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Sharing 30 years of investing experience and how my approach has evolved from pure Bogleheading to include stock picking and concentration with half of my portfolio If not interested, maybe jump to the TLDR at the bottom, but I thought the details may interest some of you.
I started with no investing knowledge and no money. I got my first real job in the late ‘90s and invested whatever I could. Everything I’ve learned came from reading, making mistakes, and living through some brutal market cycles.
Got crushed in the dot com cycle, again with the financial crisis. Discouraging but it didn’t matter. Kept buying the index. Never sold. Understood it’s a long game. It was 12 years until the S&P was back to where it was in the late 90s. That period and the rewards that followed taught me that discipline beats emotion.
COVID changed my investing process. I was in a different place in life. I’d done well, and had built enough of a foundation that I could invest differently with part of my portfolio. About half still sits in index funds, bonds, and cash. That’s intentional. It means I never have to sell because I’m scared or need the money.
With the other half, I don’t try to understand hundreds of companies. I know maybe 8-10 really well. Businesses with durable competitive advantages that I think will still matter a decade from now. I know their earnings, valuation ranges, risks, and what usually causes the market to overreact.
Then I wait. When one gets hit but I don’t think the long-term story has changed, I buy. If it gets cheaper, I buy more. I’m not trying to pick the bottom. I’m building positions at prices I’m happy to own. Amazon, Google, Apple, UnitedHealth, Waste Management, and Chevron have all been examples.
The key isn’t what I buy. It’s when I buy. I buy when sentiment is ugly and I think the market has temporarily mispriced a great business. Google is a good example. The business performed about the way I expected. The market’s expectations were simply much lower than mine. I loaded up 2-3 years ago. My analysis said worst case was priced in, and the upside would be big if others were wrong. Wall Street money has different purposes than mine does. I’m happy to be off by a little but own a great company at a good price. I don’t care if my short term return was better somewhere else. I can’t boil the ocean. I just follow 8-10 at a time.
UnitedHealth was different last year. I thought the market had overreacted, built a large position, made about 60% over the following year, and moved on.
When valuations become stretched and expectations start pricing in perfection, I’ll trim or exit. I’m happy paying taxes if the thesis played out. Then I wait for the next opportunity.
This approach has materially accelerated my wealth over the last six years and materially outperformed simply buying the index over that period.
Some companies I own and will own “forever” but I cap them and trim to what I’m comfortable with. Others, if my thesis changes, I drop them off my list.
The edge is studying a small number of businesses deeply, buying when fear creates a disconnect between price and value, trimming when optimism becomes excessive, and having enough of a margin of safety that I never have to make emotional decisions.
What if it all goes to💩 tomorrow with my 50% stock pick portfolio? I am so far ahead and have taken so much cash out of this strategy that it still wins. And the S&P index is fairly concentrated with mega tech making up 30 to 40% of it. My concentrated bucket is essentially a barbell between defensives and blue chip tech companies. I sleep fine. If there was a 50% crash, I have 35% cash to weather the storm and opportunistically buy or add to positions.
TLDR, Don’t bet the farm, use an S&P index as the foundation, but for what portion you can afford to or choice to stock pick - Know a few great businesses extremely well. Be patient. Buy fear. Trim optimism. Repeat.
All the best.
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Good for you 😆
This is probably the best way to do it if you’re starting with no experience. Start with index funds; after a decade or two you’ll have a good sense of how the market moves, will understand the importance of patience, and will be knowledgeable enough to make your own judgment on what companies are overvalued or undervalued.
Why do only 10%~ of hedge funds beat the s&p 500 if a decade of experience is all you need to be a good stock picker? lol
Great thread,couldn’t agree more.Super advice for younger investors!
I am in medical training. Once I get done the basis of my investment portfolio (max all accounts every year) will be index funds/target date funds. Once I pay off my student loans and house I’ll start buying individuals stocks in a similar manner as you. I think once a person gets to a certain point this is a great idea given that they have the knowledge, experience, and resources.
What is your lifetime rate of return / and yearly rated returns to date?
Funny, you should ask. I’m an analytical freak and have tracked my personal finance details since the beginning. Lifetime about 13% annually versus about 10.5% for the S&P 500 and about 8.5% for a traditional 60/40 portfolio. Last 6 years that I’ve done this, about 27% annually versus about 17% for the S&P 500 and about 11% for a traditional 60/40 portfolio. 2026 YTD is 34% versus about 9% for the S&P 500. The last 6 years have been unusually favorable for my approach, so I don’t expect that to continue indefinitely.
Chevron was a solid pick for me as well, I’m up 130% on that one. I’m not quite 50/50, I’ve got about 40% in my 401ks, 40% individual investing (which in turn is like 30% ETFs/index funds, 60% individual picks, 10% options) and then the last 20% or so in a Roth IRA. But the individual account grew from a starting amount around a few grand back in 2018 or so. So I feel like I’m doing pretty decently. 7 figures is on the horizon.
Lotta words to say you mostly invest in indexes and have been lucky so far in a handful of individual picks.
Wait until you discover books
Is it luck to buy companies are have proven themselves efficient at turning capital into ever greater cashflow? In the short run, the market is a voting machine but in the long run, it is a weighing machine.
Lotta words with a lotta boasting and sanctimoniousness. No one cares about other people's portfolios and strategies, especially on an anonymous forum where we can literally make up whatever we want.
A couple of important takeaways from your story. The most important is not to panic when the shit hits the fan as it always will. What you have that loses value will recover and most importantly your continued investing while the market is down and on sale will be the move that makes you successful in the long run. For the youngsters that have never experienced a downturn, you will and you will get scared. Those that sell are the losers, those that continue investing and keep their allocation to equities even as they lose money will win. The other is that your goals change. When you start, you are only focused on making money but at some point, those investments become important enough that you change to a protection low beta mode rather than a high alpha mode. Be ready for that change.
Similar barbell strategy but my performance improved even more when I decided to only trade sector ETFs instead of stocks. They are slower moving and less volatile so mistakes don’t magnify. 7 figure IRA, so I trade freely with no tax consequences. A few times a year when I feel things have become over complicated I will basically reset to 70-80% cash. This removes old ideas and trades I’ve become attached to and I basically start fresh. In essence I’m swing trading ETFs. Watching the market is a hobby I enjoy which happens to pay off nicely. Good luck!
Thanks. I am experimenting with sector ETFs as well. I like that I can control the weight and essentially build my own S&P index fund but with some annual losses to book against gains depending on sector performance. I also do a portion of direct indexing. This sector ETF approach is a manual way to complement that tax strategy.
Thank you for sharing, this is a great mindset imo. I'm glad this is working for you. I think for retail investors, having 50% in the index is indeed the best strategy. You've certainly been staying in your circle of competence which is something Mr Buffett has said to do for many years. And it works!
I’m relatively young, early in my care, but it’s a career where I go for making 70,000 to over 300,000 in the matter of a couple days after a transition from training Resident to attend attending physician. I tell my co-residence it’s best to build a core position in a broad market ETF for screwing around with single stocks. Once you have a solid core position in broad market ETFs then you have a cushion in terms of lifetime gains where you cannot justify some degree of stock picking.
50% stocks, 50% index, 35% cash, got it sir
Reading is hard, but not as hard as you’re making it. I’m 65/35 stocks to cash & bonds at the moment. That 65 of equities is 50% index and 50% picks.
Are you buying RDDT?
No. It doesn’t meet my criteria as having a durable competitive advantage and being disproportionately in direct control of its own success. Too much of its future depends on outside factors like Google search, and its moat isn’t as strong as I would need it to be. Good product, and addicting, but doesn’t meet my criteria. Doesn’t mean it isn’t a good investment for someone. It may just mean that I don’t understand it well enough to build conviction.
What metrics do you typically look at for valuing these targeted companies?
The majority of my criteria includes recurring revenue, high ROIC, consistent free cash flow growth, pricing power, a wide competitive moat, low dependence on any single customer or vendor, and a proven capital allocation record. I want a business that largely controls its own destiny. Only those make it to my list. Then I study the trading range. I look particularly closely at forward PE. Then I just wait. When it gets below historical PE averages, and the rest of the story still checks, or there is a macro event that causes a short term over reaction, I buy.
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So learn Greeks, learn how to price a company, when in doubt just buy the market.. Profit.
Sitting on 35% cash while holding 8 to 10 blue-chip tech and defensive stocks creates an interesting look-through dynamic. Since broad index funds like VOO already carry 30% to 35% mega-cap tech concentration, picking those same names in your individual bucket mostly doubles down on the exact same growth beta. Your 27% annual run over the last 6 years worked because mega-cap tech crushed the broader market, which overcame the drag of holding over a third of your capital in cash. The real test for active selection comes when tech doesn't carry the load and cash sits idle.