A Follow-Up Post: Good & Bad in the Ugly

It's been a year now, so it's time for some follow-up on a post from last year.

On a Friday back in early-December 2007, I posted about a portfolio of six publicly-traded companies (dubbed "the 6-pack"), along with an additional pick of Anheuser-Busch (the "+1"). http://gcdailyworld.com/blogs/chriswathen/entry/15323/ And boy, this fantasy football-style portfolio has had a violent ride in the stock market over the past 12 months!

That final pick (BUD) became the best of the group, mostly because of the announcement of a take-over of the giant American brewer by Belgian-based InBev. Since that December 7th post, BUD has risen by about 30%, based on the closing price in December '07 & then at close on December 9th, 2008, a simply incredible return given the current and very ugly market.

Overall, the 6+1 portfolio was down about 29% for the year. (It performed a little better if you factor in the dividends received during the period too.) Not too spectacular from that standpoint, I'll admit. Arguably, placing funds in an FDIC-insured bank CD would have returned more, probably somewhere in the 2.5% to 4% range for the same period, depending on the bank, the term, etc. http://gcdailyworld.com/blogs/chriswathe...

But that would not be necessarily comparing apples-with-apples, would it?

Sure, a safe and secure CD would have returned a positive return, but had the market swung the other way, it would not have enjoyed those gains either. That's the general difference between equity and debt investments. With equity, you own piece of the company, so you share in the profits or losses. With a debt investment, or the act of you essentially loaning money to an entity, the return is typically much smaller -- and many times fixed from the beginning, but the principal is better protected. In the case of the bank CD, a debt investment (your money, the bank's debt), it's insured by the FDIC up to a certain threshold, one that has increased from $100,000 to $250,000 in most cases recently.

But back to the issue at hand: the market didn't go higher, you say. Well, that's great if you have an infallible crystal ball, but I don't.

So, let's compare apples-to-apples, and let's look at the returns of the overall market in the same timeframe to see how the 6+1 portfolio fared. The S&P 500 index is often used as a broad representation of the overall stock market, and if one "share" of this index was purchased at the closing price on the same date of December 7th, 2007, it would have lost almost 41%. Ouch!

In any event, comparing the 6+1 portfolio to the overall market via the S&P 500 index, the difference is an out-performance of the market by approximately 12% -- even better with the dividends paid from this higher-paying dividend portfolio factored into the calculation.
Not bad, comparatively-speaking to the S&P index. As always, it's relative to how and what the comparison may be though.

So, there you have it: the good and the bad of this small portfolio in a very ugly market.

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This blog post by Chris Wathen was also published in his Linton, Indiana based Greene County Daily World blog entitled, "Riddle Me This".