the future cashflows the business will generate, so you can’t ignore the model. The way I proceed is by reverse engineering the DCF. Assuming constant margins, what revenue growth is required to justify today’s price? Is such growth attainable? If not, what kind of margin improvement will be necessary at a lower growth rate to justify today’s price? Once again, is it achievable? From there I’ll use my judgment, are the assumptions priced into the security underestimating its potential, or overestimating it? By how much? Are they being underestimated enough that even if my conservative estimate is off, the security is still mispriced? Thinking as an investor, means creating a distribution of potential outcomes in your mind. If X, Y or Z happens, what does it mean for the price of the security? How likely are X Y or Z? What is the weighted value of the security for these given outcomes? It is an approximate exercise, but it’s the best we have. It’s what Howard Marks would call “second level thinking”. IV. How Many Securities Should You Buy? Source: icollector Now we come to portfolio allocation. I have to say, I’m unimpressed by Markowitz’s portfolio theory, and most of modern finance’s theory of investing. They teach us how markets should be, not how they really are. The single reason ultimate diversification doesn’t work, is that in times of crisis, correlations go to one, and you lose as much money as everyone else. As for eliminating firm specific risk, the consequence is also eliminating firm specific return. Risk doesn’t lie in the volatility of returns, but comes from the operations of the companies in which you invest in, and the price you paid for those companies. So how many stocks should you buy? It depends. It depends on your goals, on your aversion to losing money. I have met with the money managers from different firms, here are a few who have different outlooks: Brian Pinchuk from Lorne Steinberg Wealth Management , this value firm believes in investing no more than 3% of the portfolio in an individual security. Patrick Theniere, from Barrage Capital who believes in concentrated portfolios with stocks taking up as much as 10-15% of the portfolio. Paul Beattie from BT Global Growth , who has a couple dozen positions long and short. All three are successful money managers and have good track records, so there is no one size fits all answer. On one hand, if you have a stock go up 50% when it is only 1% of your portfolio, it will only represent a .5% gain for your portfolio, on the other hand a 50% loss on a 10% position is a 5% loss for your portfolio. I believe Ken Fisher summed it up when he said: Don’t aim to beat your benchmark by more than you are comfortable lagging it. No matter how many stocks you choose to buy, give yourself the chance to initially be wrong on the price you pay to double down several times to reduce your price. I adhere to Chris Demuth’s outlook on portfolio sizing which you can read more about here . V. Measuring Your Performance. Source: Rowealth You will also choose how to measure your performance. Are you aiming for absolute performance, or to beat a benchmark? Even if your goal is absolute performance, you will be confronted to comparing yourself to the benchmark. Why? Because if after several years you are unable to do better than an appropriate benchmark, why not spare all the effort and just invest in an ETF? You have to admit, over a long period of time it seems like a decent idea. SPY data by YCharts On the other hand I smirk every time I read a fund manager says he is happy because this year he delivered a performance of -10% whereas the S&P 500 did -20%. Yes it seems tough to deliver absolute returns during bad years for the markets, and I don’t claim to be able to do so, time will tell. Ultimately I’m seeking to perform on an absolute basis, as should all individual investors who are investing with the goal of spending that money someday. The problem with trying to beat the market is that many money managers have become closet indexers during the years. The question for these people is no longer: Do I want to own Apple (NASDAQ: AAPL ) or not at these prices? The question becomes: Should I overweight or underweight Apple relative to its weighting in the index? For me, this just isn’t intelligent investing. VI. Don’t Be Afraid To Share Your Ideas. Source: Wordpress Once you start to analyze stocks and find ones you would like to own, why not share your ideas on Seeking Alpha? One thing we all have in common here, from contributors, to readers, is we want to find great stocks for our portfolio. Writing articles here will help you put your ideas on pen and paper, the editorial team will help you go further on parts of your analysis you might have overlooked, and confronting comments will help you think of your thesis in a different way. Like everyone you are going to have some dogs in your portfolio, and it will be easy for you to blame it on the market or on bad management or whatever, but having your bad picks publicly available on Seeking Alpha will force you to question where you went wrong. I for example, recommended buying Volkswagen earlier this year. Not so great looking back, and rather than just shrug it off, I’ve learned that I should be weary of companies with obscure corporate structures since it creates opportunities for management to employ devious practices. VII. Final Words. I look forward to everyone’s comments, please feel free to confront me on anything you disagree with, constructive criticism is always welcome. If you liked this article, please consider following me on Seeking Alpha. Also in this article I gave a list of my favorite books. The price of these books quickly adds up. My tip to saving money on books was buying a kindle reader. You can get their latest tablet for $50. Kindle books are usually a bit cheaper, but subscribing to Scribd was my favorite way of reading all these books cheaply. I have no business with them but the subscription costs $10 a month, and if you use this link you’ll get two months free (No I’m not getting compensated for this.)