Thursday, May 3, 2012

Backtesting My Life

Almost twenty years ago I had the fortunate pleasure of getting to know one of my college business professors.  He was a great man and when it came to buying equities he had one simple philosophy that he passed on to me.  That philosophy was to buy what you know and buy what you use.  If you don’t use the product, then don’t buy the stock.  It sounded simple enough, and at times I thought it was a bit too simple. 

I thought it would be interesting to test his philosophy with a backtest on my life.  I thought hard about what products I use or consume on a daily basis.  I then looked back five years to look at each company’s stocks performance during that period of time.  The five year period I examined ended on May 2, 2012.  Here is the list of companies I came up with that I use on a daily basis, and each companies trailing five year total return.

Colgate-Palmolive (CL) – I brush my teeth with Colgate toothpaste and use Speed Stick deodorant every single day.

Procter & Gamble (PG) – I shave my face and head with Gillette razors nearly every single day.

Chrysler – I have driven nothing but Jeep’s my entire adult life.

Time Warner (TWC) – While I can honestly say I do not watch the same stations every single day, but for a couple, I do have the television on every single day and my provider is Time Warner.

Walt Disney Co. (DIS) – The one station I watch every day is ESPN.

Netfilx (NFLX) – I have been a subscriber to Netflix since its inception, ie. Before Streaming.

Sony (SNE) -  I watch my Sony television every day.  I also stream media via my Sony PS3, and play a sports video game almost every day.

EA Sports (EA) – The only video games I play on my PS3 are EA Sports games.

Dell Computer (DELL) – I use my Dell laptop every day.

Microsoft (MSFT) – I use Microsoft software on my computer every day.

Apple (AAPL) – Forget the iphone, which I love and use every day now, but 5 years ago I also used my ipod every day when I exercised or drove in my car.

Google (GOOG) – I use the Google search engine almost every day.

Verizon (VZ) – Verizon has been my mobile service provider for over a decade.

Monster (MNST) – I do not eat breakfast, but I do drink a Monster energy drink every morning.  Five years ago I drank the “Lo-Carb” version and today I drink the “Absolute Zero”.  Sorry Starbucks but I do not drink coffee.

Whirlpool (WHR) – I have used my microwave and stove (Both Whirlpool products) on a daily basis the last five years.

Morningstar (MORN) – The only website I visit on a daily basis for my work is Morningstar.

Charles Schwab (SCHW) – Where I have done my banking for over five years.

General Electric (GE) – Every light bulb in my house is made by GE.  For many years GE was the parent company of CNBC which I also watch on a daily basis.

JPMorgan Chase (JPM) – The bank that holds my mortgage.

Metlife (MET) – I wake up each morning with my life insured by Metlife.

Nike (NKE) – I exercise almost every day and I always where my Nike’s.

Energy (XLE) – We all use energy every single day.  I never stop at one specific gasoline provider so I thought looking at an energy ETF would be a good representation of my daily use.

Company Symbol Invested 5 Yrs Later
Colgate-Palmolive CL $10,000 $16,810.85
Procter & Gamble PG $10,000 $11,918.15
Clorox CLX $10,000 $17,757.26
Chrysler $10,000 $0
Time Warner TWC $10,000 $19,289.25
Walt Disney Co. DIS $10,000 $13,266.24
Netflix NFLX $10,000 $36,890.98
Sony SNE $10,000 $3,004.43
EA Sports EA $10,000 $3,095.98
Dell DELL $10,000 $6,281.55
Apple AAPL $10,000 $58,364.54
Microsoft MSFT $10,000 $11,402.59
Google GOOG $10,000 $12,832.24
Verizon VZ $10,000 $13,942.41
Monster MNST $10,000 $36,929.28
Whirlpool WHR $10,000 $6,608.25
Morningstar MORN $10,000 $11,180.18
Charles Schwab SCHW $10,000 $7,927.86
General Electric GE $10,000 $6,435.52
JPMorgan Chase JPM $10,000 $9,127.33
Metlife MET $10,000 $5,780.98
Nike NKE $10,000 $23,192.85
Energy XLE $10,000 $11,852.02
Total $230,000 343,890.74

If you’ll notice I only took a look at companies whose products I use on an everyday basis.  Yes an investment in McDonald’s (MCD) would have been fantastic, but I do not eat at McDonalds on a regular basis.  I also enjoy Coca-Cola and Pepsi products, but also not on a daily basis.  I did not take into consideration my food consumption.  I shop at the local Wegmans grocery store, which is not publicly traded, and I tend to buy fresh produce and meats, which are locally produced. 

Again this was just a fun look back at my daily consumption habits and how taking my professor’s advice would have done for me.  As you can see by the numbers I would have done quite well.  An equal investment made into all of the companies I used on a daily basis prior to and including the last five years would have grown by 49.50% over that period of time.  The S&P 500 was up 4.02% for the same period of time.

Thank you and good luck everyone!
Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”