Consider the following example of Simpson's paradox...
Hitter A has a better batting average than Hitter B when playing on grass.
Hitter A has a better batting average than Hitter B when playing on turf.
Hitter B wins the batting title, with a better batting average than Hitter A.
I believe (from memory, can't find a reference) that George Brett happened into this situation some time back. There was another hitter who outhit him on both halves of that split, yet Brett had the better overall batting average -- because both players hit better on turf than on grass, and Brett played in a home park with turf.
Applying that to investing, this offers one way to beat the average long-term returns on an investment or sector. Even if you merely match the returns over each time period, if you put in more money during the periods with strong returns than during the periods with weaker returns, your overall average will come out ahead.
The challenge here is that it requires swimming against the stream. My returns on NEE were sub-par from January 2021 through June 2023. It was a relatively new investment for me, and I was mostly following the crowd - even if the numbers didn't look especially good on my sheet. The stock went nowhere over this time frame, so it shouldn't be a surprise that my returns were under 2%.
However I loaded up in the second half of 2023, when the shares were on sale, enjoying a 12%+ IRR from then through the end of 2024. The stock has AGAIN gone nowhere, but by playing the swings I was able to generate a healthy return on that. Ended up selling out of NEE in September 2024, at $84.43.
Now I'm re-establishing the position. The current cost basis is $69.42, and I can afford to add one more time to bring it back up to a full position -- trimming from utilities that have done well over the last five months to buy back into the utility that has done poorly.
I mean I *guess* I could stay away just because the shares are at the same price they were in July 2020, but I didn't actually buy any shares in July 2020 (the original buys were in 2018-2019), and the company is in the middle of a steady run of 8% annual growth (2022 to 2027 looks to average 8.3%). I have to go back to 2012 to find a year that the earnings *didn't* grow by 7%. A 2.96% yield with 8% growth is a recipe for healthy returns, and the business is as predictably low-risk as they come.
So sure, the share price is all over the place, very volatile. But the *business* itself is predictable like clockwork. All the volatile share price means is that I have ample chances to buy cheap and to sell high. Thinking we are back in a "buy cheap" phase.
It has climbed to #2 on my Utilities watch list:
ES +17%
NEE +9.8%
WTRG +9.8%
AEP +8.1%
EVRG +8.0%
ATO +6.7%
WEC +5.9%
So... Where do I find the cash to add? Pull back from ATO or WEC even more? Or look to another sector? Given these kinds of numbers from the most conservative sector, I'll probably end up doing the latter. |
