Sunday, July 9, 2017

On Investing

A while back I started really looking into the math of compound interest. I even made a video about it. All of this got me thinking about my own financial investments. While I've always been good at saving I've never been that good about investing so I did a little reading and then ran an experiment: I took my money, divided it into thirds and tried out 3 investment ideas. I also setup a calendar alert for 1 year in the future to review the results. Today that calendar alert went off, here are the results.


Betterment is a robot trader. The idea is to be like an index fund but a bit better. My results where the opposite. It was like an index fund but a bit worse. Still this isn't to say it was bad, just the that it always lagged a bit behind the index fund I bought.

Results: 11.4%

S&P 500 Index Fund

Vanguard's S&P 500 index was a solid choice. Like Betterment it also has extremely low fee's and consistently gave slightly better results.

While it seemed almost the same, I would like to point out that results vary with compounding and the 1.5% difference over 40 years would add up. Let's take $1,000 for 40 years
At 11.5% = $77,800
At 13% = $132,781
So 70% better over 40 years.

Results: 13%


The remainder I split equally into 5 companies. This requires a fair amount of explanation, so I'll start with the basics and go into detail afterwards. The main takeaway here is that it's very volatile with swings as much as 10% in a given week. Compared to either betterment or vanguard this is a rather extreme change. I also feel there is just straight out a bunch of luck involved and that I might regret this at any moment. However, so far it's been the best investment of the three.

Results: 32.6%

Stocks - My rationale/rationalization

I had a fairly simple investment philosophy: Invest long term in companies with smart people doing smart things.

As such I  bought 5 companies:
Facebook - Impressed by developer culture, CI practices & the hiring of Kent Beck
Google - Impressed by 20% time, Go, Kubernetes, AI and culture continuously refined by Larry Page
Amazon - Impressed by microservices, continuous focus on market growth, and AWS
Netflix - Impressed by Devops, open source, pivots and team cultures.
Tesla  - Impressed by the products and CI in cars (actually know very little about the company inside)

I only bought once. Didn't do any day trading. Didn't do any financial investigation. This might seem a bit irresponsible, but my theory is that it's all a bit of gamble and I'm more likely to over value my understanding than gain real insight. I'm also not doing any market analyst of how the companies 'fit' into the bigger market. I'm simply trusting that smart people doing smart things is going to win.

I would also like to state that I think I might have just gotten lucky. I think it's easy to fall prey to survival bias and assume that success is somehow predestine.

The stocks make me a bit nervous, but I also realize that they have a much larger potential to generate real wealth; $1,000 for 40 years at 32.6% = $79,751,886