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For the Fun of It

Robert Dailey

THIS IS MY FIRST contribution to HumbleDollar. It may well be my last, for I am no longer old. Rather, I’m ancient and on my way to being archaic.

The vicissitudes of investing are behind me. I now invest for fun, for the data analysis, for following the impact of macro world events on economies, for the thrill of the market rollercoaster, for the intellectual challenge, for the exercise of discipline, and so on. You might just call it a hobby.

I started investing in the early 1970s, when I began practicing medicine and was able to save money. I had little interest in finance and certainly no training in it, but my survival instinct told me I had to invest in something other than a savings account. For the next 10 or 15 years, I made the rounds of the usual mistakes. A Merrill Lynch broker-churner. The tax dodges of almonds, apartments and oil well partnerships. The blandishments of a preacher-turned-investment advisor.

I made no money but didn’t lose much, either. Then, at age 43, I got married and realized I had to get serious about money. I was a contract emergency physician who had no benefits, no pension, no job security, no disability or health insurance, no significant savings and no future inheritance. In short, no nothing.

Getting educated. I realized that I was going to have to invest soon and seriously or never retire. About that time, I learned that I had a rich uncle in Washington, D.C., named Sam. He invited me to a theme party that featured punch bowls of IRAs and Keoghs. I attended and found, to my infinite delight, that the party was embedded in the law and would likely never end.

My real investing thus began. I took several weekend crash courses given by the American Association of Individual Investors (AAII), an information source with no ax to grind. Even in the dim halls of medicine, I had become aware of stock funds, and AAII taught me the basics of what to look for—and what to avoid—among such funds. Necessity made me a quick learner.

I took what I’d learned and spent a weekend in the Oakland, California, public library poring through Value Line tomes. Making a grid, I looked for a no-load, well-diversified stock fund with a low expense ratio, no 12b-1 fee, low turnover and good 10-year returns. I found only one that met all these criteria: Dodge & Cox Stock Fund (symbol: DODGX).

But it had net assets of just $160 million, so it was an unknown David amid a pantheon of robust Goliaths. Still, I bit, and it remained a bulwark of a fund portfolio that for many years also held several other sensible diversified funds. A bond fund played only a small role. It didn’t seem a good fit in a portfolio whose goal was primarily growth.

I stayed on this course for many years, making monthly contributions like clockwork, reinvesting the dividends, and paying little attention to the market’s volatility. A Mercedes, a grand home in a gated community, private schools for my daughter, trips to the Maldives, skiing at Vail, Michelin three-star dinners. These were tempting, but somehow never materialized.

Bidding farewell. Gee, what a clever man was I. Several million dollars assured a smooth ride to the grave. But wait. In 2014, at age 78, I shed an intolerable marriage, lost three-quarters of my assets—which included my wife’s sizable family inheritance—and my house. I found myself homeless in the San Francisco Bay Area. Oops.

I saw my now-paltry assets were invested in a stock market that I thought was overbought. I panicked and went 100% to cash. The market rose and rose. My assets shrank and shrank. Interest rates were nil, which was what my cash earned.

I was terrified to re-enter the stock market, now surely even more overbought. Aaargh. Finally, a black swan named COVID came quacking. And it was time for rank stupidity to be rewarded with stupendous luck: All my cash was returned to the market in a single stroke two days after the market bottomed, primarily in the FAANG stocks—Facebook, Apple, Amazon, Netflix and Google. The following year, I notched a 62% gain.

But, of course, I still ended up way behind where I would have been had I not gone to cash in a panic several years before. Then came 2022, and the inevitable retreat from 2021’s lofty heights.

So, for the past three years, I’ve been sort of an old-school individual stock investor, typically holding 20 to 25 individual stocks. Why, when I’m basically a Boglehead? As I said at the outset, for the fun of it. But is it safe? I think so.

Five years ago, I met and married an old girl almost my age, and joined her to spend much of our time in her home in the mountains near Mexico City. Social Security pays a large part of our living expenses. We’re financially secure even if our health fails. My portfolio could tank without dire consequences.

My investing goals have not changed, however. I’m still seeking growth, though for different ends. With the end of life approaching, charity has become a major goal. And with the beauty of qualified charitable distributions, and most of my assets in an IRA, I now focus on how to best spend my monies on worthy causes, while getting a nice tax deduction. A lovely place to be. 

Taking stock. Why have I turned to individual stocks? Among other reasons, I simply feel better investing in this manner, even though it’s riskier and more complex. I started regularly reading a few financial publications and blogs.

More and more, I found myself drawn to Morningstar. It relied on hard data, was unbiased, had no conflicts of interest, had a well-thought-out investment philosophy, eschewed risk, had excellent in-depth analyses, and—most important to me—put together recommendations using reliable information that discriminated between poor and good investments.

The more I dug into Morningstar’s data and analyses, the more confidence I felt in the stocks I bought. Its shorthand categorizations of “moat,” indicating a favorable competitive position, and “allocation,” meaning exceptionally good financial decisions, have identified a universe of holdings that have a history of outperforming the S&P 500.

My stock selection follows the late Charlie Munger’s dictum: “Buy quality companies at a reasonable price.” The process goes as follows: I screen Morningstar for stocks that have an analysis by a Morningstar analyst. I then choose those stocks that are rated both “wide moat” and “exemplary allocation.”

Next, I subject the few stocks that remain to a grid that looks at the current price relative to Morningstar’s estimate of fair value, the past five-year share price increase, analyst’s confidence level, the price-earnings ratio, and any notable analyst comments. Without formally rank-ordering these judgments, I highlight the pluses and minuses of the stocks and make my final decisions about which to purchase.

My criteria for selling are less structured. I repeat my winnowing process every January. I’m inclined to sell any stocks that have shown poor performance, have had management changes or issues of concern, or have lost their Morningstar wide moat or exemplary allocation ratings.

This process leads to a portfolio heavily weighted to tech stocks. A Morningstar premium subscription, which costs around $250 a year, is necessary for my process, but the price seems more than fair. How have I done with these investments? Pretty well the last three wild years, outpacing the S&P 500 by a small margin. That said, one can’t say anything about long-term performance. There ain’t none.

I fear the comments on this piece from my HumbleDollar compatriots. The sensible will ask, “What the devil is an aged investor doing eschewing the good sense of a Bogle portfolio, and instead investing primarily in large-cap tech stocks with little diversification and no bonds?”

I can’t answer that, except to say, “By nature, I’m a contrarian.”

Robert Dailey is a long-retired emergency physician from California. He lives with his wife in the slow lane of Cuernavaca, Mexico, where he enjoys birding, investing, and travel with an assist from credit card miles and points.

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