This week I answer your questions on comparing your holdings’ performance to the market, the S&P 500. Recently, an associate asked me the age-old question, what should I do with my stocks? I gave my repetitive answer -- I do not give buy or sell recommendations or tell what to buy or sell. I teach my proprietary trading systems and how to monitor your securities performance vs. investing in the market--something you will never see graphed in your monthly brokerage statement.
I asked, “How are your securities performing?” “I am making money,” he said. “I only own blue-chip companies. I then asked how much he was outperforming the market. After a long delay, we both knew the answer to that question.
At that point, I explained that some of the most important data to evaluate our securities holding are performance charts in one, five, ten and the most important timeframe--since they were purchased. I asked if he knew how much money he had made with his securities. “Plenty,” he answered. I had to educate him that his securities may have increased in value, but until the security is sold, he has not made a penny.
My associate is within five years from retirement and did not know the facts about his portfolio performance, so I suggested that we do an account audit to see how much his “blue chip stocks” were outperforming the market.
With today’s technology and the proper training, one can monitor their securities value. My favorite is the performance tool at stockcharts.com. I programmed his eight holdings in a one-year chart. You can see the results.
The green shaded area is the price performance of the S&P 500-18.95 percent. Out of the eight securities, only three of the eight are outperforming the market during this time period. Evaluate the results in multiple time frames to get a more accurate picture. I would do this, but am limited to only one chart per column. This does not mean the investor is losing money. That would take changing the securities price time frame from the date they were purchased--data I do not have. Dividends also affect the cost basis of the holdings. The investor is getting ready to learn how to do this himself.
What can we learn? 1. There is technology and training available to audit our holding’s price performance. 2. Many times, what we own is not performing how we think it is. 3. Performance is not a profit or a loss reality until the transaction is closed. 4. Past performance does not dictate future returns. 5. Price performance is just one factor involved in our portfolio selection. 6. Just because Wall Street calls some securities blue chips, this does not guarantee positive results. At one time, Enron was the bluest of the blue chips. Many high-priced analysts recommended Enron as a must have stock--how did that work out?
How are your securities really performing vs. just investing in the S&P 500? If you are getting closer to retirement, is it really worth the gamble not to know the facts? Do you know how to use these very useful audit/performance tools? For the next two weeks, I am auditing two additional portfolios. It will be interesting to see how much they are out or underperforming the market. If you have questions, email me at the address below.
Plan your work, work your plan and learn to share your harvest!
David England
davidoengland.com
