One of my favourite investing articles is an old piece, written in February 2008, by The Motley Fool’s co-founder, David Gardner. It had the provocative title, The Greatest Secret of All, and an equally provocative lede (emphasis is his):
“Welcome to my article. I’m glad you found it, because it is your lucky day, dear Fool: The greatest secret to easy riches in the stock market is contained right here, below.”
The article does contain the greatest secret in investing, and I implore all of you to read it. I’ll come back to his piece and provide a link to it later. For now, let’s turn to my girlfriend’s investment portfolio.
The portfolio
In early 2019, my girlfriend wanted to build a portfolio of stocks for herself. We started having long conversations about what she can do and how she should be building the portfolio. Eventually, she settled on a list of stocks in the US that she was really keen on, and she made the purchases on the night of 8 March 2019.
The list of stocks are shown in the table below, along with their initial weightings. I merely acted as a sounding board – the stocks were bought by her. She made the final call and the “Buy” mouse clicks.
From the get-go, the portfolio did really well, producing a gain of 20% in just a few short months. There was a brief swoon from mid-July to early-October, but then things picked up again. Her stocks ended up charging to an overall gain of 36% in mid-February 2020. That was when all-hell broke loose.
The fall, and the aftermath
The S&P 500 in the US – the country’s major stock market index – hit a peak on 19 February 2020, before fears over COVID-19 started ripping across the market. By 23 March 2020, the S&P 500 had declined by 34% from peak-to-trough.
My girlfriend’s portfolio was not spared – it tumbled by 29% over the same period. All her previous gains were wiped out in the fall. The portfolio even dipped into the red.
Here’s a chart of the performance of my girlfriend’s portfolio (the blue line; without dividends) and the S&P 500 (the red line; with dividends) from 8 March 2019 to 8 June 2020:
As of 8 June 2020, my girlfriend’s portfolio has a 50% gain from its initial value on 8 March 2019, and has comfortably surged past the previous peak seen in February 2020. Meanwhile, the S&P 500 has rebounded strongly from its 23 March 2020 low, but it’s still a little off its high.
The greatest secret, revealed
Some of you may be thinking that my girlfriend had made significant changes to her portfolio in March 2020 that resulted in the strong gains seen in the right-hand part of the chart above. Not at all. Her portfolio had zero changes during the COVID-19 panic. In fact, she has made no changes to her portfolio since she first purchased her stocks on 8 March 2019.
This brings me back to David Gardner’s article, The Greatest Secret of All. The secret that David is referring to is this:
“Find good companies and hold those positions tenaciously over time to yield multiples upon multiples of your original investment.”
The word “tenaciously” needs highlighting. There was a painful period earlier this year when my girlfriend’s portfolio was in the red. She needed tenacity to hold on. To her credit (and it’s all her credit!), she held on. She was forward-looking and never gave in to the prevailing pessimism about COVID-19.
Yes, COVID-19 – and the economic slowdown that has happened globally as a result – was and still is painful for all of us. But she was confident that “this too, shall pass.” Tomorrow will be a brighter day.
She was also confident in the long-term futures of her companies. If you look at the names, these are companies that are building the world of tomorrow. There’s robotic surgery (Intuitive Surgical); DNA analysis and precision medicine (Illumina); e-commerce (Amazon, Shopify, MercadoLibre); digital payments (Mastercard, PayPal, Visa); streaming (Netflix, Spotify); and cloud computing (DocuSign, Paycom Software, Veeva Systems, Twilio etc). There’s more, but I think you get the drift.
What’s next?
The story of her portfolio is not over yet. Only 1 year and 3 months have passed – that’s way too short a time to come up with any high-probability insights. A new bear market may be just around the corner. It’s not our intention to take a victory lap.
But what has happened to my girlfriend’s portfolio throughout the COVID-19 situation – because of her tenacity in being actively patient – is worth bringing up. Because, 10 years from now, her portfolio could very well be another real-life example of David Gardner’s greatest secret in investing.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I, the author, own all the shares mentioned here (except for Spotify). I will be making sell-trades on most of the stocks mentioned here for reasons that are explained in this article.
Good morning Ser Jing, I would like to thank you for your thought provoking daily blogs.
I am curious as to why one would want to evaluate, invest and manage such a large portfolio of 25 stocks. Given how much time you and your girlfriend would have spent evaluating each of those companies to the nth degree, wouldn’t it have been better to invest more in the companies that you’ll had initially identified, when you started out e.g top 10? If and when you had some liquidity and the price was right, you would buy more of the same companies you started out with. This is my two cents worth.
Hi Arjun! No thanks needed for my sharing. On your question, the portfolio contained companies that I already know very well, so I was able to help my girlfriend understand their businesses, prospects, and risks, very quickly. I’ve always preferred diversification over concentration, so this entered into the conversations we had as well – Ser Jing
Another great read! Would you consider doing a piece for high growth potential US counters?
Hi Dale! Thanks for reading. If you scroll through our blog, you’ll find many pieces we’ve written on individual US companies – Ser Jing
Hi Ser Jing,
I like the way you do diversification over the good company at US market and the long term approach.
I would like to know how much money I could start a portfolio like this?
Hi Pinky! Thank you for your kind words. But do note that if you wish to invest in individual companies, you will need to do your homework…! Anyway, there are no lot size restrictions in the US stock market, so you can buy just 1 share of a company if you wish. Because of this, it really does not take too much capital to invest in the US market in a diversified manner. This said, do aim to keep your transaction costs below 2% – Ser Jing
Hi Ser Jing!
I’m quite keen on a similiar portfolio as well since it is the brands that I use / contribute to on a day to day basis e.g. amazon, netflix, mastercard, spotify etc. Personally definitely believe in the brands. However, some are too highly priced for me to go into. What is your advice on this? I understand also that it is hard to time the market to enter in as well. Note that to keep my transactional cost below 2%.
Hi Lh! I cannot give any investment advice as I am not licensed to do so – I can only share my own thoughts. Whether a stock’s too expensive or cheap boils down to two things: (1) Your current assessment of its business future; and (2) whether your assessment turns out to be correct. The assessment is subjective, so we each have to decide for ourselves. I wrote an article recently that touched on this: https://www.thegoodinvestors.sg/saying-goodbye-17-investing-lessons-after-a-19-annual-return-for-10-years/ (see point 4) – Ser Jing