5/21/21 update: This is a special update and we realize it’s long overdue. We apologize for the delay. This week, we are adding two stocks to our Experimental Portfolio (since we didn’t update this article on May 7th). But first, a few words on recent market developments. Looking at the S&P 500 over the past few months, things seem to be going pretty well (see chart below).
But many “growth” stocks (especially technology companies) are down significantly over the past few months. Unfortunately, that includes many of the stocks that make up our Experimental Portfolio. After the extraordinary growth we saw last year, many tech stocks are taking a bit of a breather. Although it can be difficult to see huge losses in one’s portfolio, we are not especially concerned about these recent events. We view this as normal volatility and don’t believe that anything has fundamentally changed in these businesses.
When we decided to write this article, our goal was to show that it is possible to beat the market, even with well-known companies. We decided add stocks to our Experimental Portfolio twice a month for at least one year. We figured that if this feature was popular enough, we would continue to update the article and add more stocks to the list. Unfortunately, this article turned out to not be as popular as we had hoped, even though the Experimental Portfolio was beating the market until very recently. So now that we have completed our goal of picking stocks for 12 months, we have no plans to add more stocks to the list. However, we will be updating the performance of this portfolio on this page every now and then. In addition, we are now making available a link with up-to-date performance data for this portfolio. The final two stocks we are adding to this portfolio are Roku and Redfin. We are still fans of (and invest in) all the stocks in the list below. We believe that five years from now, most of these stocks will continue to outperform the S&P 500.
We hope you have enjoyed this article over the past year. We have certainly enjoyed picking stocks for it. Let us know in the comments if you have suggestions on the type of content you are most interested in finding out more about!
This article is for entertainment purposes only. This is not an investment newsletter and we do not recommend any individual stocks or funds. As a reminder, you can scroll down to sign up for our free newsletter to get each new stock sent to your inbox!
Introduction to the Experimental Portfolio
Most investors today know about the advantages of investing in index funds. These funds tend to have lower expenses than actively managed mutual funds and they are often more tax efficient. But perhaps more importantly, they beat the returns of most actively managed funds!
However, some investors chose to invest a portion of their portfolio in individual stocks. This may be for one of several reasons:
- To own a concentrated position in companies they strongly believe in.
- Reduce their investing fees (since you don’t pay an annual management fee on individual stocks).
- To attempt to beat the market.
- To diversify their holdings in case major indexes go through a long period of underperformance.
- For the fun of researching companies and attempting to find winning stocks.
The stocks listed below are part of a hypothetical portfolio (although I will be primarily selecting companies among stocks that are already in my portfolio, as they are companies I know the most about). The goal is to come up with a list of stocks that will beat the market over the long run. Some of my existing accounts have been beating the market for a number of years and I want to see if I can reproduce a market-beating hypothetical portfolio by selecting a new stock on the first and third Friday of every month.
|Date||Ticker||Stock||Price paid||Return||S&P 500||Difference|
|6/5/2020||WM (1)||Waste Management||$111.66||26.25%||29.92%||-3.67%|
Last updated on 5/21/2021. The VOO (Vanguard 500 Index Fund) is used to track the performance of the S&P 500 in the above table. The Price Paid column will be adjusted to account for stock splits if needed.
Below is our experimental portfolio’s historical performance:
The above chart will be updated at least twice a month to keep track of the performance of the selected stocks and compare it to the S&P 500’s performance (as measured by the VOO). My goal is to add mostly well-known companies to this list but I will occasionally add newer or smaller companies that are not household names (yet). I will be following a buy and hold approach. The idea is to only sell a stock if there is a good reason to do so. As a long-term investor, I am not particularly worried about short-term fluctuation and I understand that it might take a while for these stocks to outperform the S&P (assuming that they ever will).
Disclosure: I own shares of Redfin, Chewy, Airbnb, Disney, Amazon, Match Group, Roku, Chipotle, Zoom, Tesla, Apple, PayPal, Etsy, Netflix, Waste Management, DocuSign, and Square. I wrote this article myself and it expresses my own opinions. I am not receiving compensation for this article and I have no business relationship with any company/stock mentioned above.
Disclaimer: This is not an investment newsletter and Inveduco LLC does NOT recommend any of the above stocks. Investing in individual stocks can lead to the loss of principal and may not be appropriate in your situation. Some of the companies mentioned above are high growth companies and are extremely risky investments. Always consult with a financial advisor and do your research prior to investing in any security. The author and Inveduco LLC take no responsibility for losses due to investing in any stocks mentioned in this article. Read our full disclaimer.
1 Waste Management’s price is adjusted for dividends. The original price paid on 6/5/20 was $112.20.
2 SQ was added on a Thursday since the market was closed on Friday (4th of July).
4/23/21 update: This week we are adding Facebook to our experimental portfolio. When it comes to social media, Facebook controls a very significant market share. Their earnings from ads continue to grow and we don’t see that stopping anytime soon.
As a side note, stocks in the technology sector have been hit pretty hard lately. This has affected our experimental portfolio’s performance (as it is largely made up of technology stocks) but we are focused on the long-run and we don’t do anything differently during market sell-offs; we just keep on adding businesses to this hypothetical portfolio, just like we do with our actual portfolios.
4/9/21 update: As we mentioned in our update on 4/2, we decided to re-add Square to our Experimental Portfolio as we continue to believe in this company’s future. This is a very risky stock (with a PE ratio of 670 as of today!) but we believe it is still relatively early in its growth as a company. Square’s Cash App offers the company an opportunity to collect significant amounts of data from their customers, which could be used to deliver advertising or to offer targeted products or services in the future.
4/2/21 update: We are adding Square one more time to our experimental portfolio and will update this section with our reasons in the coming days.
3/19/21 update: A good number of high-growth stocks -including several stocks in our experimental portfolio- appear to be undergoing a bit of a correction at the moment. So there are a lot of interesting opportunities out there and we could easily have re-added one of our previous companies to take advantage of the discounts. But instead we are selecting a new company. Airnbnb had their IPO a few months ago and the stock price is already up over 30%. Although 2020 was a difficult year for the company due to the pandemic, we are believe that people are eager to start travelling again. And now that people are getting vaccinated in large numbers, travelling is once again a possibility for many. If our assumption proves to be correct, then Airbnb’s business should increase as a result. The company enjoys a great level of brand awareness and their addressable market is huge ($1.5 trillion). We look forward to see what Airbnb’s performance will look like over the next few years.
3/12/21 update: (Our apologies for being a week late with this update as we have been working on a new upcoming review.) With the availability of highly effective vaccines against COVID-19, there is hope that life will slowly return to something closer to what we remember prior to year 2020. It will be a new normal for sure, but we will hopefully be able to once again gather in larger groups at some point this year. If so, we believe that people will want to start going to various theme parks. And when people think of theme parks, the first name that comes to mind for most is Disney. And that is the latest company to be added to our experimental portfolio. Of course, we like the company for other reasons as well, such as its streaming service, Disney+, which is very popular. 2020 has not been an easy year for Disney, but this company has been a strong performer for many years and we believe that the next generation of kids will like its cartoons, theme parks, and other products just as much as the previous generations did.
2/19/21 update: This week we are re-adding Roku to our Experimental Portfolio. The stock is up 57% after we selected it back in December of 2020 and we believe this company will continue to outperform. Revenue continues to grow and the growth has been accelerating. Roku recently acquired Quiby’s content and it is in the process of coming up with its own original content. We are excited to see what type of content Roku will come up with over the coming year and beyond.
2/12/21 update: If you’ve bought or sold a house in recent years, chances are you’ve been on Zillow.com. Real estate is an industry that is overdue for disruption. The current process is expensive and inefficient. One of the main services provided by Realtors -searching for properties for their clients- is now done by buyers on their own. Selling a house can be a stressful process. And Zillow can now make a cash offer on your house. It will then sell the house, hoping to make a profit on the difference. Its algorithm for determining the value of properties in various markets is improving and is allowing the company to make a profit without having to hire local Realtors. Zillow’s stock has been outperforming the market and we believe it will continue to do so in the years ahead so we are adding it to our Experimental Portfolio.
1/22/21 update: (We apologize for the week-long delay in publishing a stock selection. It was originally supposed to be published on 1/15.) Our experimental portfolio continues to do well. As of Friday’s close of business, it was almost tripling the S&P 500 (see below). And as you can see, all our stock picks are well-known companies. Which brings us to this week’s stock: Amazon. This company needs no introduction. We’re all used to seeing their delivery trucks everywhere. With a market cap of $1.65 trillion, Amazon isn’t likely to continue outperforming at the same clip it did over the past 20 years but we believe it has a decent amount of growth left in its future. One area we are especially excited about is Amazon’s move into digital advertising. Amazon is still a fairly small player in this industry, especially when compared to Google. But its market share is growing and we believe it is just getting started. Given all Amazon’s other lines of business and its constant focus on innovation, we believe this company will continue to be a market-beater for years to come.
12/18/20 update: This week we are adding Texas-based Match Group to our list. This company enjoys a virtual monopoly when it comes to online dating services. You are probably familiar with Tinder, PlentyOfFish, Match.com, and OkCupid. These four services (and many more) are all owned by Match Group. One possible thread for Match is Bumble, which might have its IPO in early 2021. However, it should be noted that although Bumble has a lot of users, it currently earns significantly less than Match ($300 million in 2020, compared to Match’s $2.4 billion). Bumble is growing rapidly, but it has a ways to go to catch up with Match, which has its own set of fast-growing apps (such as Hinge).
Match’s stock has increased by more than 1,000% since its IPO in 2015. We believe that online dating is a trend that will continue to grow for many more years and that Match is well-positioned to continue growing in this industry.
12/18/20 update: Six months into this experiment, our hypothetical portfolio is outperforming the S&P 500 by more than 19% (29.94% vs. 10.60% for the S&P 500). And this week we are adding Wayfair to our list. This company has had an incredible year. They are up 210% so far in 2020. Wayfair has benefited from people being stuck at home for months, as many started spending more discretionary income on furniture, rather than on things like travel. Wayfair went public back in 2014 and they have finally turned a profit in Q2. Their products are becoming more and more popular with consumers. And although the pandemic has temporarily sped up their growth, we believe that they will continue to grow at a rapid pace for years to come. (The author does not currently own shares of Wayfair and has no plans to initiate any positions within the next 72 hours.)
12/04/20 update: Roku has had a great year. The COVID-19 pandemic has forced millions of people to spend a lot more time at home. As unpleasant as this experience has been for many people, companies like Roku have benefited from increased use of their streaming platform. Roku’s stock has soared over 100% so far in 2020 (against an 18% gain for the S&P 500). It is a very richly valued stock, with a trailing price-to-sales ratio of 23, and it is not yet profitable. However, the company is growing fast. Active accounts increased by 43% and revenue jumped 73% year over year in its most recent quarter. Roughly a third of its revenue comes from the sale of Roku devices, while the remaining two-thirds come from ads and content partnerships on its platform. We believe that Roku is well-positioned to continue growing its platform and eventually turning a profit so we are adding it to our experimental portfolio this week.
11/20/20 update: Zoom has been one of the fastest-growing stocks since the beginning of the pandemic. However, stocks of several companies that have benefited from the “work from home” economy (Zoom being one of them) dropped significantly after news came out of a highly-effective vaccine that could potentially get approved by the FDA in the coming weeks. Zoom’s stock is currently down more than 20% from its October 19th high of $568 a share. There is a legitimate question as to whether or not Zoom will continue to grow once the pandemic is under control. Even at its current price, Zoom is richly valued. Those are some of the risks with this company. However, COVID-19 has also helped make Zoom into a household name and we believe it will likely remain the most popular video conferencing service for a long time. In addition, we are of the opinion that COVID only sped up a trend that was already underway. Although there are benefits to occasional face-to-face meetings, a good number of meetings can be conducted via video conference to save time and money (such as travel expenses). Zoom is a risky stock to be sure but we believe the company will continue to do well over the long run, which is why we are adding it to our experimental portfolio this week.
11/6/20 update: We are adding Chewy (CHWY) to our Experimental Portfolio this week. It’s been a rough couple of weeks for the market due to the uncertainty surrounding the presidential election but the market appears to be somewhat recovering at the moment. The good news is that our experimental portfolio continues to outperform the S&P 500. (The author does not currently own shares of Chewy and has no plans to initiate any positions within the next 72 hours.)
10/16/20 update: This week we are adding Chipotle (CMG). Four and a half months into our experiment, the hypothetical portfolio is still nicely outperforming the market.
10/2/20 update: This week we are adding Spotify (SPOT) to our hypothetical portfolio.
9/18/20 update: Our Experimental Portfolio was doing pretty well until about 3 weeks ago when the market started a correction. It is currently underperforming the S&P 500 and most of the recently added stocks are down, some significantly. These types of market corrections are not uncommon. We still believe that the companies in this hypothetical portfolio are quality businesses with long-term potential. We will continue to look for companies we believe have good odds of being long-term winners. Some of our picks will outperform the market. Others will be losers. Since it’s impossible to predict which companies will be winners in the long run, we have to diversify.
Which brings us to this week’s stock pick. We are adding one of the most controversial (and one of the most shorted) stocks on the market: Tesla (TSLA). Like many of the companies in our Experimental Portfolio, Tesla is a volatile stock. This coming Tuesday will be Tesla’s “Battery Day” and several analysts are already increasing their price target as a result. Many are expecting Tesla to reveal plans to increase battery capacity and performance. There is a lot of anticipation built into Tesla’s stock price which means that the slightest disappointment could cause the price to drop significantly (did we mention that this is a risky stock?). But looking beyond Tuesday’s “Battery Day”, we believe that under Elon Musk’s leadership, the company will meet and likely exceed expectations over the coming decade.
Speaking of Elon Musk, he can be eccentric at times and he holds some rather strange beliefs but he has an amazing capacity to deliver products that everyone else thinks are impossible. It is true that his product releases often run behind schedule but many of his promises do eventually materialize. When he sets a goal he is relentless in his pursuit of it. If you would like to learn more about Elon Musk, we highly recommend a book called “Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future.” (We get a small commission if you buy the book through this link, at no extra cost to you. We appreciate your support! This allows us to continue this project.)
Tesla cars have an undeniable “cool” factor and many Tesla owners feel like it is the best car they’ve ever driven. Given the company’s track record, it wouldn’t surprise us if Tesla ends up producing the first fully autonomous car. If that day ever comes, many investors will likely kick themselves for not buying a few shares of Tesla years earlier.
9/5/20: Today we are adding a company that has transformed our relationship with technology in more ways than one. It is also the company with the largest market cap in the world. We are of course talking about Apple (AAPL). The company recently underwent a 4 to 1 stock split which generated a significant amount of volatility. Over the past couple of days, Apple’s market value was reduced by approximately $350 billion due to a general market selloff. To put this in perspective, that amount is larger than the market cap of 98% of S&P 500 companies. It should be noted that the stock split and recent selloff have nothing to do with our decision to add Apple to our experimental portfolio. As buy-and-hold investors, we believe that Apple continues to deliver huge value to its customers, many of which are raving fans of its products. The company is expected to release a 5G version of its iPhone and we anticipate that this will drive a significant increase of phone purchases over the next few years, as iPhone users will want to upgrade to the latest and greatest technology. It is also possible that a number of users are currently holding off on buying a new iPhone in anticipation of the 5G version, which could further increase the company’s earnings down the road. Apple has been increasing its dividend payments since 2015 and as long as they can keep this up, it will increase their odds of outperforming the overall market (see the chart below for the impact of increasing dividend payments on long-term performance).
8/21/20: This week’s stock pick is PayPal (PYPL). We seem to be living in a new golden age of contactless payments. Just look at some of the large companies involved in this field: Google Pay, Apple Pay, Amazon Pay, and of course Paypal. The latter owns the popular digital wallet called Venmo and it is revolutionizing the banking industry. By the way, this is our second stock pick in the “war on cash” industry. Back on July 2nd, we added Square (SQ) and it has been performing pretty well (up 36% to date). PayPal is a much larger company and it is more profitable that Square. While we don’t expect Paypal to grow as fast (mainly due to its size), we believe it has a good chance of outperforming the market over the next few years. The company is profitable and it has a big market advantage with its years of experience.
8/7/20: We are adding Etsy to our experimental portfolio. They just reported an amazing second quarter, crushing expectations. Apparently, that wasn’t good enough for some investors. Regardless, we believe that Etsy has a bright future for years to come.
7/17/20: We are adding Netflix. This is a risky move in light of their recent disappointing quarter. Historically, Netflix has managed to bounce back from negative developments. We will see if they can pull it off once again.