Tuesday, March 31, 1998

On Beating the Market
By C. Regis Wilson ([email protected])

It's toward the end of March, now, and I was looking at a huge loss my portfolio has had relative to both the S&P and Nasdaq. Not an absolute loss (I'm up for the year), but a relative loss, year-to-date. At the end of February I had been well above both, and practically doubling the year-to-date figures of the Nasdaq. Then my portfolio fell down and went boom. Quietly. But quickly. You know that feeling, don't you?

What was it? I found out (well, I knew, but hadn't really kept track) that over 25% (28% before the slide the stock has taken) of my portfolio was weighted in Intel. I was so happy every time INTC went down, I kept buying more. Lately it's been really down, down to the point of being underwater for the shares I purchased just before the end of last year. Five months of earnings down the tubes.

And then I woke up and danced, dear Fool! Buffett posed a question in his annual report that goes something like this: If you buy beef principally for food during your life, do you want the price of beef to go up or down? Having answered that, why is the answer different for stocks?

The key word here is "buy." If you are buying, you want the price to be low. If I am not going to sell my shares any time soon (which I won't), why should I be concerned? If the long-term outlook looks very good, don't worry. I almost wrote, "be happy." I didn't, but I mentioned it anyway so it's a wash.

In any case, the money I add to my portfolio can go toward buying more shares of stocks that have great outlooks at lower prices (no more Intel, until my portfolio balances a little better, though. What's not to laugh, dance, sing, and praise about? And what's the big deal about having my portfolio lose to the S&P year-to-date figures? If I calculate my rolling six-month return, I'm still ahead! If I calculate my lifetime return, I'm still ahead! So my portfolio fails once or even twice on an arbitrary rolling return. Who cares? Not I. At least, not after having figured it out.

It still smarts the first time, though, to see that line in my graph dip below the S&P and NASDAQ. Oooooo, that smarts, but I'll live and prosper.

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