Most if not all fund managers measure themselves against the S&P 500.  I’m no different, because no matter how good your stock picks, the daily market action drastically affects the movement of individual stocks.  And this has only gotten worse with advent of ETFs.   The key thing to note on the above chart: it is imperative to avoid market crashes.  This may sound like common sense, and that all fund managers can do this, but they are simply too big to get out before the market has hit bottom.  This is the primary advantage the little guy has over the big institutions.  But it’s a BIG advantage.

I was actually quite surprised by this graph after I had put it together.  My individual picks had creamed the market, but my overall performance (except for side-stepping the Great Recession crash) was about market even due to my paranoia about missing the next crash.   I was hedging my positions daily when I thought the market would re-enter panic mode, and I would always seem to get the timing wrong on those hedges.  And due to the losses on the hedges, somehow my performance came out almost identical to the market (once I had entered about a week after the bottom).  So, I’ve learned from this…I don’t hedge as much anymore…I’m beginning to judge world events and not panic myself so much when something happens to possibly cause a true market panic.

The coolest thing about this graph…I nailed the bottom of the crash.  I was in a week after the bottom…I couldn’t have gotten it more right.  I even nailed the actual day of the bottom, as a good friend of mine got laid off that day, and I told her: “I’ll bet you got laid off at the very worst part of this recession.”  I had had CNBC on all day, and I could feel the utter panic…it was like a big “whooshing” sound, and I kind of new the selling was over.  But I waited a week to make sure and then got in.  Now I look for these crashes…even hope for them, because even though I might have a lot of money in the market, if I can get out somewhere near the top and get back in near the bottom, I’m gonna make a ton of money.

The second coolest thing…after doing all this research on the market, boning up on the economy, stock valuations, etc…I did nothing.  I stayed 100% cash.  I simply could not find one stock that I thought was worthy of the sky high valuations at the time.   Now, I wasn’t expecting Armageddon in the form of the Great Recession, but I sure did have my portfolio positioned correctly in mid ’08 when I started doing this.

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