What do you do when you make more from Investing than from your job?
My husband and I are fortunate to have good friends who live elsewhere around the globe and further, that when we get together with them, we feel as though we have never been apart. There are many traits of European society that we envy very much but right now I am thinking of their attitude towards personal finance. Our German friend boasts of his salary as though that is normal, because for him, it is. Back here, in America, I have passed a certain milestone and feel it necessary to keep it to myself. I feel like I'm about to burst.
I was raised in a lower middle income family and witnessed first hand the fact that there are no divorce loans. Before I got married I saved a year's salary, so that I had more in cash than my husband had in lingering student debt. A couple years ago I started saving 40 - 50% of what I earn annually. Here's the milestone - I made 150% more from my investments last year than I made from my job. Additionally, I went onto a financial website and created two paper tiger portfolios. One is actually my real portfolio and in the other one, I looked up the dates on which I put money into the market all the way back to 2006 and entered those dollar amounts and dates into the portfolio as though I had purchased shares of SPY at the closing price for that day. Then I made sure to reinvest the dividends. My actual portfolio beat SPY by more than 1.2% on average and last year I did even better than my average - substantially better.
It occurs to me that as I have been honing my investing skills, I have begun to concentrate my holdings in companies I understand and that have unique managers. I like to look for cash balances increasing or other creation of shareholder value via tools like share buybacks at reasonable prices. Something marked about the CEOs or executive teams of the companies I own shares of, is that in their annual and quarterly reports, their voice is very apparent. It is clear that they view themselves as investors too. They are telling me something, not hiding things. I love the transparancy in the last phone-in shareholder meeting of Panera Bread (PNRA) for instance. Or the candidness of Stuart Rose of Rex American Resources (REX) admitting that he is in discussions about converting to an MLP. I love that he, in particular, came from a completely different background of industry than what he morphed the company into in response to the needs of our society - that's investing savvy.
As I looked at my portfolio before writing this I also noticed a couple of my companies that have grown so steadily over the last several years that their charts look like a ray plotted on a 45+ degree angle, Portfolio Recovery Associates (PRAA) positioned themselves so well through the economic downturn that they are still making loads of money off of that and will for years to come. Starbucks (SBUX) charts look pretty similar.
With all the companies that I own shares of, I keep tabs on their valuations. When they become overvalued, in my book that means a price of over 43 times future earnings, I don't allow myself to regret selling when it makes sense. The hard part is adjusting to the latest idea of what future earnings are likely to be. But many of the companies that interest me do not provide guidance. I admire that, because who can tell a CEO what deal she may be presnted with two months from now that may materially affect her EPS in that quarter. I view it as more responsible to not give that kind of guidance. That sets out all sorts of traps.
These are just some of the things I am thinking about these days as I hope to continue learning and beating the market. Lately I have been reading How Will you Measure your Life by Clayton Christensen et al. in tandem with The Outsiders by William Thorndike, Jr.. I tend to read a chapter of one and then a chapter of the other and then just let the ideas sink in for a while and come back to them later. In addition to reading for insights, I am spending a little time each week listening to the conference calls of the companies I own shares of. I was really wondering about Monster (MNST) until I listened to the conference call. The numbers I saw looked like it is a good investment, but the qualitative story told via the conference call solidified my holding of the position. It was far better told than read in the accompanying quarterly report.
I suppose part of the moral of this story is that I am keeping my job because I need something to distract me from my portfolio and because I have beautiful, meaningful work that I love. The founder of Vanguard, Jack Bogle, wrote a book recently called Enough. I have defined enough for myself as 25x my current salary. That is my goal. And now that I am up to between five and six years salary saved, I am starting to feel like I will make it to that big goal. But beyond that 25x is the potential for Philanthropy. That will be the next great adventure after my current work - building an endowment to make that beautiful meaningful contribution to society go on into perpetuity.
I own shares of BIDU,AAPL,PRAA,PNRA,MCC,SBUX,BH,MNST,WPRT and REX. I would love to hear from you about what you are learning, reading and investing in these days too.