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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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Man, keep writing Robert. Great stuff! Morningstar is the bomb for investing in mutual funds for me. It’s way better than it was 25 years ago when I first started paying attention to it. I’ve learned tons from Russ Kinnel, Christine Benz, John Renkenthaler, and Amy Arnott. I tried doing stocks through the Shadow Portfolio with AAII, and am a life-time member, but they never panned out, probably because my patience was lacking to make it work. I’ll post to another’s comment about using Morningstar to track your funds, which you can do for free.
Great and amusing article…but…
1) My first book and an eye-opener was Random Walk by Malkiel
2) Two giants Bogle + Buffett have been preaching about buying the very cheap SP500 or Tot index market (VOO/SPY or VTI) for decades. This index beat most pro fund managers who work many hours weekly just to come short. What are the odds that a typical investor would beat it?
3) Buy and hold has been mentioned so many times in so many places.
The above is easy and makes sense for most.
Robert:
Well Done and keep going.
I share having been an Oakland resident and a life long member of AAII.
I have sufficient resources to enjoy life but still enjoy the rollercoaster as an observer. You desribed it very well.
Mr. Clements articles in WSJ and subsequent books got me even more interested in the excitement of our capitalist system and how as an investor I could be a beneficial participant albeit on a very modest basis.
Now past the anxiety mode of financial insecurity thanks to years of work, social security and some 401Ks I am free to make choices on what to do today and however many tomorrows are given.
Thanks for sharing your optimism and the importance of enjoying the lives we’ve been granted.
Thoroughly enjoyed this well written piece. Hope you contribute again.
I definitely will!
Good article Robert,
I also had to force myself to get much more educated about investing about 6 months before I retired, almost 2 years ago. I should have started years earlier. I had gained some investing knowledge by watching a PBS program, WeathTrack, for several years (still am) where they interview top fund managers with the highest Morningstar ratings. They had to have their own money invested in their fund. Some had retired. Some had written books. Jonathan Clements wrote one. I ended up reading over 10 books, most recommended having the majority of your money in index funds (Dodge & Cox was mentioned) and only checking and rebalancing once a year. The one I liked the most about individual stock investing was a book by Peter Lynch, “One Up on Wall Street”.
I wanted to ask how you became so good at using Morningstar. I took a quick try and found it very hard to use. I’ve been intending to try again as most of my money is sitting in cash with Fidelity, earing around 3%, and I need to get it invested.
Hi Tim – Morningstar has a portfolio tracking feature that you can use for free. I’ve used it for many years. It now called Legacy Portfolio Manager. Open a free account on Morningstar.com to access it. You can then evaluate any fund or EFT that Morningstar tracks, which is awesome. But what is really awesome are the filters that you can set up to screen funds. I don’t do ETFs, but you can screen them if you prefer. You set those up under My Views. For example, I screen for 1, 3, 5, and 10 yr return and benchmark ranking, risk, standard deviation, bear market rank, expense ratios, and a bunch of other stuff. Also, Dodge and Cox is one of the best to invest with in my opinion.
Read Christine Benz and John Rekenthaler’s articles. Look carefully at Christine Benz model portfolios. They are very enlightening!
there’s no easy way to get good at using MS. First you need the premium version for $250/yr. Then just spend the time going from
place to place to see what MS offers. Takes time. Pretend you’re a 3 year old with its first iPad……..
🙂
us birders are a weird lot [having fun]…..
Robert,
I enjoyed your article, it is a good reminder that no one is always perfect in their investing. Way too many investment decisions are based on hindsight, not foresight.
One of my favorite sayings from John Bogle is that he wants to be able to sleep well at night with his investment allocation. I remind people of this a lot when discussing the topic, I sleep well at night. Particularly important as we get a little older!
Glad to hear you are birding in Mexico, I have birded in Colorado, Texas, New Mexico and Arizona. The species change as you move south is amazing!
Bill
great birding here in Cuernavaca!
Thanks for an interesting story. I also learned from AAII back in the late ’70s and have been a lifetime member since ’85. Their monthly articles are all an investor needs. I, too, made early mistakes like palladium, gold, live cattle, and orange juice before I came to my senses.
Archaic? Ancient? Hell no, Doc. You’re wise, topical, relatable and a very fun read. Please keep it coming.
I will!
blandishments – Your article sent me to my dictionary – a flattering or pleasing statement or action used to persuade someone gently to do something.
Your article made me think of the earlier Humble Dollar article penned by Dr. Bill Yount, also a ER Doc, titled Saving our Retirement. You both changed financial course mid career by choosing to live within your means, controlling investments costs and hopefully your taxes. A great lesson.
On the differences between investing in quality individual stocks and index mutual funds/EFTs I can only hope that a cage match of the two ER Doc’s occurs in a joint Humble Dollar article. I believe the winner of such a match would be the readers of Humble Dollar.
I look forward to your next article. A topic suggestion is your experiences and challenges as a expatriate.
What a wild ride. Almost everyone can say that about their life, but I see you saying it with a big wide grin. For me at 77, that’s worth all the tea in China.
🙂
Robert, thanks for an well written and entertaining article. It’s always fun to read about a contrarian approach.
Once upon a time I decided to be an individual stock investor. I was too lazy and too unskilled to do the individual research and analysis you do, so I pretty much relied on the recommendations of well regarded analysts. I’ll never forget the one stock back then that had virtually unanimous positive reviews: WorldCom. So I bought in with enthusiasm. That learning experience was an early step on my road to becoming an index investor.
Cuernavaca is a lovely town and I visited several times during the halcyon days of my youth. The climate is unbeatable—it’s not called The City of Eternal Spring for nothing! I fondly recall a few 3 hour lunches at Las Mananitas—is it still going strong?
Oh yeah, Las Mananitas is indeed going strong! And the climate still salubrious. As we say: “folks come to Cuerna to die, and then live forever”……..
🙂
I really enjoyed reading your story! What a wild ride. Though I’m definitely an etf investor, I can see the fun to be had in choosing stocks and watching them closely. Someday when I have more time I’d love to try it. Thanks for sharing!
Que pasa Señor. It’s nice to see someone viewed the Covid stock market collapse as an opportunity of a lifetime. During such times it’s hard to have invest with any conviction. It seems to me that 20-25 well thought out stock selections would provide a return similar to the S&P, and if it’s something you enjoy, why not? In your next article, please slip in some comments on the food and life there is Mexico. Very much enjoyed the article.
Good writing!! Keep ’em coming.
Poor investing!! Glad it’s not me.
Thank you for sharing your story. The Beatles song, “The Long and Winding Road” comes to mind when I read the fascinating backstories of my fellow Humbledollarians. We’re all going from Point A to Point B but are obviously all using different roadmaps. But that’s what makes it interesting.
Amazing story Robert, hope to see more from you. I don’t think you need to fear scorn from the HD peeps, as your methods for picking companies are well reasoned and thorough. Most of the stock pickers I know do their research at the corner bar; gotta get me some of those marijuana stocks and bitcoin.
Ooooh, don’t forget SPACs, puts&calls, shorts&longs, and ya gotta follow those hot tips from your next-door neighbor!
Nice to hear of the success of a contrarian. I just hope my teenage grandsons don’t read this and get ideas after I have convinced them to invest in mutual funds.
Just so you know: I got my grandson to collect a matching $1500 from me last week for initiating a Roth IRA and putting his $1500 earning into Vanguard S&P 500 index ETF [VOO] and never look back or tap the IRA until retirement. You know: do as I say, not as I do………
🙂
Please keep writing.
I guess now I must……
Doc, thank you for the fun read! We also tend to eschew directly investing in bonds, except for our I-bonds.
And as a member of the closet Contrarian Club our “fun” investing money is invested in a few handfuls of stocks. I have been taking some gains on our tech superstar and culling some small holdings to simplify things. I’ve always been “a bird in the hand beats two in the bush” investor when it comes to taking gains. I am not greedy and certainly not ready to hold something too long, but long enough to enjoy long-term capital gains. A superstar can always be bought on a market dip again some day. Of course they have not all been winners, looking at YOU, my fertilizer stocks.
It sounds like you have designed a rich life, enjoy!
Yes, Stacey, rich or poor, it’s been a rich life.
Robert, A contrarian Boglehead. I love it! I hope you will continue to write, as I found your story quite engaging! Please consider sharing some stories of life in Mexico.
Yours is the 5th request for Mexico stories. Those will be crazy fun to relate in my future contributions!
Congrats on “coming out of the closet”…LOL! Thank you for sharing!
One of the best articles in recent memory. Pilgrim’s Progress!
Thanks from one doc to another..
Dr. Daily…we are all old enough to remember the song “Afternoon Delight”. Well sir, your article was a true morning delight.
i have always curtailed my instinct to reveal my inclination to purchase individual stocks—for fear that the Humble Dollar community might come after me with torches and pitchforks. You. Give me courage and hope. After all, why should the Mutual Fund Managers have all the fun.
i am a long time contrarian investor and follower of David Dreman, a pioneer in contrarian investor. His views and those of other contrarians are of great interest.
in addition, as good as some financial articles are, they lack what I call a certain punch, giving way to the ho-hum effect. While investing is a serious subject, your touches of humor and whimsy, in just the right portion, brought your article alive. Bravo. And “happy trails”to you.
Special for you, Marjorie……..a big hug!!!
🙂
You made my day!
Robert, thank you for sharing your story! At least you’re in a country where I have found the cost of living to be much lower than in the USA. I am heading to Mexico next month, to Ixtapaluca and San Francisco Cuautla. We will spend a couple of days in Oaxtepec, close to Cuernavaca.
So come on down and stay!
Robert, it would be a shame for you to run with the crowd after all these years, and worse for you to never again honor us with your delightful writing. Please give us regular updates on your life and your investing.
thank you, Edmund. I will.
Good read. I like contrarian views. Since you are looking for value, you might consider looking into Berkshire Hathaway, which has beaten the S&P by a small margin, and with less volatility, over the last 30 years of my investing in it. I have about half of my retirement money in it and the rest in VT. I feel that Berkshire holds the best basket of companies America has to offer and I get the same fair deal as Buffett and others managing it, with minimal frictional costs and tax efficiency.
Ah…….BH…….the queen of all investments. But isn’t a share now about $140,000? It would overwhelm my portfolio. However, it would make perfect sense, too, to simply make BH my portfolio.
But I’d miss the fun of messing around with it…..
BRK.B is around $400 a share. And you could then own a stock that is sort of like a highly tax efficient mutual fund, while continuing to say you’re a contrarian who invests only in individual stocks. 🙂
Enjoyed your article.
Just curious, what is your plan when the inevitable occurs and Buffet and Munger are no longer around?
There is nothing to do, David. Munger is gone, already. Buffett announced the succession plan two years ago. Greg Abel, who ran BHE is taking over. He is already doing most of it. Ajit Jain will continue to manage the insurance empire. Tedd Weschler and Todd Combs have been managing investments. In fact, they bought Apple Stock for $34B 5-6 years ago, which is now worth $170B. Berkshire decentralized structure is built for longevity. The wholly owned 60-odd companies will carry on with their own management.
FYI, Chris Bloomstran of Semper Augustus publishes a very detailed review of Berkshire and the markets in general, just before Buffett reveals the annual earnings letter. Terrific read.
https://www.semperaugustus.com/clientletter
See below, for 2022 report.
chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://static.fmgsuite.com/media/documents/266ce60e-4a48-4ee8-a4c7-6a0fc794700e.pdf
In fact Berkshire annual earnings report for 2023 is coming out this Saturday. Bloomstran’s Berkshire tome will be out this week. I am eagerly awaiting both reports.
The absolute number one killer of retirement savings for the medical and dental profession is divorce and the fact that they love their toys. My close friend, a specialist, didn’t believe me so he tried it twice.
I love reading contrarian views so you won’t hear any negative comments from me.
One question: do you also invest in the MOAT ETF that automates some of the moat criteria that you discuss? In a head to head matchup against the S&P, it does tend to slightly outpace the S&P in terms of CAGR, but at the expense of having a slightly higher standard deviation and slightly lower Sortino and Sharpe. (In other words, investors not being fully compensated for the additional risk.)
In any event, thank you for your first (and hopefully not last!) contribution to Humble Dollar! It was an interesting read.
Funny that I looked into MOAT last week, just because I thought an index of the MS wide moat companies would mimic the returns quoted in that MS index [14% compared with the 12% S&P over the last ten years]. It didn’t. The outperformance was only fractional. And the fund was actually actively managed by a Van Eek team that didn’t impress MS. I passed, disappointed.