A year ago I told you how to Beat the Market in Your Spare Time with My Proven Strategy...but offered the honest subtitle: Ten-year Report on My Experiment in Measured Contrarianism in Personal Finance. As you might recall, I began my experiment on August 19, 1999, so I just passed the 11-year mark. Here's my latest annual report.If you had copied my investment strategy a year ago, you would have beaten the market. In fact, between August 19, 2009, and August 19, 2010, my portfolio returned 10.5%. Not bad for tough times. In contrast, my benchmark returned only 10.5%.Er. That is to say, I earned 10.478%. If I had lazily dumped all my savings into a single Vanguard mutual fund designed for someone of my age, I would have earned 10.463%. I beat my benchmark by 0.015%. After the taxes I will eventually have to pay on that extra gain, I'll be able to enjoy one extra glass of prune juice in my golden years. Unless the market completely tanks between now and then.There's a real lesson here. With remarkable regularity, people who copy investment strategies that worked in the past fail to beat the market. Once there was a January effect: if you bought into the U.S. market on January 2 and sold on January 31, year after year, you apparently could have beaten the market by a humongous margin. But then someone wrote a thesis about it and it disappeared. Now apparently there is a "negative July effect" so if you want to try shorting the market each July...good luck with that.Still, I plan to stick to my strategy, partly out of curiosity. And I find the theoretical questions underlying the historical value premium (defined last year) really interesting. Are investors systematically irrational? Is the market systematically mispricing? Can a smart investor exploit that? If you're interested in copying me, check out my secret spreadsheet, linked to from last year's post. But also read the block quote near the end of the post.Here are the numbers:
And here is the graph, as I explained last time, that I think is the best measure of cumulative out-performance relative to a benchmark. The graph differs from last year's because I have tweaked the benchmark to better match my stock-bond ratio. I had some great years in the early naughties, but since then my strategy has essentially done me no good, in that the contour stops rising:
Topics
DISCLAIMER & PERMISSIONS
CGD's publications reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions. You may use and disseminate CGD's publications under these conditions.
