Bring on the birthday cake and light three candles.
In May 1997, I published my first
on what was then the
Microsoft Investor Web site
, which I figure now makes
officially 3 years old.
Three is a pretty big birthday for an investment portfolio. One-year results don't mean much of anything, most financial experts advise. The period is so short that chance plays a huge role in performance. Although an investor needs five or 10 years of data to feel really confident about performance, with three years of numbers, an investor can start to make some meaningful judgments about a portfolio's performance. So this birthday is an important milestone for Jubak's Picks, and I'm happy to finally be able to give those investors who've asked about my track record a significant number.
The Hard Number: 41% a Year
For the three years since I started Jubak's Picks, on May 7, 1997, with $100,000, the portfolio has recorded an average compounded annual return of 41%. In the same period, the
Nasdaq Composite Index
index has returned an average compounded annual of 42%, the
index 20%, and the
Dow Jones Industrial Average
14%. (The returns for Jubak's Picks include round-trip commissions on each trade and assume equal dollar amounts invested in each stock. The results do not include taxes.)
That 41% number is a nice, hard measure of what I've accomplished with Jubak's Picks in three years, and I'm happy to share it with you. But it doesn't begin to capture all the "softer" things I've learned about investing over the Internet in that time. After three years, I'm fully convinced that this is a new kind of investing with unique advantages and disadvantages.
Many journalists and pundits have suggested that what characterizes investing over the Internet is more speed and more information. I think that's true enough. But the speed is so much greater, and the additional sources of information are so different, that I'd argue they make investing over the Internet a different kind of thing than its pre-Internet counterpart.
Investing in a Crowd
For example, pre-Internet investing was a solitary enterprise. At the most it involved the individual investor, a spouse and a broker. From the sidelines, the occasional newsletter writer, media "expert" or friend would shout out advice and encouragement.
Investing in the Internet age hasn't just added a few additional figures to this mix -- it's added a crowd. Internet-era investing is conducted in chat rooms and on message boards with hundreds or thousands of participants. Sign up for almost anything investing related and your e-mailbox fills up with advice and advertisements from people who want to
advice. On the Internet, everybody is commenting on everybody else's trades, strategies and portfolios.
This has its pluses and minuses. I've found good stocks by following the leads other investors have suggested. That's obviously a plus. And when the market is going sour, I've found it immensely supportive to communicate with others who are going through the same pains as I am. That's another plus. But sometimes I find the sheer volume of opinion overwhelming. Too many stock pickers are picking too many stocks. Too many strategists are posting too many conflicting strategies.
New Strategies for a New Era
The strategies we've learned for pre-Internet investing don't always work particularly well in this new environment. We're used to information scarcity, so we're used to engaging anyone with a scrap of promising information. Do that on the Internet and you'll never do anything but answer email. We're used to a world of experts that are distant and accessible only after we're paid our subscription fee. On the Internet, everyone (well, it seems like it) claims to be an expert and no one is particularly difficult or expensive to approach. Pay attention to all those accessible "experts" and you'll be buried under a sea of conflicting advice from the informed and the ignorant alike.
Getting the most out of Internet-era investing, I'd argue, requires learning different strategies. I've blundered onto some during my three years in the saddle and hope to discover a few more as I go along over the next three years. We're still at the very beginning of Internet investing, and I've only been running Jubak's Picks for three years, so I'm not going to pretend that I've got it all figured out. But here are my observations -- major and minor -- about this "thing" that we're all doing and how to make it work better.
Sample sentiment -- but watch out for sampling error.
I'd argue that one of the most valuable things about the Internet is that it allows me to get immediate and constantly updated reads on investor sentiment. For example, by May 12, it was pretty clear that a majority of the investors posting in the
with Jim Jubak community here on
were planning to buy on Monday ahead of Tuesday's
meeting. They were expecting a decline on Monday on interest-rate fears and a huge relief rally on Tuesday. That was an important piece of intelligence to me. It suggested that there might be enough investors buying ahead of the meeting to produce a positive day on Monday and to carry over into Tuesday.
I have developed a certain caution about using the Internet as a sentiment indicator, however. It's important to realize that the sample on any message board, or even the bigger sample you can create by reading several boards, isn't always representative of the entire market. For example, Internet posts tell you very little about what institutional investors are thinking. And, since negative posts tend to draw violent and insulting reactions, the Internet also tends to under represent bearish sentiment. Interpreting sentiment remains an art -- even with the increase in data provided by the Internet.
The Internet is even more manic-depressive than the market as a whole.
It's a cliche -- but a very useful one -- that the stock market carries all trends to an extreme before reversing. For example, if stock prices are headed up, it's unlikely that the trend will reverse until valuations have hit unsustainable heights. Stocks that once were excessively loved become hated with a white-hot passion. I think the Internet has intensified those swings. When a stock is moving up, the boards that specialize in that stock often become fan clubs. It's hard for a visitor not to jump on the bandwagon -- I know from experience. Once the market breaks definitively, however, the mood swings to despair. Reports of losses, confessions of bad investments and attacks on anyone who was once positive about a stock, or the market in general, become the staples. Add a few posts from investors who got out early or who never bought into the trend to begin with, and the loathing is complete. Needless to say, trying to shadow these mood swings with your portfolio can do serious damage to your returns. I think those investors who, during the recent breakdown in the technology sector have urged everyone to chill out and have a beer, are on to something important.
It's hard to do nothing on the Internet -- even though doing nothing is sometimes the best move.
The Internet is an activist medium. The fast pace of information, the number of tools available and the variety of available opinions all encourage action. Some days it seems like everybody who's posting on your favorite message board is buying or selling something. Didn't you just read a great tip? Or a very timely warning? What's the point of all this information and data if you aren't acting on it? I think it's important to resist the urge to action for action's sake. Put some automatic brakes into your investing system. For example, promise yourself to always compare the potential returns from a hot stock with those of the "worst" stock in your current portfolio. Or pledge to do a certain amount of independent due diligence on any prospective buy or sell before you act. The point -- even for day traders, I'd argue -- is to slow down enough to think before you act.
It's not rude to ask "who are you?" up front.
In fact, it's essential on the Internet. If nothing else, it will help you sort good information from bad. Face-to-face, such a question might seem rude. But on the Internet, where identity is a slippery subject to begin with, I think it's a fair opening gambit. I don't expect anyone to give me a life history in response to that question, but a few facts in a post or in a member profile on a message board isn't too much to ask from anyone. Think of it this way -- on the Internet, everybody wants to talk and no one wants to listen. Any talker should be willing to pony up a fact or two to gain a listener.
Sometimes it's okay to judge a book by its cover.
Everybody on the Internet has an opinion. But not everybody is willing to take the time to explain the reasons behind that opinion, to answer questions and to respond politely to reasonable criticism. Ask yourself this: What's the value of yet another post that yells in capitals GO XLA (or QCOM or IDCC)? That opinion may be correct -- the stock may be headed for the stars -- but you can't possibly separate the profitable cheerleading from the wishful thinking or the consciously manipulative if that's the full extent of the message. I can't remember ever having a useful exchange with a cheerleader. But I've had dozens of informative "conversations" with investors who told me in their initial post why they liked
. I don't always agree, but I almost always learn something.
Resist the sirens' songs.
Great advice on day trading a risky technology stock is worse than worthless if you're a long-term investor. It's an invitation to disaster. Same with advice to buy
if you're a momentum jockey. The pick may seem great at the moment, but if it tempts you into abandoning your own investment style, it's not likely to pay off for you. At some level, you're likely to be uncomfortable with it and to harbor the nagging suspicion that you don't really understand it. That's a recipe for panic selling on the first rumor of bad news.
Everyone Has to Give
The Internet is an exchange economy -- you should be prepared to barter.
One of the amazing and rather wonderful things about the Internet is the number of experienced investors who are willing to go out of their way to help someone else figure out a problem. Especially if that someone is a newcomer to investing or the Internet. There are investors who do nothing but ask for help, advice, and pick and use information from that reservoir of good will in relatively short order. And those investors use it up particularly quickly with those most experienced investors on the Internet who have the most to share, but who are also the most fed up with "takers" who never give anything back. Most investors posting on the Internet are looking for information themselves, and they'd like to get some return for what they've posted. Even if you're not an expert, you can still pitch in with a link you found, an article or a post you read on a stock.
Relationships, not data, are the important things.
Advice or information from someone who's just a name on a message board isn't very valuable, since you don't know anything about its quality or purpose. Advice from an individual who you know from other posts, or even better, from someone with whom you've exchanged posts, has the context and the history that makes it possible to put the information to use.
It's great to find a better tool, but at some point you won't be able to lift the toolbox.
Yes, the Internet is a wonderful source of new methods and investing tools on sites that you've never heard of -- probably because they didn't exist yesterday. And it's good to stay open to trying the newest thing. But the search for a better chart or a better source of analyst insight can easily become the end in itself, rather than a stop on the way to making an investment decision. It's useful to remember that in investing, much of the difference among competing tools falls within the margin of error. The difference in the numbers or charts or graphs isn't significant and won't make you an extra penny. Your intelligence in interpreting the data remains the most important ingredient in your eventual success or failure.
Be Ready to Go the Distance
Be a true Internet contrarian -- invest for the long term.
This is just a theory, mind you, and I admit I have no performance data to back it up. But it makes intuitive sense to me, so let me offer it up for thought and discussion. Some good data suggests that the average holding period for an investment defined as long term by the investor continues to shrink. It may now be down to as little as a year. (Kind of frightening to me, since that would mean that Jubak's Picks, with its 12-to-18 month time frame, is now a long-term portfolio, and my 50 Best and Future 50, with their 5-year holding periods, are off the scale.)
To me that suggests that the majority of investors are now all looking at the same short-term information about stocks and the markets and are now all pursuing the same short-term opportunities. Logically, then, the price of that limited supply of short-term opportunities would be bid up -- possibly to a degree that would reduce future returns. And good long-term opportunities might be undervalued to a degree that would enhance future returns. Can't say it's true, but it does seem worth thinking about. If I get enough posts in the community to indicate there's an interest in this topic, I'll devote a column to it in the next few weeks.
Jim Jubak is senior markets editor for MSN MoneyCentral. At the time of publication, he owned or controlled shares in the following equities mentioned in this column: E*Trade. Holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He welcomes your feedback at
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