For anyone thinking of investing in individual stocks, outperforming the S&P 500 is what it’s all about. Otherwise, investors might as well just buy a fund that tracks the index.
It’s not easy to do, but the four largest investments in my Stocks and Shares ISA are all ahead of the average as 2024 draws to a close. And that gives me plenty to think about.
Shares I own
The largest stock in my portfolio is Citigroup (NYSE:C). The share price has been climbing as investors anticipate lighter banking regulations as a result of the US election outcome.
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Games Workshop‘s my largest UK stock. Despite making a discretionary product in a difficult environment, sales have been growing strongly and the shares have responded accordingly.
Third is Amazon, which has also been on the move since the start of November. Growth in its cloud computing and online advertising divisions is also helping to push the share price higher.
Finally, there’s Berkshire Hathaway. Warren Buffett might not think the stock’s undervalued right now, but that hasn’t stopped investors buying into his investment vehicle for their own portfolios.
The S&P 500’s up 28% since the start of the year. But so far, Citigroup (34%), Games Workshop (+45%), Amazon (+46%) and Berkshire Hathaway (29%) have done better.
That puts me in a position where I have to consider a difficult question. Should I stick with them while they’re doing well, or look to redeploy cash into other opportunities?
Citigroup
The most interesting example is Citigroup. I bought the stock when Jane Fraser took over as CEO with a view there was clear scope for improvement that the share price wasn’t reflecting.
I think the turnaround plan is progressing reasonably well. Its plan is to sell off some of its international retail operations to focus on its core areas of competence.
My view on the company hasn’t changed. But the stock’s now 40% more expensive than it was when I bought it, so it’s worth considering whether the future growth’s now priced in.
I wasn’t expecting the stock to do well this year – my view was a long-term one based on the outcome of Citigroup restructuring its business over a few years. So this has been a surprise.
At a price-to-book (P/B) ratio of 0.7, Citigroup shares trade at a discount to the other major US banks. But they are roughly level with their average multiple over the last 10 years.
I’m reasonably sure I wouldn’t buy at today’s prices and with the investment equation looking less attractive, I’m thinking about selling. The issue though, is finding something else to buy instead.
Outperforming
Outperforming the S&P 500 isn’t easy. And I’m not sure whether or not my overall portfolio is ahead this year. Strong gains in some stocks have been offset to some degree by others – Diageo being one example. That stock’s down 17% since January, which is a significant drag on overall returns.
Ultimately, performance in one year doesn’t really matter – it’s the long-term result that counts. And this is what I’m considering when working out what to do with my investments.
