Ten Things I've Learned About Investing in the Past Decade
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Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I'm your host, David Stein. Today is episode 498. It's titled, What I Have Learned About Investing in the Past Decade.

Last week, my friend Stig Brodersen of the Investors Podcast Network released an episode on 10 things he has learned about investing in the past decade since he launched TIP with Preston Pysh back in 2014. I've known Stig since 2017. We talk about every six weeks or so. His investment approach is very different than mine.

And I encourage you to listen to that episode as I found it quite enlightening. Money for the Rest of Us is also a decade old this year. And after listening to Stig's episode, it got me thinking, what have I learned about investing in the past decade? I stepped down as chief investment strategist and chief portfolio strategist at my former investment advisory firm, FEG Advisors,

I worked there 17 years, including almost a decade managing close to $2 billion of discretionary assets. After leaving FEG, I knew I no longer wanted to manage assets.

assets for others. But I wanted to continue teaching about investing. Given my institutional investing background, I decided to get my track record for my personal portfolio verified by an accounting firm, Ashland Partners, which does independent verification of global investment performance standards, known as GIPS. Now, I don't know if they've ever been

verified the track record of an individual. Typically, it would be the investment composite for an asset manager. But I went ahead and did it. It was my individual retirement account. Calculated the performance. I sent them the calculations. They say, yeah, those are correct. You can say they're audited or verified now. The performance for the four and a half years ending August 2012,

was around 9.9% annualized compared to 5% for the S&P 500, 1.9% for the MSCI All-Country World Index, and 6.7% for the Bloomberg Barclays Aggregate Bond Index. So performance was good. It was a fairly straightforward portfolio at the time. Only eight holdings, all ETFs,

It was overweight U.S. with the largest holding being the PowerShares FTSE RAFI U.S. 1000 ETF. I owned the Vanguard Dividend Appreciation ETF, ticker VIG. The ticker for the PowerShares ETF is PRF. I owned some U.S. mid cap, U.S. small cap, a

Emerging markets. I own the Barclays aggregate via the ETF AGG. Some investment grade corporate bonds and emerging markets bonds.

That was it at the time. My portfolio today is very different. Instead of eight holdings, I have over 50. Instead of most of my assets being public markets, now about half of my investment assets are private. Instead of just two asset classes, stocks and bonds, I have over a dozen. My portfolio objective is also different.

Back then, my focus was primarily on growth, continuing to grow the portfolio. Now, having left the advisory profession, starting money for the rest of us, my focus is on capital preservation, making sure my net worth maintains its real purchasing power after deducting spending and inflation. Now, that 2012 portfolio, had I just kept that...

it would have done well, about 5.5% annualized since August 2012 compared to roughly 40, 60 global stocks bonds returning 4.4% annualized since August 2012. You can use VT, Vanguard Total World Stock ETF as a proxy for stocks, 8.2% annualized since 2012 bonds

negative 1.1% annualized. Now, what's done much better than that, if I just stuck with the S&P, it's done 14.7% annualized since 2012, and we'll talk about that. My portfolio is different. How I invest is different than I did a decade ago. So let's look at 10 things I've learned investing in the past decade.

The first thing is document your investment journey. In the past decade, I've done over 100 trades, 10 trades per year. Some of those trades I was buying, some of the trades I was selling, some of the trades I was doing both. Every single one of those trades, I wrote up why I made the trade.

What was the investment thesis? It's completely transparent there on Money for the Rest of Us Plus, our premium community website. You can read why I made the changes I did. Knowing I had to document my portfolio trades for our Plus member community kept me from trading in many cases because

I couldn't just willy-nilly make a trade because I had to write down why I was making the trade. My investment process follows the way that I invested as an institutional investor. And as I outlined in my book, Money for the Rest of Us, 10 Questions to Master Successful Investing, I intuitively ask those questions. What does it take for this investment to be successful? What's the upside? What's the downside? Who's on the other side of the trade?

When I'm selling, I consider, as we discussed in episode 372, when should you sell an investment? Was my thesis met? Did what I expect to happen, happen? In which case, maybe it won't continue to happen, so I'll sell. Or is there a better opportunity?

Sometimes those trades were because I needed the money, others because I made a mistake. But I write it down and that humbles me and it reminds me. I found it incredibly illuminating to go back 10 years and look at the changes I've made and why I made them. There are many trades I'd completely forgotten about. Before we continue, let me pause and share some words from one of this week's sponsors, NetSuite. What does the future hold for business?

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Now, speaking of opportunity, download the CFO's guide to AI and machine learning at netsuite.com slash David. The guide is free to you at netsuite.com slash David, netsuite.com slash David. So that's number one, document your investment journey. Two is keep experimenting. Going through those hundred trades, I could see experiments that I made. Some didn't work out so well.

Back in 2014, 2015, I was doing a lot of country rotation and sector rotation in ETFs. And so that led to more trades. It didn't work out so well. It was hard to get an edge to figure out which sector a country was going to do well in the short term. And I'm just not a short-term trader. I had some trades in oil futures back in 2015.

I don't have an informational wedge there, but I was experimenting. I was just trying things out. More recent strategy back in 2020, 2021 was SPACs. I had a strategy I was trying out with buying individual SPACs before they announced some type of combination. That didn't work out so well either. I didn't lose a lot of money in these things. It just didn't add the level of outperformance that I wanted.

strategies that have been more successful over time. Over the past decade, many of my trades involved closed-end funds. These are a type of mutual fund, trades on an exchange, typically at a discount. We've done episodes on them. There's a comprehensive course on closed-end fund investing included as part of PLUS Membership.

Investing in closed-end funds does lead to additional trading. I sold a closed-end fund in the past few weeks that I held for three or four years because eventually the discount narrowed. And in this case, the closed-end fund merged with another fund. But that's been...

a successful strategy that I've implemented in the last decade investing in closed-end funds. Currently, I'm doing a strategy that I've discussed, a buffer ETF rotation strategy, these defined outcome ETFs. And there's so many of them being willing to sell one and move into another when I can get a higher floor and higher ceiling.

By experimenting, we learn how to become better investors. We understand our temperament more.

By trading countries and industry sectors, I learned that it just doesn't really resonate with me, and I'm not terribly good at it. So two then is just keep experimenting, and I continued to do that, and that does lead to more trades. My portfolio is bigger than it probably would be if I didn't have money for the rest of us, because I have holdings in there that replicate holdings in our adaptive model portfolios, and I believe that

For sharing something in a model portfolio, I ought to eat my own cooking and own it myself. And because I'm trying new things, we're talking about it on the podcast, I have a lot of holdings that could be considered experiments. And as part of that experiment, that leads to lesson number three, be willing to adopt new asset classes. There are so many more strategies now that can be implemented via ETFs than there were a decade ago.

Back in 2003, when we started a new investment product at FEG Advisors, we used ETFs to implement that strategy. And clients, institutional clients, sometimes say, well, why ETFs? It's a retail product. Well, not anymore as things have evolved over the past 20 years. And

And so we can adopt new strategies. Back in March 2023, I talked about investing in collateralized loan obligations. There are new ETFs that invest in AAA CLOs. I talked about it on the podcast. I learned more about that asset class that I've been studying over the years, and then I implemented it in my portfolio.

I have an allocation to preferred stocks, an asset class I've learned more about in the past decade. I was familiar with it at my old advisory firm, but preferred stocks is not something that institutional investors typically invested in. But I had an insurance company client that had started a foundation and they wanted to do a preferred stock manager search. So I became familiar with preferred stock investing and it's something that makes up about $6

to 7% of my portfolio, the new asset class for me.

Gold and cryptocurrency are new asset classes I've adopted in the past decade. So lesson three is be willing to explore, learn, and if appropriate, adopt new asset classes in our portfolio. Lesson number four is to be very patient. Bear market for certain segments of the market, be it gold, gold,

value international can last a very long time. Back in April 2016, one of my trades was to implement a non-US value ETF, tickers IVLU. It's the iShares Edge MSCI International Value Factor ETF. If we look at the performance of that ETF, it's returned 7.7% annualized since April 2016.

It's lagged the global stock market, which has returned 11.4% annualized over that same period. The S&P 500 has returned 14.9% annualized. That looks like an unsuccessful investment. But for me, it's not. And I'll continue to hold it. The thesis for what it should return, I went back to the

The asset class expected return assumptions we had back in 2016 and our assumption for global stocks was 6.5% with a range of 5.2 to 8.4%.

IVLU has returned within that range. It's met the expectation, the bottom-up, based on the dividend yield, based on earnings growth, based on valuations. 7.7% annualized was the expectation. The S&P 500 U.S. stocks have completely exceeded the expectations. Valuations.

That's why we have to understand the underlying drivers. I did not anticipate that the price to earnings ratio, let's just take the cyclically adjusted P.E. So the price divided by inflation adjusted earnings for the U.S. market in April 2016 was 22.8. Now it's 34.3. If we just look at trailing P.E., it's gone from 21.3 to 22.3.

to 27.4. And so I spend way more time now on the underlying drivers doing performance attribution, mainly because we have the tools to do that with Asset Camp, a tool that I couldn't even imagine being able to develop a decade ago, the tool that I wanted.

as an institutional advisor, and even there we didn't have it, but now we did. So I could quickly see, well, what drove the performance of the U.S. stock market over the past eight years? Dividends have gone down, dividend yield from 2.1 to 1.3. I've already shared the valuations increased dramatically, adding about three to four percentage points to the annualized return, but earnings have also been very strong, higher than what we expected, 9.5% earnings per share growth

since 2016 for U.S. stocks. And that combination of 9.5% earnings growth, dividend yield of 1.5% to 2%, plus an additional 3 percentage points due to a valuation increase is why the U.S. stock market has returned 14.9% since 2016. What about my investment in non-U.S. value stocks?

Well, earnings growth was still very good, 7.2% earnings growth. The dividend yield was also high, 4.3% dividend yield. So combined, that should have been an 11.5% return, except valuations got cheaper. The trailing 12-month price-to-earnings ratio for non-US value stocks in April 2016 was 16.1. Now it's 11.7. And so that reduced returns by

by 3% per year or so, and the U.S. dollar strengthened, and that was another 1% performance strike. So I know why non-U.S. value stocks have underperformed, but they're still performing quite well at a 7.7% annualized return. And if it trailed the S&P 500 because they've gotten cheaper, that's okay, because eventually,

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Lesson four is be very patient. And that leads into lesson five. Just trade less and focus on long-term drivers. I just did an analysis of U.S. versus non-U.S. value. We looked at the drivers. We understand what happened. What was the historical return? We looked at where are we now? What is the current valuation, the current dividend yields?

And based on that, we can come up with reasonable assumptions for where we're heading. When we understand these long-term drivers, we don't have to be trading in and out of securities based on micro changes. That's why I have always gravitated toward asset class investing using index funds, ETFs, and sometimes active management.

and sometimes individual securities depending on the asset class. But I've never been focused on trying to generate excess return by figuring out what some specific company will do, whether it will do better than the consensus that's baked into the price, what other investors think. I don't want my portfolio performance to be dependent on outsmarting other investors.

I want my long-term performance to be based on things I can control and observe. How much cash flow is being generated via dividends or interest? Is the cash flow growing over time? Is it tied to the overall economy? Not on some competitive advantage or things I just can't predict. I find myself trading less today than

than I did a number of years ago because I have focused more on these long-term drivers. And I went back and I looked at my portfolio back

in 2021 and looked at the different asset classes, how much in stocks, how much in equity REITs, how much preferred stocks, how much gold, cryptocurrency. And the percentages change a percent or two, but not by much. I spend less time worrying about the economy. We certainly monitor it in our monthly investment conditions and strategy report. But rather than make big shifts in my portfolio, I might make some on the margin.

I have chosen an allocation that I'm comfortable with, despite what the market does, because I understand the long-term drivers of the market and I understand where we are. And I've made changes. I've talked about some of the experiments I've done. I've locked in higher yields, if

in the last year or so with individual tips, with bullet ETFs. Back in 2021, I had some interest rate hedged ETFs to protect against rising interest rates. Those are no longer there in my portfolio.

I have more exposure to CLOs, as we've discussed, bank loans. There is a gradual rotation into different elements of the market, but within the major asset categories and how much in private, it hasn't really changed that much over the past four or five years.

I'm just more patient. I'm willing to trade less. The sixth lesson then is monetary diversification. Back in 2021, in the spring, we did an episode, episode 336 on what is real. This has been a learning that has taken me some time. I used to be negative toward gold, skeptical toward cryptocurrency. I didn't buy gold until...

2015 because I've seen very long bear markets for gold. Back in September 1980, gold was selling for $668 per ounce. It had tripled in two years, but then it fell back to less than $300 and it took 17 years up until 2007 to get back to close to $700 an ounce. That's an incredibly long bear market.

at a time when inflation was increasing at 5% per year. Gold did not hedge against inflation for that 17-year period. But then after 2007, it doubled, peaking at $1,811 by 2011.

But then it collapsed to $1,060 by December 2015. I bought my current gold coin allocation in March 2015. I've not added gold coins since. I've played around with gold ETFs. I don't currently own any, but I just made that allocation. Again, it took nine years until September 2020 for gold to reach the level it was in 2011.

At $1,800 an ounce. Then it kind of treaded water, but now in the past year, it's increased 50% to an all-time high of $2,750 per ounce. Investing in gold requires patience. A very long time horizon. Gold is streaky. It's something you buy and then ignore. But why do you buy it?

Because over the long term, it's been a store of value. Back in 2018, episode 218 was on, is the U.S. dollar collapsing? And I said that U.S. dollar wouldn't collapse relative to other fiat currencies. And it hasn't.

But it has been significantly debased due to federal budget deficits, quantitative easing. The money supply has increased 40%, over 40% since 2018. So each dollar buys less gold because gold supply hasn't increased as much as the U.S. dollar. And Bitcoin supply hasn't increased as much as the supply of the U.S. dollar. And so I

I own real things. I own antiques. We own art. But mostly I own what Stig calls in his podcast episode, because he does the same, hard money, gold, crypto, as additional monetary diversification. And now those two, crypto and gold, make up about 15% of my net worth. And I'm not planning on selling it if I don't have to and just ignore it.

because there'll be times where it has extended periods of not performing well. But if the supply is growing slower than the expansion of fiat currency and people still trust it as a store of value, then it will do just fine over the long term. It'll hold its value. Lesson seven then is don't focus on relative performance. One reason I left my advisory firm is I got tired of

of having short-term performance compared to market benchmarks. Could be an asset-weighted benchmark, could be the S&P. It was draining.

Every week, looking at how did our portfolio do relative to this benchmark. We've seen value underperform for a decade. The patience of a typical institutional committee member, such as a university endowment, is about three years. After three years, it's difficult to continue to hold an underperforming manager or investment.

I have found it so much more refreshing to focus on absolute returns. Did my net worth increase after backing out inflation and spending? I'm focused on avoiding ruin, not being able to maintain my lifestyle. I don't care if my portfolio didn't keep up with the S&P 500 because I know the S&P 500 was driven by it becoming more expensive.

Now, it also is driven by stellar earnings growth and buybacks. And that's what I have exposure to as stocks, but I'm not going to put everything in U.S. stocks. And so not being so fixated on benchmarks can help us to be more patient investors.

to not feel pressure. I would feel pressure when something wasn't doing well. I don't know how, I don't think I would have survived over the past decade as an institutional money manager because I probably would have had a value tilt. I don't know, but it would have been very difficult. Any type of diversification would have lagged the S&P 500. So I don't focus on relative performance. I focus on absolute returns. Lesson eight is ignore the noise. It

ignore the naysayers, the doomsdayers. There will always be somebody doing better than us, somebody that's more successful, that got a trade right, that's talking their book. They're probably not as boisterous when things are working against them. I have 10 years worth of trades documented on our website. I know the changes I've made. I've known why I've made them. I've known what were good decisions. I've known what were bad decisions. I have an investment process focused on

the underlying fundamentals, the long-term drivers. I share them as candidly as I can on this podcast and on our Money for the Rest of Us Plus episode. I care about cash flow. It is the cash flow growing. And I ignore the noise. And it makes life so much easier because you don't have to spend time competing and predicting and measuring and worrying. Ignore the noise.

Lesson nine is take your time. You don't have to hurry. We are long-term investors. When we launched our investment product at my old firm, FEG Advisors, our discretionary product, I did some back tests based on the strategy. And it turned out if we waited six months before making a change,

that our signal said we should make, that performance was just as good. In fact, it might have been a little better. We don't have to make changes quickly. There's a compulsion to do so because we're going to miss out. We can take our time. One of the things that we're always looking at and I'm looking at is what's interesting right now. And right now, if we look at asset camp, valuations, look at price to cash flow, price to forward earnings,

Price to trailing earnings, cyclically adjusted P-E ratio. One of the cheapest, most compelling areas of the market is international small cap or non-U.S. small cap and non-U.S. small cap value.

I have exposure to that already. I should probably increase my allocation, but I'm not in any hurry to do it. I'll eventually do it when I feel compelled to do it. I'm just patient. I can take my time. There is no hurry. We talked about the five layers of investing a few episodes ago. Level one was short-term trading. That's not me. Level two, long-term speculations. I do have some of that.

Gold, cryptocurrency, art, antiques. Level three, individual securities. I have a few of those, some individual tips, some individual REITs. But most of my time I'm spent in level four, asset classes and factors. And for that, it can take a lot of time. I can be patient and there isn't a hurry. Wait until it feels like the right time. And we can dollar cost average, we can make incremental changes. We'll know when it's the right time and then we can make a change.

And 10, there isn't a right way to invest. You have to follow your interest. A couple weeks ago, we talked about aspirational risk. Using a barbell strategy, keep most of our investments in level four with market risk, focusing on asset class and factors. We can also, we need to protect against personal risk with insurance. But then we have our aspirational risk bucket. If you want to practice trading, do it.

I've done it. I'm not very good at it, but I'm always experimenting, as I've talked about, trying new things. There isn't a right way to go about it. So don't get focused on somebody says this is the only way to invest.

Stig has his approach to investing. I have mine. There's some overlap, but our temperaments are very different. He made his way through college playing poker. I worked at an office product warehouse. He is much more of a risk taker when investing. A much more concentrated portfolio. Mine is heavily diversified. That fits my temperament. There isn't a right way to invest.

In review then are 10 rules. What I've learned in the past decade investing. Number one is document your journey. Number two is keep experimenting. Three, be willing to adopt new asset classes. Four, be very patient. Bare markets for an asset class can last a long time. Five, trade less and focus on long-term drivers. Things that we can analyze, get good data on. That's why we have Asset Camp to be able to make success

Solid long-term decision. Six, monetary diversification. I don't want all my assets exposed to fiat currency. I want to own things that are real as well as other types of hard money such as gold.

in Bitcoin. Seven is don't focus on relative performance. Don't spend all your time comparing how you're doing to somebody else. They might not be as candid with what's not working out and just focusing on their successes. Eight, ignore the noise. Focus on the investing you want to do.

Don't get caught up in the news cycle and people predicting bad things are going to happen. Nobody knows. We can ignore the noise and focus on what truly matters. Nine is take your time. There is no hurry. You can make changes slowly as you learn new asset types, as you're building out your portfolio. And 10 is there isn't a right way to invest.

We can try different things and invest in a way that fits best with your temperament, your interest, and how involved you want to be in your portfolio. That's episode 498. Thanks for listening. You may be missing some of the best money for the rest of us content. Our weekly Insider's Guide email newsletter goes beyond what we cover in our podcast episodes and helps elevate your investment journey with information that works best in written and visual formats.

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