A Dozen Years of Coming Up Short

It’s hard to believe they flubbed it … again.

In fact, last year was the 12th year in a row that they couldn’t keep up.

I almost feel bad for them. (But then I see their zillion-dollar Park Avenue apartments and summer homes in the Hamptons, and all my sympathy dries up.)

And to think: They all went to the best schools, have plenty of IQ points and have the best research at their fingertips.

Yet, my 96-year-young Aunt Molly was able to beat them.

Aunt Molly isn’t a financial analyst, Massachusetts Institute of Technology graduate or rocket scientist. Far from it.

She was a top salesperson at a world-renowned bridal store when she retired at 86 years young.

Her secret to beating 85% of U.S. large-cap stock-picking mutual funds?

Fishbowl

She bought a low-cost Vanguard S&P 500 index fund.

And since 2021 was a great year for the S&P 500 Index, Aunt Molly made an easy return of about 28%.

Fund managers didn’t fare as well — having underperformed the index by five percentage points, on average.

It’s hard to outperform an index when you’re managing money in a fish bowl…

Money managers don’t want to risk looking stupid and straying too far from the S&P 500 Index.

Instead of trying to outperform the index, they buy companies that make up the S&P 500 and become index huggers.

But after fees and costs, there’s no way they can outperform it by trying to replicate it.

Unlike them, I’m not concerned about buying a stock that’s out of favor.

In fact, that’s the first place I look. I don’t have to answer to a boss or clients.

The stock could trail the S&P 500 for the next year, and I wouldn’t care. My focus is making money by buying quality businesses when they trade at attractive prices.

So, I don’t focus on the short term. The next year or two means little to me. And I don’t care about looking stupid.

For example, back in June 2019, some might have thought I’d taken stupid pills…

Stupid Pills

I had just recommended The Charles Schwab Corporation (NYSE: SCHW) to the Alpha Investor model portfolio.

At the time, my research was telling me that Schwab was trading at a 50% discount to the underlying worth of the business.

And that was because Wall Street wasn’t fully appreciating how it made its money.

Instead of viewing the company as a financial provider, they pigeonholed it into the category of discount broker.

But saying Schwab is “just a discount broker” is like saying that Amazon is “just a book retailer.” Nothing could be further from the truth!

Because of that misconception, Wall Street put the stock in the unloved and unwanted pile.

I saw things totally differently. I recommended the stock.

Yet, by September 2020, the S&P 500 was up 20%. Schwab was lower by 11%.

One year later, and I wasn’t looking too smart. But I didn’t care.

My research was telling me that Mr. Market was underpricing the stock. And since it was lower than my entry price, Schwab was an even better buy…

Tables Turned

It took some time, but I was right and Mr. Market was wrong.

Schwab is currently up 136%, doubling the S&P 500’s return. (And since it’s trading above my buy-up-to price, I wouldn’t recommend buying shares now.)

Schwab stock chart

But I don’t need to outperform the index to impress my readers. That’s not my job.

At the end of the day, my job is to help you make money.

And this week, I’m putting the finishing touches on my next recommendation to help you do just that. Alpha Investors can keep an eye on their inbox for it soon.

If you aren’t a member yet, now is a great time to join us — not just for my next recommendation.

With the recent volatility, several stocks in the model portfolio are trading at bargain prices right now.

So, you still have the chance to get in on a whole shopping list of opportunities. To find out how you can access it, click right here.

Regards,
Charles Mizrahi

Charles Mizrahi

Founder, Alpha Investor

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