Our Theoretical Returns

The goal of this blog was for me to identify how to live off stocks.  Before we get into the qualities of winning stocks it will be helpful to understand what our performance could be if we had invested in these winning stocks of the past. My assumptions will be the following:

• As discussed before I will have 5 open positions per year
• Assume I will catch 40% of the stocks move
• Assume I will have a 2:1 losers to winners ratio per year
• I will always cut my losses at 10%
• Both losers always come before the losers

I want to use this as an example to see if it would have been possible to live off the money made in the stock market if you started at any particular year.  I have created two tables that highlight how you would have done had you averaged the performance of the 5 most winning stocks and 10 most winning stocks.

5 Most Winning Stocks

10 Most Winning Stocks

As you can see from these tables, if you had been comfortable living on 35k or less per year, there would have been only two years in which you would not have been able to pay for yourself.  Although I personally would much rather live on more than 35k per year, it is definitely possible. I have also presented one of the worse scenarios.  

Another method to see if it is possible is to assume we can increase our odds of being in the upper 80% of all stocks on a yearly basis.  The returns for that are outlined in the table below:

So, if we had been able to stay in the 80% for returns on a yearly basis we would have been able to live off the returns for 12 of the last 15 years. 

Before we can claim that it is possible to live off the returns, we need to understand the things that make these stocks different or stand out from the crowd. What godly qualities do they posses that allow them to outperform the other stocks in the marketplace.  That is the discussion for the next post!

Identify Winning Stocks

I read a book once titled “If you don’t know where your going, you’ll probably end up somewhere else.” How does this pertain to my work? We want to focus on stocks that are in the 95th percentile or above in terms of performance, hopefully that is where we are going.  This post will explain how to identify stocks in past years from the 95th percentile, in addition we will highlight the performance you can expect from the market itself.

Understanding Yearly Performance of Stocks:

• Use Microsoft Excel with the data sources mentioned in a previous post
• Utilize January 1st as measuring day (if market is open)
• Complete for past 10 years

Below are the top ten performing stocks from each year for the past 12 years:

That took a little while to put together, if anyone would like the actual table don't hesitate to ask instead of trying to copy and paste the picture. I'm all for conserving time/energy! In the same vein, if I am doing something on this site that you have already accomplished let me know!

A QUICK WARNING!! This is the "SURVIVOR" data set, meaning I used a current list of symbols to generate this list.  Stocks had to make it to present day to be included on this list which means you can expect the average returns that I provide here positively biases and I could also be missing a few stocks from the list.

In the next post I will take a more in depth look at the data set to understand expected returns over the period .