Don’t Let Numbers Fool You

As I share in my About section I don’t have a degree in Finance or Accounting, I don’t have a MBA, I’m not a Certified Financial Planner, I’m just a guy who loves to crunch numbers and get money. God is good because you don’t need any high level degrees, licenses or certifications to do basic math, especially the math to calculate cumulative returns on an investment.

Today on MarketWatch I came across the article “This Money Manager Aims to Hold on to Stocks for Decades” which was a short write up on money manager Christoper Tsai of Tsai Capital. The author, Investment Columnist Phillip Van Doorn, shares Tsai’s long term “tailwinds” strategy that supposedly should allow Mr. Tsai to be invested in the same stocks for decades. Nothing really new here, it’s just unusual in today’s world of algorithms and short term trading.

What caught my eye was a table at the bottom the article of annual returns of Tsai Capital’s Growth Equity Strategy vs the S&P 500. In the article’s preceding text Mr. Doorn explains that Tsai’s growth and equity strategy has returned 177% while the S&P only 126%. Mr. Doorn states that this is “an excellent track record for a very long period, even if Tsai’s strategy has underperformed the index during the current bull market that began in 2009.” Wait, say what now? Underperforming one of the best bull markets of all time? How Sway? That’s a red flag surely needing some investigation.

Table of annual returns via

Looking closely at the above returns you see that Mr. Tsai underperforms most years, 11 out of 17 to be exact (2017 not included). For the record 11 out of 17 years is 64% of the time. Who in their right mind puts their hard-earned money to work in a strategy that only beats the S&P 36% of the time? Now maybe if in the winning years the returns were so fantastic that it wiped out the many losing year’s losses you would be on to something, but as you can probably estimate from the table above that is not the case.

In fact if you pick any year post 2000 up until 2016 the S&P 500 would provide you a superior cumulative return than Tsai’s strategy. When I say any year, I mean ANY YEAR – 2005, 2001, 2012, 2009, 2013, 2007 and so on, any year! Oddly enough, somehow the author selects the one full year, the only year, the single year where Tsai Capital’s cumulative returns beat the S&P 500.

2000 is the ONLY year where the cumulative returns of Tsai Capital beat the S&P 500. If you invested after 2000 you’ve lost out.

It’s funny how all this works. Do you think the year 2000 was picked merely by chance? Just by random selection? If so, I like to speak with you about a bridge I’m trying to sell. Beyond that, I can’t figure why a strategy that loses 64% of the time and cumulatively underperforms the S&P 500 would be worthy of a spotlight. Maybe it’s click bait for MarketWatch, obviously I clicked on it. Maybe the strategy isn’t supposed to be beat the S&P and thus the author shouldn’t have compared the two. I just don’t know.

What I do know is this is how investors get tricked. I’m sure someone who read this article went out and bought the two stocks detailed in it, not taking the time to analyze the returns or the returns of Tsai Capital. When it comes to investing it is best to do your own math, to do your own research and you don’t need a degree to calculate annual returns. If you rely on articles like this one you could be falling for the trap, letting someone cherry pick the information to paint the picture they want you to see.


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