Does Love Investing Work? – Introducing the Top Love Portfolio

Do you have friends who are so smart that it’s dangerous to talk to them about your ideas?

My friend Zack is like that.

Zack is a Wall Street banker who started multiple companies on the side. He was my best friend at graduate school, and also the best man at my wedding. But there is one thing: he’s the type of person who is so analytical that he can poke holes in anyone’s ideas for sport. So when I tell him about my ideas, it quickly becomes an intellectual debate and battle. It can feel exhausting afterward.

That said, he’s also a perfect foe to practice my pitch against. I’m the Rejection Guy, after all. If I can battle him, I can kick 99% of detractors’ butt.

So naturally, I told him about Love Investing one day over the phone. He’s a veteran at equity investing and should provide a good fight.

“Hey, what if I start a fund made of stocks of companies people love in real lives? I found that if you rely on intuition and heart, rather than analytics and predictions, you can crush the market in the long-term,” I explained.

There is a long pause on the other line. He could be thinking about a sharp retort, or for all I know, could be re-evaluating everything about me and our friendship.

“This sounds ridiculous!” He finally broke the silence. “But how do you know this works?” You see, Zack is a practical guy. So when it comes to investing, after the insult, he goes directly to ask for the result.

“I have achieved 24%+ annualized return for the past ten years,” I answered with a smile.

“What evidence do you have?” He followed with a tone of disbelief combined with a bit of shock.”

“Evidence?” Now I’m a little surprised. “Isn’t my word enough? Hey, you are the guy I trusted with my wedding ring.” I replied half-jokingly.

“No. Starting a fund is 90% fundraising. You have to sell to potential investors that you can deliver them the returns. They are not just going to trust your words.” He answered.

“OK, can I send you my investment track record provided by Fidelity?” I replied.

“No. That stuff can be made up easily. But, even if I trust you, potential investors would have to see a certified investment track record based on your fund.” Zack explained.

“Plus, how do I know your method will work in the future? Maybe you just got lucky?” He added.

Whether or not I agree with his reasoning, he did raise a good point. Believe it or not, that’s also the question I ask myself a lot.

Sure, the idea is sound. In theory, you invest in companies whose products and services you absolutely love. If you are not a weirdo, your love will be shared by millions and billions of people. That love is the best forward-looking indicator of a healthy, thriving business, which in turn, means marketing-beating stock performance. 

Sure, my 24%+ compound annual growth with my Love Portfolio for the past ten years is impressive, beating the overall market by 8% a year. And I have, in turn, become a multi-millionaire investing this way.

Sure, if you just invest $1,000 a month and achieve a 15% annual return over the long-term, you can grow to $1M in 18 years, and $15M in 35 years. And you’ll get there a lot faster if you invest even more.

All that sounds great. But did I just get lucky for the past decade with a bull market? Will Love Investing work going into the future? Can you really beat the stock market over the long term? Will you actually achieve 15%/year going forward?

There is an old Chinese saying: is it a mule or horse? Pull it out and take a walk.

As someone who hates blowhards and outlandish claims, I only want to present you with proven methods with actual evidence. Since there is no way to know the future, there is only one way to find out if Love Investing is a horse or mule: let’s track it in real-time going forward.

Here is how to find out: 

Last month, I reached out to Love Investor’s First 1,000 True Fans to organize a contest where people enter a portfolio of their top 10 Love Companies. In a year (Oct 2021-Sep 2022), the person with the highest returning portfolio will win a prize. (If all goes well, we plan to do this contest again, opening up to everyone. If you are interested in the Jan 2022 contest, enter your info here).

Based on every contestant’s inputs, we came up with the Top Love Portfolio – a collection of the top 10 Love Companies. Going forward, we will measure the performance of this portfolio against the S&P 500 (measuring US market) and MSCI (measuring world market). In addition, we will periodically update the portfolio based on the data from new contests and reader inputs. However, the performance data is always publicly tracked in real-time, not back-tracked.

Below is the first-ever Top Love Portfolio:

Here are some observations:

1. I am not surprised by this list at all. If you asked me to guess what companies my readers will collectively love the most, my guessed list would be very similar to this one. I would not have guessed Spotify, but still not too surprised by it.
2. While there are many usual suspects on the top 10 list, no two contestants came up with the exact same list. It goes to show that Love Investing is very personal. While many people might love the same companies, everyone’s lives are different, and so are their tastes and loves.
3. This list is very tech-heavy. Seven out of the ten companies can be classified as traditional tech companies. Disney is a hybrid, with a combination of parks/movies and Disney+ streaming. Tesla is a car company but operates like a hardware tech company. The only non-tech one is Costco, a traditional retailer. But even they have an online presence. It goes to show how dominant technology has become in our daily lives.
4. All these top Love Companies, except Spotify, rank very high on the S&P 500 list. In fact, all top 6 S&P 500 companies are Love Companies. S&P 500 companies are ranked based on their market caps (the total stock value of these companies). It shows a strong correlation between how well companies do financially and how much people love their products and services.
5. Relating to #4, most of these companies’ stocks have done exceptionally well these past five years. If you had invested $10,000 in a portfolio of these stocks five years ago, the 430.44% return would have netted you $53,044, compared to S&P 500’s 103.45% return, which would have earned you $20,345. Their exploding stock prices are the reason the Love Companies dominate the top of the S&P 500 list. It is a testament to the power of Love Investing – Love Companies usually outperform the market by a large margin.
6. Now, looking back is fun, but investing is always forward-looking. Just because the top Love Companies have done well in the past, it doesn’t mean they will continue to do so in the future. So the question is: will these companies continue to kick the market’s butt in the next five years?

That’s the million-dollar (or ten-trillion-dollar, if you look at these companies’ market caps) question. I will answer them differently based on what kind of hat I wear.

If I were to wear an analyst’s hat, I would have said probably not. Based on traditional measurements of how expensive stocks are (Price/Earnings ratio, Price/Sales ratio, etc.), most of these stocks are very expensive. The conventional wisdom says, “what goes up must come down.” An analyst would have bet that these high-flying companies will not continue to soar the way they have been, compared to the average market returns.

Moreover, the COVID pandemic notwithstanding, we have been in a great bull market for the past ten years. Will the market continue to stay hot? What if it tanks? How well will these Love Stocks fair in a bear market?

Now that’s analyst speaking. That’s why I don’t like the analyst’s hat all that much. It’s itchy and makes me ugly and anxious. I would not have made much money being an analyst.

Let me put on my beautiful Love Investor Hat, which makes me warm, calm, and rich.

The Love Investor in me will continue to bet on these Love Companies compared to the S&P 500. Why? There is a reason these companies are so loved, because they have permeated every aspect of our lives. Almost every minute of my life, I use products either made or sold by one of these companies. You can make a moral argument on whether it’s good or bad to have these companies are so dominant, but that’s another topic for another day. The fact that these companies have so many products and services that we love and depend on, I will bet that they will continue to excel, compared to the market at large.

Moreover, if the companies start to put out bad products that irk people more than delighting them, you will see them drop on the list or out of it altogether. If you look at the list closely, Facebook came in at #9 on the list. Facebook used to be very high on my Love Portfolio.

This is our first ranking, so we don’t have historical data to look at. But we can look at some of the other lists as references. For example, in 2017, Facebook was ranked as the #9 most admired company in the world. It was so popular that Mark Zuckerberg was contemplating a presidential run.

Then, its reputation went from cool to crappy in a hurry. Facebook has not only gone through PR disaster after PR disaster, but also been proven harmful to society in many ways. Moreover, it is a product hardly used by younger millennials and Gen Zs. In 2021, Facebook was dropped off the same list completely.

The product is still loved (or addicted) by billions of people, and that’s why I’m not surprised that it is still on the Love List. But will it continue to stay there two years from now? Five years from now? We will see.

This is the beauty of Love Investing. If you no longer love a company, you remove it from your portfolio. If enough people do it, it will be dropped from our top 10.

So, is the Top Love Portfolio a horse or a mule? Will it beat the S&P 500 like the theory indicates?

We are pulling it out and taking a walk!

Jia

PS. If you are interested in being part of our Jan. 2022 Love Investing Contest, sign up here.