2010 Success Story

[Rickson9]

This year has been unreal. It will likely never repeat itself ever again.

As some readers know, I invest in stocks and real estate during crashes. During the 2008 and early-2009 meltdown in the markets I held my nose and bought stock. Thousands of shares of ... retailers. It was brutal. It was my most significant investment in stock since the 2002 tech wreck. I was rewarded in 2009 with a 30%+ return. I expected that to be the end of it.

I was wrong.

My 2010 YTD return is 35%. This compares favourably to the indicies:

2010 YTD Returns*
S&P500 +3.9%
DOW +5.0%
NASDAQ +5.1%
* does not include dividends

The following is what this year has looked like so far:

http://finance.yahoo.com/echarts?s=BRK-B+I...ource=undefined

My return has been approximately 15% annualized over the last 14 years. This results in the quadrupling of an original investment compared to the 60% return of the S&P500 over the same period.

It`s not amazing, it`s respectable I think. I`ve made a lot of mistakes, but I`m continually learning.

How did I find these businesses?

When I was a teenager there was no internet so I had to go to the library, pull out the huge Value Line books and go through them sheet by sheet.

A subscription to Value Line is tens of thousands of dollars a year, but anybody can get it for free at the library.

http://www.valueline.com/

Now with the internet, it is infinitely easier. The following are two free screeners:

http://screener.finance.yahoo.com/newscreener.html

http://www.cnbc.com/id/15839076/site/14081545/

Another useful resource is Morningstar. Morningstar used to provide 10 years of information for free (now they only provide 5). You can still get 10 years of information, but you need to pay. I don`t pay for any information that I can`t get for free elsewhere.

http://financials.morningstar.com/income-s...p;culture=en-US

When things couldn`t get any better I started investing in rental properties in Phoenix, AZ. The numbers appeared very solid as far as I could tell. I would be buying properties at prices less than 5x gross annual rent in low crime areas a stones throw away from downtown Phoenix. I screened thousands of properties to find the best, and it was worth it.

My buying caught the eye of the Associated Press and they gave me a few lines in their article:

http://www.google.com/hostednews/ap/articl...docId=D9IL4I780

Each unit that I pick up for $40K is rent ready and puts almost $4k in pure profit in my pocket per year. That doesn`t sound like much, but week after week, unit after unit, the profit builds up very nicely.

This all requires a bit of time, but for me, investing doesn`t require much speed. In 10 years, the stock market is usually in a bull for 7-8 years and in a crash scenario for 1-2. In my brief experience I usually get 8 years to research what I want before a crash hits. When the crash eventually hits, I`m just buying off my wish list. When the next bull market comes around, I go back to doing nothing and let my investments compound tax deferred - shopping for the next crash.

This mindless method of buying stock at 10 P/E and 2 P/B or less and/or buying real estate at 5x gross annual rental income or less has helped me become a millionaire in stocks and real estate separately in my 30s (with a personal debt/equity ratio of 0.15). I could probably have made a lot more by employing significant leverage, but that`s just not in my personality.

I have been lucky.

Fate decided that I should be born in a capitalistic and democratically stable society with a personality that is suited to exploit market downturns and then provided me with the following:

1. Canadian real estate crash (1992)
2. Tech stock market crash (2002)
3. Credit crisis stock market crash (2008)
4. U.S. real estate crash (current)

If that isn`t luck I don`t know what is.

This means that I have experienced and taken advantage of 4 crashes in 15 years. I wouldn`t be as successful as I have been without them.

In closing, as I said at the start of this post, 2010 will be unrepeatable.

Good luck and godspeed!

 

[MonteDobson]

Good work!

With regards to stocks I learned a valuable lesson about 5 years ago, and it was to invest in industries/businesses/segments that you are familiar with since most of us do not have the time, energy or resources to do the required research involved in picking good stocks. Although I don`t invest very heavily in stocks, working in the Agricultural industry I decided to purchase Agrium and Potash Corp - two giants in the fertilizer business.

Well I purchased Agrium at about $36 and Potash at $94 during the downturn. Now they are worth $79 and $145, which equates to returns of 119% and 54% respectively.

The world population is expected to peak and reach 9B people sometime around 2050, the demand for food, fuel and fertilizer will continue to increase. And guess which region of Canada is likely to benefit from this?

Caveat: I am not advocating any particular stocks, simply reiterating a simple strategy that seems to have worked for me - buy in downturns and buy in companies/industries that you know. Just like real estate!

 

[Rickson9]

QUOTE (MonteDobson @ Oct 8 2010, 10:22 AM)
Caveat: I am not advocating any particular stocks, simply reiterating a simple strategy that seems to have worked for me - buy in downturns and buy in companies/industries that you know. Just like real estate!




Awesome advice and congratulations on your success!

 

[gwasser]

QUOTE (Rickson9 @ Oct 8 2010, 09:59 AM)
Awesome advice and congratulations on your success!




I think congratulations are due to both of you. Keep up the good work.



My return year to date was around 10% and 17% annually since 2003 - not bad for a conservative boozo. Unfortunately my Quicken files got frequently corrupted prior to that so I can't tell you for sure what the returns were before 2003, my guess 10-13% per annum. My target total return is 10% per year but I won't complain if it is better.



Uncertain about my Real Estate properties, but it seems I am still a bit below the pre-crash high because I own a fair bit of recreational properties that don't make much revenue at this point and have decreased in value.



My overall portfolio is nearly back at it's pre-crash peak. Just like Rickson9, my level of leverage is very low. In fact it is too low. I have been working at that but the results are still in the making.

 

[JDaley]

QUOTE (Rickson9 @ Oct 8 2010, 12:44 AM)
This mindless method of buying stock at 10 P/E and 2 P/B or less and/or buying real estate at 5x gross annual rental income or less has helped me become a millionaire in stocks and real estate separately in my 30s (with a personal debt/equity ratio of 0.15). I could probably have made a lot more by employing significant leverage, but that's just not in my personality.




Great success story! That's the way to do it.

 

[housingrental]

Nice work!
That being said tn terms of % return post 2002 I have you all beat

 

[Rickson9]

The market is completely irrational, pushing my 2010 YTD returns clear past 40%. I have never had an annual return like this since I started investing 12 years ago. I now fully anticipate a brutal 2011 for me.

2010 YTD Returns*
NASDAQ +13.6%
S&P/TSX +9.9%
DOW +9.5%
S&P500 +9.1%
* does not include dividends

 

[gwasser]

QUOTE (Rickson9 @ Nov 4 2010, 09:09 AM)
The market is completely irrational, pushing my 2010 YTD returns clear past 40%. I have never had an annual return like this since I started investing 12 years ago. I now fully anticipate a brutal 2011 for me.



2010 YTD Returns*

NASDAQ +13.6%

S&P/TSX +9.9%

DOW +9.5%

S&P500 +9.1%

* does not include dividends






Congratulations. But just because this year was so good for you that does not necessarily mean that next year will be bad. I understand you want to lower your expectations and that is healthy, but you do not want to close your eyes for further opportunities because of your expectations and as long as you do not mix-up success with greed.



Finally, as a long term investor I did, like many others, take a significant licking in 2007-2009. Now we're back and I am ready to enjoy the continuation of this bull market. You and I probably recovered faster than many because rather than selling we bought during these bad years and optimized our portfolio. Looking back that was something that may seem to be easy but this was definitely not the case at the depths of the 2007-2009 recession. Wishing you an even better 2011 (maybe a bit premature

)

 

[Rickson9]

QUOTE (gwasser @ Nov 4 2010, 12:03 PM)
Congratulations. But just because this year was so good for you that does not necessarily mean that next year will be bad. I understand you want to lower your expectations and that is healthy, but you do not want to close your eyes for further opportunities because of your expectations and as long as you do not mix-up success with greed.



Finally, as a long term investor I did, like many others, take a significant licking in 2007-2009. Now we're back and I am ready to enjoy the continuation of this bull market. You and I probably recovered faster than many because rather than selling we bought during these bad years and optimized our portfolio. Looking back that was something that may seem to be easy but this was definitely not the case at the depths of the 2007-2009 recession. Wishing you an even better 2011 (maybe a bit premature

)




Thank you and I hope that you're right Godfried! All the best to you too!

 

[Rickson9]

If high returns are a foreshadowing of a terrible returns to come, my 2010 YTD returns almost ensure a year of sub-mediocrity in 2011.

As of last week, my 2010 YTD returns marched solidly past 50%. In addition, both The Buckle and Columbia Sportswear declared a special one-time dividend of $2.50 and $1.50 per share respectively, both payable in December, which for me is an undesired, but significant sum.

The Buckle
http://finance.yahoo.com/news/The-Buckle-I...ml?x=0&.v=1

Columbia Sportswear
http://online.wsj.com/article/BT-CO-20101109-710557.html

The following is a graph of my holdings. The weighting of each stock can be found at my web site.

http://finance.yahoo.com/echarts?s=FOSL+In...ource=undefined

2010 YTD (not including dividends)
NASDAQ +9.8%
S&P/TSX +9.1%
S&P500 +5.8%
DOW +5.7%

Best regards.

 

[bizaro86]

QUOTE (Rickson9 @ Nov 23 2010, 12:22 PM)
In addition, both The Buckle and Columbia Sportswear declared a special one-time dividend of $2.50 and $1.50 per share respectively, both payable in December, which for me is an undesired, but significant sum.




I'm not sure I'm following why you're opposed to a special dividend? Is it due to the taxation event?



I understand of course that you want to leave as much capital invested (compounding) in high return-on-equity businesses, which is perfectly logical. However, that presumes the business will be able to continue to generate the same ROE on the additional funds. If the money is coming from cash on the balance sheet, it is very likely earning only a small return, penalizing the total ROE (cash-drag).



On the other hand, cash paid to you can be used to purchase more shares of the same company, allowing you to compound the money at the non cash restricted ROEs that the business can provide.



Is the objection that the dividend attracts tax whereas a buyback would have the same effect (less cash in the company, and a greater percentage stake for you) without tax? Because while a buyback would be more attractive, the dividend still seems more attractive to me than leaving the cash in place.



Interested to hear your thoughts.



Michael

 

[Rickson9]

QUOTE (bizaro86 @ Nov 23 2010, 04:56 PM)
I'm not sure I'm following why you're opposed to a special dividend? Is it due to the taxation event?




Hi Michael those are awesome questions! Im opposed to cash because the cash was already in an asset that had a past history of compounding that I am unable to replicate.




QUOTE (bizaro86 @ Nov 23 2010, 04:56 PM)
I understand of course that you want to leave as much capital invested (compounding) in high return-on-equity businesses, which is perfectly logical. However, that presumes the business will be able to continue to generate the same ROE on the additional funds.




You are correct! I am assuming that the business will be able to continue to generate the same ROE on the additional funds as they have in the past.




QUOTE (bizaro86 @ Nov 23 2010, 04:56 PM)
If the money is coming from cash on the balance sheet, it is very likely earning only a small return, penalizing the total ROE (cash-drag).




This is true. However, the businesses have shown an ability to compound it faster than me - even with the cash in tow. In addition, I am just as unable to invest without a cash drag either.




QUOTE (bizaro86 @ Nov 23 2010, 04:56 PM)
On the other hand, cash paid to you can be used to purchase more shares of the same company, allowing you to compound the money at the non cash restricted ROEs that the business can provide.




This is a good observation. Unfortunately I consider this to be less efficient - having the business pay me, then for me to reinvest back into the business. There are frictional costs there and I would prefer that they just kept the money.



In addition, the time of distribution is often not correlated with a good time for me to purchase stock.



I hope my perspective made sense. Best regards.

 

[bizaro86]

QUOTE (Rickson9 @ Nov 25 2010, 11:55 AM)
I am assuming that the business will be able to continue to generate the same ROE on the additional funds as they have in the past.






That's the million dollar question. If you trust the management though, and they want to give the cash back, they may be signalling they don't think they can use that cash.



Alternatively, they may be trying to increase their ROE by reducing the cash drag. After all, a 15-20% ROE is good, but 20-25% would be better.



I suppose it depends on how much you trust the management team. If they're very clever, you want them to keep the money. If they're not clever at compounding money, you'd rather have it back. But then it becomes a question of whether you want to invest in businesses with poor leadership, which I suspect is undesirable.



Ultimately the trick is to find enough high ROE businesses to keep compounding. I'm also a big fan of businesses that have pricing power, as pricing increases to the top line flow disproportionately to the bottom line compared to volume increases.



Michael

 

[Rickson9]

QUOTE (bizaro86 @ Nov 25 2010, 04:14 PM)
That's the million dollar question. If you trust the management though, and they want to give the cash back, they may be signalling they don't think they can use that cash.




Yes, that is possible.



It could also mean that the owner/operator holds 15M shares and wants to be paid in dividend income instead of earned income.



Related to that, in the U.S. on January 1, 2011, the favorable treatment of dividends ends. Right now, dividends are taxed at a 15% rate making stocks with dividends extremely advantageous. Soon, that advantage disappears. If Congress doesn't extend the dividend tax break, we revert to dividends being treated as ordinary income. Dividends are set to be taxed at rates up to 39% in 2011.



In my opinion, all the businesses that I am invested in have owner operators holding huge amounts of stock and the specials were designed to drain all excess cash giving them one last chance to pay a lower tax rate on their dividends.




QUOTE (bizaro86 @ Nov 25 2010, 04:14 PM)
Alternatively, they may be trying to increase their ROE by reducing the cash drag. After all, a 15-20% ROE is good, but 20-25% would be better.




This is also possible. I find it difficult to compound at either rate.




QUOTE (bizaro86 @ Nov 25 2010, 04:14 PM)
I suppose it depends on how much you trust the management team. If they're very clever, you want them to keep the money. If they're not clever at compounding money, you'd rather have it back. But then it becomes a question of whether you want to invest in businesses with poor leadership, which I suspect is undesirable.




Being a terrible entrepreneur, this is why I like large shareholders who are owner operators.



Thanks for the insights! Best regards.

 

[EquityEric]

If you want to learn how to make $ after a crash - read Bill O Neils books.

He predicted the 2008 crash and his advice showed me to get out on Nov 07.

Everytime I have followed his rules I have made money, and everytime I faltered from them I lost money - the only expection was when I bought CAT at $25 / share. - being a cyclical stock opposed to a growth stock I applied the wrong rules for the type of stock it is and sold it when it dropped 8 % - only to see it now at $85.

 

[Rickson9]

QUOTE (EquityEric @ Nov 27 2010, 10:15 PM) If you want to learn how to make $ after a crash - read Bill O Neils books.

He predicted the 2008 crash and his advice showed me to get out on Nov 07.

Everytime I have followed his rules I have made money, and everytime I faltered from them I lost money - the only expection was when I bought CAT at $25 / share. - being a cyclical stock opposed to a growth stock I applied the wrong rules for the type of stock it is and sold it when it dropped 8 % - only to see it now at $85.

Thank you for the information!

Speaking for myself, I find it relatively easy to make money after a crash - I just go shopping through the wreckage.

For better or worse, I don`t believe the future is predictable so I don`t pay attention to them. That`s just a personal bias! Everybody should obviously invest in the way that is most comfortable for them!

Best regards.

 

[bizaro86]

QUOTE (Rickson9 @ Nov 28 2010, 01:44 AM) Thank you for the information!

Speaking for myself, I find it relatively easy to make money after a crash - I just go shopping through the wreckage.

For better or worse, I don`t believe the future is predictable so I don`t pay attention to them. That`s just a personal bias! Everybody should obviously invest in the way that is most comfortable for them!

Best regards.

Picking what to buy after a crash is easy, although I understand sometimes it`s hard for people to get over over a fear of loss. I don`t appear to have that reaction, which is why I avoid extreme sports, where fear is healthy and can prevent death.

I disagree with your statement that people should invest in the way that is most comfortable for them. There are a number of investing strategies that I firmly believe are sub-optimal, even if they produce a high comfort level for their adherents. In this category I would place things like 100% GICs and 100% gold. I would also categorize 100% RE this way, as its illiquid. Like Thomas says, "the grocery store doesn`t take equity."

Michael

 

[rente]

HI,
That was great and i`m proud of you because for your fighting spirit to gain something in future...
Thanks for the information you shared with us here..

 

[Rickson9]

QUOTE (bizaro86 @ Nov 29 2010, 03:08 PM) Picking what to buy after a crash is easy, although I understand sometimes it`s hard for people to get over over a fear of loss. I don`t appear to have that reaction, which is why I avoid extreme sports, where fear is healthy and can prevent death.

I disagree with your statement that people should invest in the way that is most comfortable for them. There are a number of investing strategies that I firmly believe are sub-optimal, even if they produce a high comfort level for their adherents. In this category I would place things like 100% GICs and 100% gold. I would also categorize 100% RE this way, as its illiquid. Like Thomas says, "the grocery store doesn`t take equity."

Michael

You are correct. Perhaps "within their circle of competence" would have been closer to what I meant.

 

[jjaris1982]

Hello friend! I just read your story and you just made it succesfully. Keep up the good work and continue doing the bes. God Bless