the_gone_fishing_portfolio

The Gone Fishin’ Portfolio:

Get Wise, Get Wealthy…and Get on With Your Life

On the road to $1M rating:

dollar4

[Data and figures last updated on July 26th, 2009]

In The Gone Fishin’ Portfolio, Alexander Green sets himself to introduce “an effective yet simple approach to investing [that will] generate exceptional results during both good times and bad”.

If you’re as skeptical about me about any how-to-beat-the-stock-market promise, you’ll be wondering whether this is possible at all. The answer depends, of course, on what is meant by exceptional results. In the book, these are defined as returns that will outperform those of the S&P 500 every year. And to make it even more tempting, the author promises his strategy is so easy to follow that you will need less than 20 minutes a year to implement it.

With this definition in mind, does Alexander Green deliver on his promise? I decided to check by myself and found out that, from 2001 up to today, the answer is a resounding yes. Below I explain in detail the methodology I followed to reach this conclusion.

fishing_basic

I have used publicly available information from Yahoo! Finance to compile the series of historical prices for all the mutual funds in the Gone Fishin’ strategy and the S&P 500.

Assuming that all dividends from the funds are reinvested, I have computed the yearly returns for the Gone Fishin’ strategy and those of the S&P 500 from 2001 to 2009 -some of the funds in the strategy didn’t exist before this date. For all years from 2001 up to 2008, the yearly returns are measured from the first day in the year the market is open (usually January 2nd) to the first day in the following year that the market is open (usually January 2nd). For 2009, the returns are measured from January 2nd up to July 24th.

I have used two different measures to compute the returns, which differ slightly in the way they account for dividends. The first is a “naive” one, which I call basic. The results of the basic comparison are shown in the graph above. The second measure is based on the computation of the internal rate of return (IRR), and it’s displayed in the graph below.

fishing_IRR

It is clear from the graphs that every single year since 2001 the Gone Fishin’ strategy has outperformed the S&P 500. In the year 2008, the returns of the strategy were below -30%. However, it still delivered better returns than the S&P 500, which is what Alexander Green promises in this book. And so far in 2009 the Gone Fishin’ strategy is outperforming the S&P 500 by 10.00 or 9.61 percentage points, depending on whether the basic or the IRR-based measure of returns is used.

The results are even more striking in view of two facts:

  • Implementing the Gone Fishin’ Portfolio strategy is easy and relatively cheap, because it consists of a mixture of index funds with a combined annual expense ratio of 0.23%.

  • By investing in many different sectors, from large and small caps in the US to developing markets, from inflation protected to high-yield corporate bonds, etc., you’re exposed to usually negatively correlated returns, and hence are using diversification to reduce your overall risk.

It is worth to remind ourselves at this stage that past performance does not guarantee future results, so there’s no way to check whether the Gone Fishin’ strategy will continue to work in the future. But given its track record in the past 8 years, together with the added risk diversification, I’m currently implementing it with the savings in my 401(k). Given that it’s my future pension that is at stake here, I intend to keep checking the strategy’s record regularly, so make sure to come back for updates of this post.

If you enjoyed The Gone Fishin’ Portfolio, On The Road to $1M recommends:

PLEASE LEAVE YOUR COMMENT HERE

Advertisements