Don’t buy individual stocks unless you’re willing to do this!

spreadsheet

What is “this” that you need to do if you plan on playing the market with anything besides low cost index funds?

“This” is to create a spreadsheet that keeps track of your stock performance relative to the index. I am willing to bet that 95%+ of small investors have no idea whether their stock picks have turned out better or worse than buying the whole index.   They may remember those stocks that doubled but forget the ones that lost 50%.  Or, they forget what they paid for a stock or how long they’ve held it.

How can someone possible know whether they’d be better off buying the whole index if they don’t keep detailed records of how their picks have performed?  If you’re not willing to invest the time and effort, then stick to the index.

Here is what I’ve done and I ‘ll be completely honest with how I’ve fared vs. the index since I paid off the mortgage and finally started to have some money to invest in 2009.

I developed a spreadsheet in Microsoft Excel that records any stock purchases I’ve made including the date of purchase, the dividend yield and the total cost.  Beneath this line, I created similar equations but this time assuming I spend the exact amount of money buying the whole Canadian market.  For this, I use the Ishares XIC index fund.

To finish off the spreadsheet, I created formulas that determine the compound annual growth rate for the my picks vs the whole Canadian market including dividends.

Finally, I compare my performance vs. the XIC etf for each stock and then for my whole portfolio.

This spreadsheet allows me to see which of my picks are beating the market and which ones are lagging.  I also can see how each stocks has performed since purchasing  and how the whole market has performed.

As I already mentioned, I’ve been at it since 2009 in a significant way.  To date, my picks have bested the XIC index by 19% overall.  So in my case, I have 19% more money in my portfolio today because I bought my own stocks vs investing in the XIC.    Not a bad return but I’ve also taken on more risk by running a concentrated portfolio and I’ve spend many hours reading and learning about companies to help me make my decisions.

In the end, if I didn’t enjoy doing the research, I don’t think I would have invested the time and effort to pick individual stocks.  It’s tough to do well and there are no guarantees you will be better off doing it this way vs. indexing.

Indexing is such an amazing creation.  I can see myself moving more and more to indexing as time passes.  Right now I’ve taken a gamble on some oil and gas stocks looking for a big payoff.  When that does or doesn’t pan out, I may decide to call it quits and go 100% index.

Remember that I have a teacher pension plan with 25 year of service.  If I was responsible for my own retirement money, I would be 100% index funds, no doubt about it.

If you’re interested in a copy of my spreadsheet, please email me and I’ll send it to you, scrubbed of personal data, of course.

Good luck.

 

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