The S&P 500 is up about 22% year-to-date, and up 69% since bottoming at lucky 666 in early March. Being up 22% after being down 40% in 2008, still means the average portfolio is down 27% from the 2007 peak. You may fool yourself into thinking the average 401K balance of $50,000 has recuperated most of its losses, but you’re confusing contribution with performance i.e. going from $50,000 down to $30,000 (40% loss), but contributing $16,500 + a 22% rebound ($6,600 on $30K) = $52,000 does NOT mean you’re back to even!
The tipping point in your 401K, where performance starts outweighing a maximum $16,500 annual contribution is roughly $200,000. Once you have $200,000, the real juice comes from performance where an 8% return equals roughly the maximum contribution you can make every year.
There are two lessons to be learned in 401K land: 1) Contribute the max to your 401K every year, and in 10 years, you will likely have $200,000 given company matches, and performance (even in this past decade) and 2) Once you reach $200,000, you’re going to hurt like no other if you lose 40%, or $80,000 of your portfolio, so diversify! The sword cuts both ways.
IN SEARCH OF LUCK WITH FORESIGHT
I’ve only had a couple big stock hits in my life, and I attribute it all to LUCK. Of course, I also attribute all my loss making ideas to BAD LUCK, and not to poor timing, bad fundamental analysis, and generally not understanding what the hell I’m investing in!
Essentially, I believe with a lot of luck and a little bit of effort we can outperform the markets. Hence, let’s see if the PF community can outperform the S&P 500 with our own randomly unscientific stock picks based on permutations of our own names and blog titles!
THE SAMURAI FUND – CONTRIBUTION GUIDELINES:
* The stock idea/ticker you come up with must solely come from your name or blog site. For example, my stock pick is ticker symbol SAM, or Boston Beer Company! If your name is Credit Card Chaser, your ticker is CCC, or Calgon Carbon CP etc.
* Your idea can be a stock, or ETF of anything if the ticker makes sense. Once you get your idea, please provide a brief description of the security, market cap (of at least $200 million to make it realistic), P/E ratio, dividend yield if any, earnings growth where available, and your own personal opinion. Yahoo Finance is a good place to go for info.
* The Samurai Fund will consist of around 10 names for a total value of $1 beeeleon dollars! I’m assuming there won’t be a flood of entries since it’s the holidays, and entries take a bit of effort, but we shall see.
* The picks will be equally weighted in the fund i.e. 10 picks will each have an initial position size of $100 million, with a purchase price based off this Thursday’s close.
* The fund performance will be reviewed once a month, highlighting every person’s pick, with an individual performance ranking and underperformance / outperformance vs. the S&P 500.
Company: Boston Beer Company
Market Cap: $668 million.
Earnings Growth 2010: 11.3% vs. 29% for the S&P! (Click Analyst Estimates Link in Yahoo Finance)
Personal Opinion: Love Samuel Adams beer, but with no dividend, such lofty valuations and minimal earnings growth, this is not a defensive stock that is expected to outperform in 2010!
The goal of this exercise is to just have fun and help prove the theory that anybody can outperform the market with a litle bit of luck and thought. Once we have a diverse enough portfolio, as explained by the Modern Portfolio Theory, we should be able to compete with the likes of Warren Buffet and Bill Miller! Entries close this Thurs, Dec 31st.
Financial Samurai – “Slicing Through Money’s Mysteries”