Seeing Is Believing

For all the pitfalls and missteps in investing, there can be a time and place to sit back and marvel at covered ground. I caught myself stopping to smell the roses earlier tonight, honestly trying to wrap my head around the recent returns that my portfolio was displaying for its 3- and 5-year returns especially. It's known that the stock market has not had an official correction in over three years now, which is alarming in many degrees but also reasonable based on the actual circumstances.

Psychologically, I have tricked myself into believing that my portfolio is at least 10% over-valued for its current balance, which made tonight's reflection all the more shocking. It was a nice moment to pat myself on the back for a "job well done," but it still feels as though I did nothing.

I have long held the belief that "you can work hard or you can let your money work hard for you," and there is a lot of truth to that cliché. I have been educating myself with individual stock investing for the past 8 months, but my success there has been a fraction of the simplicity of index investing. I have to laugh at the Money.CNN.com trolls who question leaving money on the table with inferior returns. So few have taken that next step of pretending it was "guaranteed failure" by under-performing the market by the expense ratio. (That argument hardly holds its own weight against its own inferred advice: why set yourself up for failure by investing in a fund with a high expense ratio?)

Mo Ansari frequently warns listeners that, regardless how much confidence they may have despite their age, younger investment professionals are learning as they go -- and they're learning with their clients' money. He often likens the situation to paying for strangers' education, conceding that it is fine with him as long as they understand that is what they're doing. For the most part, that comment made me realize I could be using (a fraction of) my own assets to gain a similar education on individual stock investing. Realistically, I never felt confident about investing until I made it through a complete market cycle (i.e. crash/recovery). By that point, I had accumulated a nice amount and all the philosophies Vanguard were preaching had proven true, so I continued down that route. I have held to those core principals for the majority of my portfolio, including my practice of rebalancing quarterly.

Effectively, it all comes down to testing theories, which is exactly what prompted my most recent stock purchase. I have heard that stocks often surge after a stock split, and last year I saw Apple ($AAPL) experience it from the sidelines, so I wanted to test the phenomenon on another stock experiencing a recent split, buying the equivalence of one share pre-split of Visa ($V). It is too early to determine success or failure on it, but the important thing is that I will get to see for myself (and since it's my money at stake, I am going to be more likely to remember the results personally). Trusting second-hand accounts is no longer a necessity. In sales, they teach "facts tell, stories sell," but building up my own book of stories, I will know firsthand how stocks react (and, having a direct emotional investment, I will *remember* how stocks reacted for years to come).

Regardless, I remain skeptical that any stock I've purchased will serve me better than my index mutual funds have treated me. But I would welcome any of them to prove me wrong!