14.98% A Year?

In an act of selfless, heroic readership unmatched in modern time, one of you — Patrick Johnson, whom I have never met — undertook to read the thousands of columns posted here since 1996, searching for the investment suggestions buried therein and then calculating how much money — that you could “truly afford to lose” — you in fact would have lost by following them.

There are so many grains of salt with which his findings should be taken that I can just hear my mother, who lived health-consciously to age 91: “Don’t use so much salt!  Have you even tasted it yet?  Darling, you’re going to get hardening of the arteries!”

But first the unseasoned meat of it:

“Here is the tentative final file,” Patrick writes.  “You made a total of 179 recommendations. I can do more analysis later but it looks like the average holding was held for 4.05 years and was up 76%, which works out to a compound average of +14.98% a year. Or in other words, if someone put $1,000 in each of your recommendations, they would have invested $179,000 for various amounts of time and ended up with $315,000 not counting taxes and commissions.  All the decisions of what constitutes a firm recommendation were subjective and I used my best judgement. Any mistakes or miscalculations are my own. I don’t believe there are any egregious errors.  Thanks to the readers who helped out in filling the information gaps.   Just think, we started this a year ago and we are at last done, at least with the initial data file. One of the neat things about Excel is that we can delve further into the numbers and find out more interesting stuff beyond the basic summary above.  I will be in touch! For now I have to do my taxes and have a busy week of work ahead.”

I mean, seriously, can you imagine how much work this was?

So the first thing to say is . . . thank you, Patrick!

The second is: wow!  Patrick went all the way from December 28, 1996, to May 4, 2012.  How do we induce him to (a) update the final prices (for stocks not yet jettisoned) to today? and (b) add the nutty suggestions I have made since last May?  So far, the only inducement I have been able to come up with is: more thanks.

[UPDATE: THROUGH APRIL 9, 2013]

The third thing to say is that, spreadsheet results aside, all that matters to you is whatever results you achieved — good or bad — if you acted on some of my suggestions.

And now the grains of salt, quibbles, and other signs of ingratitude:

As Patrick would be first to acknowledge, this cannot possibly be as accurate as a number carried to two decimal places — 14.98% — makes it sound.  I linked to Patrick’s spread sheet so anyone can see and evaluate it for herself.  But surely there were a few “buys” and “sells” in those 4,300 posts Patrick missed.  And, as he says, he had to interpret when my often pretty-well-hedged suggestion was a buy or a sell, a buy-more or a partial sale.

And while Patrick sensibly chose to assume an equal $1,000 investment in each — what if you put more in my disastrously enthusiastic recommendation of First Marblehead?  Or less in some winner I only mentioned once, without emphasis?

To a certain extent Patrick seems to have had you double up (a second $1,000, at a new price) if I reiterated a recommendation sometime later.  But he only has us buying BOREF three times since 1999, and I could swear I’ve mentioned it once or twice more than that.

And what if you had put $5,000 in the kinds of things that were not nutty speculations (like the very first recommendation in his spreadsheet, the T. Rowe Price Global Stock Fund) and just $1,000 in the clearly risky ones?

On top of that, there may simply be some errors in his research.  Some of this stuff — like calculating what happened to $1,000 invested in GM in 1997 — gets really complicated, what with dividends and bankruptcies and spin-offs and such.

And then there’s The Stockholm Syndrome.  Once he got captured by this project — self-inflicted though his entrapment was — Patrick may have found himself co-opted and, if only subconsciously, rooting for me to look good.  As he noted, there are a lot of judgment calls in an effort like this.

If you had two people doing it — both truly attempting to be fair and accurate, but one kind of hoping I’d look good and the other kind of hoping I’d look bad (don’t look away: you know who you are) — I think their results would not have been identical.  It’s not as straightforward as measuring the weight of a cabbage.

So to you all, please feel free to weigh in with suggestions, corrections, refinements, for anything up through last May 4.

I would note that anyone who did manage to compound his or her money at 14.98% over these years would have nearly tentupled it, and I’m all but certain that, even if investing with $8 commissions sheltered from taxes in an IRA, none of you has. I sure haven’t.

(Obviously, to have made 179 $1,000 investments and seen them grow from $179,000 to $315,000 — 76% — is not to have nearly tentupled your money.  What Patrick is saying is that the average holding time was just over 4 years.  To have grown 76% over 4 years is to have achieved a compounded annual return of about 15% a year.  The notion is that the money from your early winners — and losers — would have been reinvested upon sale in subsequent winners and losers.  Another way of saying this is that you would not have had to start with $179,000.  You would have started with $1,000 in the first investment, added further $1,000’s in future investments, but within a few years, perhaps, you would have been placing new bets not with cash from your paycheck, but with profits from from some of the earlier investments.)

This is all very preliminary.  But why should Patrick and I struggle to fine-tune and make sense of it without your having to put a little sweat equity into the game?

To be continued.