WCI Investment Fund - Welcome to the New Fund

By Bill Jackson May 7, 2023 11 mins read 210 Views

ByJosh Katzowitz, WCI Content Director

At The White Coat Investor, we adore index funds. They provide better returns than actively managed funds or individual stocks. They cost less. They provide less risk. And they take up less of your time.

Better to contribute to VTSAX (where you’re investing in about 4,000 stocks with a tiny expense ratio) or FSKAX (one of the largest funds in the world that, as of this writing, has beaten the Dow Jones index that it tracks for its entire history) than to pay somebody to try (and probably fail) to get better returns.

As investing guru Taylor Latimore has said, index funds allow you “to spend your time working, playing, or doing anything else while your nest egg compounds on autopilot. It's about as difficult as breathing and about as time-consuming as going to a fast-food restaurant once a year.”

Today, I want to have some fun and create our own WCI Fund to see how it performs against VTSAX (the Vanguard Total Stock Market Index Fund) and FSKAX (the Fidelity Total Market Index Fund).

During the week of WCICON23 (now available in our Continuing Financial Education 2023 course), I asked a slew of attendees and speakers to give me their favorite individual stock—whether it’s something they invest in or whether it’s just a company they happen to admire. What they chose is what will make up our fund. I’m keeping everybody who participated anonymous, but I’ve included their reasoning below. I’ve added all 20 stock picks* to the hypothetical WCI Fund (WCIF) ** so I can answer my own suspicions about whether passionate white coat investors can do a better job of equity investing than those managers who run two of the best index funds in existence.

*Nobody was allowed to pick any stock that’s currently in the top-10 of VTSAX. Therefore, Apple, Microsoft, Amazon, NVIDIA, Alphabet, Tesla, Berkshire Hathaway, Facebook, and Exxon Mobile were ineligible to be used in WCIF. That adds up to only nine companies, but two different classes of Alphabet stock are in the top-10.

**Just so we’re clear, this is an invented fund that is not readily available for purchase. We do not advise you to invest in these companies in this manner. This post is purely for entertainment purposes and exists only to satisfy my curiosity. But if WCIF beats VTSAX and FSKAX, well, that’d be pretty awesome.

Oh, and just so you’re aware, I sent this post to Dr. Jim Dahle a week before it published to get his take on my idea. He did NOT hold back.

A few examples of his criticisms (along with my bolded responses):

How are you planning to adjust for the change in value over time? Is this like a closed-end fund where you put in $100, $5 into each stock and then just let it ride forever? Naturally, that means nobody else can buy in at any time, and after the first day, it is no longer 5% in each of the stocks. What happens with dividends? Are they always reinvested into that particular same stock? Are you then planning to change holdings based on what people say at the next conference? Serious operational questions here. This is a closed-end fund. At this point, I’m not opening it up to any other stocks, and the current stocks will ride as long as I’m doing this exercise.
Same problem you see in middle school stock-picking competitions. It's short term and in the short term, it's all just gambling. You could come out ahead or you could come out behind, but it proves nothing. Yes, but if we let this ride for five years, maybe we’ll see how smart our readers are.
You’re not accounting for expenses. Actively managed funds average 1% or so. If you subtract 0.25% from your first quarter return, it ate up half of your “alpha.” I’m the manager, and I’m doing it all for free. Maybe this isn’t exactly an index fund, but it’s not exactly actively managed either.
You’re not accounting for risk. Your stocks are smaller than the overall market and, thus, riskier. They may be more risky in other ways too. Certainly there is some individual stock (uncompensated) risk here, too, with only 20 stocks. Noted.
If WCI were ever to start managing money, it certainly wouldn't do it in this manner so I'm not sure this should be called the WCI Fund. Maybe the Katzowitz Anti-WCI Hedge Fund. How about the WCI Maybe Don't Invest in This Fund (WMDI)? Or how about the Hey Jim, Don’t Be So Darn Serious All the Time Fund (JDBSS)?

wci fund

OK, now having said ALL OF THAT (and now that we can basically ignore most of Jim's commentary), let’s meet the 20 stocks that live in WCIF.

More information here:

Happy Anniversary to the Index Fund — Which, by the Way, Was NOT Invented by Jack Bogle

The WCI Fund

Here’s what people said when I asked them to pick their favorite stock for inclusion in WCIF. The listed stock prices are from the close of the market on March 31, 2023.

The Walt Disney Company (DIS) ($100.13): “They always rip me off when you go to their park, so they’re probably making a profit. Plus, their Disney+ app is so brilliant.”

International Business Machines Corp. (IBM) ($131.09): “IBM is one of the oldest stocks on the exchange. Let’s throw in some old-school flavor into the WCI Fund.”

New York Times Company (NYT) ($38.88): “I still love newspapers. And I think the NYT has proven that it knows how to increase online subscribers to continue bringing in new readers (and their money).”

General Electric Company (GE) ($95.60): “It’s the pinnacle of stocks. That’s all you need. It will never go bankrupt. People were saying it would 10 years ago. But that’s all trash.”

Lululemon Athletica Inc. (LULU) ($364.19): “The reason I started wearing their stuff is because I’m very tall and they have long stuff. They’re narrow, but they fit me.”

Masimo Corporation (MASI) ($184.54): They make ICU monitoring devices. They took off during COVID. I bought shares for $80 five years ago. Now it’s worth about $180. Fingers crossed for another pandemic, and I will be sitting pretty with my 10 shares.”

Dick’s Sporting Goods Inc. (DKS) ($141.89): “We have two boys, and we basically keep Dick’s afloat. The boys always need clothes or a new basketball or a new water bottle or a new something.”

Target Corporation (TGT) ($165.63): “It makes shopping so much easier and so much more convenient. It’s more expensive than Walmart, and they basically have the same stuff. And yet I still go to Target.”

Vail Resorts Inc. (MTN) ($233.68): “It’s something I understand. You’re not supposed to invest in stuff you don’t understand. I understand the culture. I understand their business model [of providing season ski passes to several different resorts all under the same account]. I think it’s a good idea. I’ve watched it just take over in the ski culture. A competitor has emerged, and the rest of the resorts that didn’t get purchased by Vail banded together to counter it. But Vail is first to market.”

Adverum Biotechnologies Inc. (ADVM) ($0.72): “The technology is really intriguing. It’s a gene therapy that is a permanent fix for macular degeneration. For people who have gotten it, it’s still working three years later. I found it compelling, and the need is there. They tried it for diabetic retinopathy, and a patient went blind. Since then, the stock has plummeted. But the potential is there. It just got some bad PR.”

The Coca-Cola Company (KO) ($62.03): “Everybody in the world loves Coca-Cola. Everybody in the world sings that they love Coca-Cola. No matter what’s happening in the world, everybody loves an ice-cold Coke.”

Moody’s Corporation (MCO) ($306.02): “They’re still a toll-taker for the financial industry. They’re still essential.”

National Storage Affiliates Trust (NSA) ($41.78): “We have an immense need for storing things. When the economy goes bad, people lose houses and move into apartments or their parents need to downsize. What do you do with all of that stuff? You put it in storage. When the economy is going up, people are buying more stuff. What do you do with that stuff? You put it in storage.”

Walmart Inc. (WMT) ($147.45): “They’re a safe bet. They’re getting into healthcare, and people are going to buy cheap groceries.”

McKesson Corp (MCK) ($356.05): “They’re recession-proof for the most part. People need meds. The value for them keeps going up because the prices on meds keep going up.”

Paramount Global (PARA) ($22.31): “They’re just gobbling up a lot of content from HBO and Netflix that actually belongs to Paramount. They’re getting a larger amount of the market, and they’re hurting their competition.”

Palantir Technologies (PLTR) ($8.45): “They’re into data mining, and they have a lot of government contracts. They’ve opened up their technology to private investment. If you want to spy on someone or you want technology to data mine, that’s basically the company.”

Roblox Corporation (RBLX) ($44.98): “My kids have loved it for years. I imagine they’ll eventually outgrow it, but there’s always a new generation of kids that will discover it and then love it themselves.”

Chewy, Inc. (CHWY) ($37.38): “Oh my goodness, we spend so much money buying our dogs medicine, toys, and treats through Chewy and getting it delivered right to our house. It’s Amazon for pets. They just make it so convenient.”

Peloton Interactive, Inc. (PTON) ($11.34): “Like so many others, we bought a Peloton during the pandemic, and like so many others, it now just sits there in our basement, hardly ever getting used. How high did it go up at one point? To, like, $150? (Editor’s Note: its highest stock price was $162.72)? Well, you can get the stock pretty cheap now. Peloton continues to survive, and I think getting it now at a low price is a good value.”

More information here:

How Do You Evaluate and Compare Mutual Funds and Exchange Traded Funds?

FSKAX vs. VTSAX: What Is the Best Total Stock Market Index Fund?

How the WCI Fund Performed in the First Quarter of 2023

Although we created WCIF in March, let’s measure all the stocks that make it up for the first quarter and compare it to VTSAX and FSKAX and see how competitive we are. Remember, 2022 was disastrous for stocks (and index fund performances suffered), but in the first quarter of 2023, thanks to rebounding tech stocks and advancements in artificial intelligence like ChatGPT, they showed solid growth and somewhat cooled people’s worries that the US was headed for a recession.

Here's how everybody did.

wci fund comparison vtsax fskax

Turns out, we’re off to a great start! In the first quarter, FSKAX gained 7.26%, and VTSAX was slightly behind at 7.16% (considering both lost nearly 20% in 2022, that 2023 number thus far is good news). But the WCI Index Fund had an even better Q1, growing by 7.70%.

The big winners in our fund were Roblox (up 55.58%)—its revenue was up 17% year over year in the first quarter—and GE (up 45.83%), the best among large-cap industrial companies (as noted by Seeking Alpha). Only five of our 20 stocks lost value in Q1, and aside from McKeeson (down 4.4%), most of the losses were minor.

For the second quarter of 2023, it’ll be interesting to see how Disney performs, especially considering it’s undergoing huge layoffs and is in the middle of a political battle with Florida Gov. Ron DeSantis. We’ll also see how the regional banking crisis affected . . . well, everybody.

But if I’m the manager of WCIF (and I guess I am), I’m pretty pleased with our debut.

Money Song of the Week

I love punk and ska music from the 1980s and 1990s, but there are huge gaps in my knowledge. One of the most egregious was NOFX, the somewhat silly Los Angeles punk product that never rode the same kind of towering waves that made bands like Green Day and Blink-182 household names but who were awfully important in the punk scene nonetheless.

Lead singer/bassist Fat Mike and the rest of the band probably didn’t have much interest in becoming that mainstream punk extraordinaire like some of the bands that clearly drew inspiration from NOFX. Instead, the band kept making songs with funny names (The Marxist Brothers, Separation Between Church and Skate, Please Play This Song on the Radio) and putting them on funny-sounding albums (Punk in Drublic, Heavy Petting Zoo).

I didn’t care much to learn about NOFX, but a buddy recently offered me a ticket to the band’s final show in Texas (after 40 years, it's playing its last tour), and since I like a couple of the opening bands (Pennywise and Face to Face), I braved 50-degree weather and the concert venue (which smelled like an unappetizing combination of cow manure and weed) and listened to NOFX stumble its way through a two-hour show.

And it was FUN. My buddy told me seeing NOFX wasn’t really like seeing a concert. Instead, it's like a good hangout with some of your best buds that feature laugh-out-loud humor in between songs and subtle cleverness delivered during the actual music. I walked away from the show with a new appreciation for the band and for its die-hard fans.

Fat Mike doesn’t seem to have or need possessions, which is certainly the punk rock way (with the exception, of course, of bands like Green Day and Blink-182). All he needs is a sturdy floor, as he recounts in the song Linoleum.

As he sings:

“I've got pockets full of/Kleenex and lint and holes/Where everything important to me/Just seems to fall right down my leg/And onto the floor/My closest friend, linoleum/Linoleum supports my head/Gives me something to believe.”

See, he can drop his belongings on the floor, and it’ll keep them safe. He can sleep on his floor, and he can rest easy. A linoleum floor is all he needs.

As Fat Mike told Song Facts, “NOFX, in the '80s, we always slept on floors. Always.”

Like a pure punk rocker.

Tweet of the Week

A recent WCI podcast guest, Ramit Sethi, has a new show on Netflix. It’s entertaining, especially when he goes on rants about MLMs.

Literally @ramit doing Gods work on Netflix 🙌🙌😂😂 pic.twitter.com/uQV6CwkcRR

— Tobia DeAngelis 🇺🇦 (@tobdea) April 19, 2023

What stocks would you have included in WCIF? Is this idea of beating VTSAX and FSKAX doomed to fail? Or is it possible WCIers really are smart enough to beat the well-established index funds? Comment below!

[Editor's Note: For comments, complaints, suggestions, or plaudits, email Josh Katzowitz at [email protected].]

The post Welcome to the New WCI Investment Fund appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.

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By: Josh Katzowitz
Title: Welcome to the New WCI Investment Fund
Sourced From: www.whitecoatinvestor.com/wci-investment-fund-wcif/
Published Date: Sun, 07 May 2023 06:30:25 +0000

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