Lots to go through in the next couple of weeks now that 2012 is over.
First up is a review of the 2012 best stocks chosen by the readers of Old School Value.
This is a passive portfolio with zero turnover. The top 10 highest voted stocks are added to a portfolio and followed throughout the year. There is zero turnover and volume is not considered when initiating the portfolio.
All positions are equally weighted at $10,000 to make a $1000,000 portfolio.
Dividends are not included which understates the performance compared to the market as I am using total return for the indexes without any expenses. I could use the price return for the market as well, but I prefer to be at a slight disadvantage.
2012 Top 10 Voted Stocks Performance
- OSV Crowd Investing Portfolio (PRICE Return): 16.54%
- S&P500 Total Return: 16%
- Russell2000 Total Return: 16.35%
Lessons and Ideas Learned from This Experiment
Four stocks beat the market by a large margin. BAC was the anchor that pulled everything through and it goes to show that it’s the magnitude of correctness that is very important and one of the reasons how small investors can beat the market and most of the funds.
But asset allocation is still very important. If this portfolio held 20 stocks, it would have under-performed. If the weightings were different it would have under-performed.
Quant investing argues that even if you are right, the market does not always agree, so rather than try to cherry pick your own stocks, having equal weightings of stocks you think are bad is not a bad thing. After all, people are wrong too.
Had I believed that GRVY was going to be the driver and skewed it to have GRVY as the biggest holding, the end year results would not have looked pretty.
Does Crowd Investing Work? Isn’t it Just another “Market”?
Another important point I want to discuss is this idea of crowd investing.
My thesis is that with a small group of value investors, we should be able to pick stocks that beat the market. Bad ideas would be balanced out by good ones, instead of the possibility of having a portfolio full of bad ideas if it was up to one or two people.
From the very short term result, this looks to be true. Four stocks beat by a large margin, one nearly beat it, four did a little worse than nothing and one was a bust.
But this raises the opposite point. Wouldn’t it also balance out the winners and introduce more losers?
Possibly true and the same data could be interpreted in the exact same way.
The concept of this voting thing means that we are creating our own mini market within the market. I don’t see too many small caps or totally off the wall investments making it to the top 10, and I understand why, so it will be interesting to see how this experiment fares this year and beyond.
What Happens with the 2012 Portfolio?
Rather than delete the page, I will leave the 2012 voted stocks page as is and see how it does in a year or two.
The 2013 voted stocks has started too.
What is Old School Value?
Old School Value is a suite of value investing tools designed to fatten your portfolio by identifying what stocks to buy and sell.
It is a stock grader, value screener, and valuation tools for the busy investor designed to help you pick stocks 4x faster.
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