Wednesday, March 26, 2008

How My Investment Strategy Has Changed Over 12 Years

I’ve learned a great deal over the past 12 years of investing. Today I want to share my past investment performance compared to the S&P 500. I also want to share my current investment strategy.

I held a basket of random mutual funds and followed a “buy and hold” strategy. I experienced 3 straight years of underperformance.

I decided to jump on the bandwagon and I chased investment performance. The “dot com” stocks were taking off and I didn’t want to miss out. Unfortunately, my timing was terrible as the “dot com” bubble popped in 2000. As we entered a recession, I wisely sold my “dot com” stocks mid 2001 and cut my losses. During this time, I experienced another 3 straight years of underperformance.

I needed a new approach to investing. As I sold my “dot com” stocks, I made a conscious decision to partially abandon the “buy and hold” strategy.

My new approach was two-fold:
Buy and Hold: Approximately 40% of my portfolio still comprised of a “buy and hold” strategy. I decided to purchase mutual funds with managers who had long tenures and proven track records. I decided to put my money behind Bill Nygren OAKLX and Bill Miller LMVTX. I also invested in OAKEX for international exposure. Overall, these funds performed well for me but these fund managers eventually lost their golden touch.

Market Timing: The other 60% of my portfolio was designated to time the market. This is a very controversial approach to investing, but if you are nimble, then you can be successful. My market timing approach has developed over time but mostly consists of technical analysis, oversold/undersold market indicators, and taking a contrarian approach to market sentiment (I buy when others sell, I sell when others buy).

I outperformed the market 4 out of 5 years during this period.

My current approach to investing is still two-fold. However, my “buy and hold” strategy now consists of 100% index funds implementing lazy portfolios. I continue to be successful in my market timing strategy as I outperformed the market in 2007 and I’m on pace to outperform the market in 2008. However, unless you have proven success in market timing, I don’t recommend it. A market timing approach is not for everyone. I personally recommend lazy portfolios to my family and friends.


Kristen Zirkle said...

Put me in the lazy category

Georgius said...

The strategy of " buy and hold" always works for me.

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