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My Two-Year Portfolio Performance Report

After a couple of years of investing with an audience, I've gained more than $69,000, but am slightly lagging my benchmark.

It has been almost two years since I launched my invest-in-public experiment, allowing Kiplinger’s readers to monitor and assess my trades. So it’s time for a performance report, which is decidedly mixed.

On the bright side, my Practical Investing portfolio, which started with $189,998, is now worth $259,167. That represents a 36% profit, which leaves me slightly behind my benchmark, a version of the exchange-traded Vanguard Total Market Index fund (symbol VTI) that takes into account when I made my purchases. The fund has returned 38% (results are through October 4).

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A handful of my stocks have produced exceptional results. Spirit Airlines (SAVE) soared 149%, and Seagate Technology (STX) jumped 110%. Dover (DOV) gained 49%; American Capital (ACAS), 54%; KKR Financial (KFN), 47%; and Johnson & Johnson (JNJ), 43%. The results are even better than they seem because I’ve owned most of these stocks for less than two years.

But I’ve made mistakes, too. My biggest was a doozy: Schnitzer Steel (SCHN), which I sold for a 44% loss. I also have an unrealized loss of 18% on Acacia Research (ACTG). Corning (GLW), Intel (INTC) and Stone Energy (SGY) have merely inched forward, while the overall market has leapt ahead.

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I could have held on to Schnitzer a little longer in hopes of a bounce. But because my portfolio is in a taxable account, I wanted to sell before year-end. At this time of year, it’s smart to trigger losses to offset gains. Doing so reduces your tax bill for the year and lets you keep more profit for yourself (see 4 Smart Year-End Moves to Trim Your 2013 Tax Bill ). Of course, you shouldn’t unload a stock that you still want to own, but I had already decided that Schnitzer was a mistake.

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Another boneheaded move was my decision to sell Lockheed. I earned a 30% profit on the stock, but since I sold it, Lockheed has returned another 41% (including dividends). Shortly after I sold, Lockheed shares dipped by 10% and were every bit as cheap as they were when I first invested in the company (based on the stock’s PEG ratio — that is, price-earnings ratio divided by the company’s projected earnings-growth rate). I briefly considered repurchasing Lockheed, but I was enamored with the idea of buying something new. So what did I do? I bought Acacia, which makes money by helping companies enforce their patent claims. In hindsight, the swap looks insanely stupid.

Cutting Risk

I also left money on the table by selling half of my holding in Spirit Airlines after hitting a 100% gain. But that move troubles me less. The reason: I was making a strategic decision to take profits and reduce my risk in one stock. Today, Spirit accounts for 7% of my portfolio, slightly more than it did when I first bought it.

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Incidentally, I keep a single share of all the stocks I sell. This is something I do to force myself to review past decisions to see whether the sales were smart or ill-advised. It may seem strange to create a device that forces you to face your errors, but I do that for two reasons. First, this column is all about teaching the ins and outs of stock selection and trading. If I only crowed about my successes, I’d be a bad teacher. Every investor makes mistakes; the trick is to make more good decisions than bad ones.

Second, it’s important to remain humble if you want to be a good investor. But that’s tough when a bull market keeps handing you double-digit returns. Too often, investors think they’re brilliant, even when they know that a rising tide lifts all boats. Success can turn careful investors into cocky investors, likely to trade too much and investigate too little. And that increases the chance that they’ll violate Warren Buffett’s number-one rule: Don’t lose money.

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