A Key to Stock Market Success

You can’t win them all. Those who try often fail miserably. This applies as much to making money on every position in your portfolio, to making money in every period. Some positions will be losers. Some quarters or years will be losers. This is inevitable. The key is to have enough winning periods and positions to still make acceptable returns.  To stretch a gambling analogy – since most if not all gamblers eventually lose – you can’t expect to win every hand, but enough good hands can make for a productive evening. One of my favorite newsletters, and one whose input is used in Camarda’s portfolio board, is The Prudent Speculator,  and it offers a great example. According to Barron’s, The Prudent Speculator has one of the very best long term stock picking track records, dating back to 1977, and smoking most of the competition. Over that period, “only” 63% of its picks turned out to be profitable. Still, this was enough to clock over a 17% annualized return, far superior to the S&P’s 8.2% compound rate over that period. To put that in real terms, $100,000 would have grown to about $2.3M with the S&P return, but over $53M with PS’s. Man, that’s some stock pickin’. Note, however, that this outperformance was not consistent – sometimes many years of apparent underperformance went by. The long view can be critical to superior results. As they have said, “as maintaining our broadly diversified portfolios through thick and thin has been the key… there is always plenty to worry about… the secret to success in stocks is not to get scared out of them.” These keys are critical to remember – for a well conceived and diversified portfolio like the kind Camarda strives to run, patience is a very profitable virtue, and a perspective spanning years, not months or quarters,  can really pay off. And while we all want to make money on every stock and over every week, and while grumbles are inevitable, remember the key is the whole portfolio, which will contain inevitable losers. This applies to both particular investments, and particular periods of time. So long as the winners outshine them, we have succeeded uncommonly well.