Wednesday, May 10, 2006

Realized Gains

I've mentioned that I have sold some stocks and mutual funds recently-- here is the detail.


Shares Gain/ Loss ROI Months Held Annual Return*
GM 50.000 -$1,100 -50% 19 -31%
McDonalds 50.000 $848 96% 39 29%
Toqueville Int'l Value 171.585 $444 18% 13 17%
Bridgeway Small Cap 100.000 $1,211 145% 40 43%
Royce Total Return 150.000 $838 69% 39 21%
Icon Energy 50.000 $890 88% 21 50%
Royce Value Plus 319.149 $1,451 48% 21 27%

*My "annual" figure is just the overall return divided by the number of years the security was held. I think a true average annualized return calculation should factor in compounding somehow, but if I ever knew how to do that math, I've now forgotten! And though I could have plugged some numbers into an FV calculation in Excel to see what interest rate produced the same gain in the same time period, I didn't feel like doing that for all 7 securities-- sorry, but in addition to being stupid, I'm lazy. So the real annual number should be lower. However, the simplified version I've done here is a good enough apples-to-apples way to compare the various investments. In terms of overall gains, the Bridgeway fund would seem to beat Icon Energy, but when you take into account how long I've held them, Icon is ahead. I suspect it will continue to do well for a while, so I only sold part of my holdings.

I feel pretty good about my first few years playing around with E*Trade-- for what I just cashed out, I invested $11,639 and my total gain was $4,582, for a 39% overall ROI (I'm not taking taxes into account). If I had had $11,639 in a savings account for, say, 3 years, it would have had to earn over 11% annual interest to result in the same ROI. Considering the S&P500's average annual return since 2001 was only 2.2%, I'm rather proud of myself!

I don't have any brilliant tips on how to pick stocks or mutual funds, and obviously the GM experience was proof that things can go wrong. I tried to keep in mind some basic guidelines about P/E ratios and mutual fund expense ratios. I tried to balance my portfolio a bit in terms of large cap, small cap, etc. In the case of the Icon Energy fund, I made a conscious decision to buy in that area when it seemed like oil prices were starting to skyrocket. And I actually kind of disobeyed a fundamental rule of investing by sort of "timing the market," in that I consciously decided to invest more in the stock market in late 2002 and early 2003 when the market was in a slump, and I benefited from the recovery and uptrend since 2003. I may just have been lucky to do as well as I did, but I do think stocks and mutual funds are worth the risks, especially for younger people with plenty of time to let their money grow. I used to worry about those risks, and had too much of my savings and retirement portfolio in conservative investments-- this may have helped me ride out some downturns when other people had huge losses, but it was not a good long term strategy. Now that I've gotten my feet wet, I'd like to continue to learn more about other kinds of investments, such as ETFs. I still have stocks and mutual funds worth about $15,000 in my E*Trade account, and when things settle down after buying the condo, I'll go back to trying to add to that portfolio.

All the usual "this is not investment advice" caveats apply!

6 comments:

Anonymous said...

just a remark: you should compare your returns neither with a money market account (not the same risk) nor with the S&P 500 since 2001 (different time period)

the longest 'months held' I found in your post was 40 months, roughly 3 years: the S&P 500 was ~900 then. Now it's at 1322 (I'm using ^SPX at finance.yahoo.com for these numbers) - not many of your investment choices could beat that performance.

bottom line (not investment advice ;) index funds or ETFs should always be preferred choice due to low fee structures and because it is hard/impossible for the average actively managed fund to beat them. since you mentioned that you wanted to learn more about ETFs, the difference is (in a nutshell):
1) ETF: high initial cost (for the trade) - no/negligible holding costs
2) Index: no initial cost (usually) - some holding costs

risk/return for both investments is basically the same. conclusion: if you trade in and out fairly frequently go with index funds, if it's truly 'buy and hold' go for ETFs

another remark (to your tuesday post): -50% in tax refund is great - always try to not get any money back. getting money back just means you overpaid and lost on the interest/investment gains you could have had (sadly the IRS doesn't pay penalty fees if they 'charged too much')

great blog by the way :)

Apollo said...

Very nice. Good luck on your future investments. I may have missed it. Are you closing on a condo soon?

Steve Mertz said...

"this is not investment advice"-I'm taking it as investment advice and you'd better make us some dough:) Nice job! I like Investors Business Daily for ideas and charts and their "cardinal" rule..if a stock drops 8% below where you bought it-it's gone, no questions asked.

Paco said...

On annualizing returns, you might use the geometric approach to account for the financial compounding. In the case of your Micky Ds holding:

39 months/12 = 3.25 years
Add 1 to the 96% holding period return because we will need to multiply (apply a power to) = 1.96. You'll need to subtract the 1 later.

To annualize in Excel: 1.96^(1/3.25)-1= 23%

To check in reverse, if we had an annual return of 23% for 3.25 years then we would have about a 96% return for the whole period. 1.23^3.25-1=96%

Great blog!

Anonymous said...

it seems you forgot the dividends....in gm's case it's quite a lot....

Anonymous said...

Good grief, don't buy McDonald's stock, good investment or no. Or invest in Zyklon B - at least it would be honest.