How Oakmark International Helped Me Turn $6500 into $10000

June 9, 2007

Oakmark International Fund (OAKIX) has been good to me over the last 4 years. A $500 investment, followed by $125 monthly additions, is now worth $10,000 and I’m wondering if it’s time to take some profits.

Getting Rich Slowly
Okay, so I’m not rich (yet) but I have more now than when I started. The minimum initial investment in any Oakmark fund is $1000, unless you sign up for their automatic investment plan, then its $500. In July of 2003 I mailed in $500 to buy shares in the Oakmark International Fund and signed up for their automatic investment plan.

Every month since then Oakmark has invested $125 a month for me right out of my checking account. This regular investment coupled with a 3 year average annual return of 23.90% by fund manager David Herro turned my $500 into a little over $10,000 so far. Thanks David!

Time to Take Some Profits?
As they say in the mutual fund industry, “past performance is no guarantee of future results”. International investments have been on a tear the last few years and all good things must (eventually) come to an end. Hopefully growth in the international economy will remain strong and Herro will continue to work his magic but only time will tell. I’m thinking about selling some shares to cash out some of my gains. I don’t want to sell it all because I think it’s a quality fund so the first question is how much to sell.

Tax Implications
I’d want to make sure I sold shares that I’ve held longer than one year so that the income is taxed as a long-term capital gain rather than short term. Since my investing transactions over the last 7 years have consisted almost entirely of buying I’m not sure how to specify which shares to sell, so the next question is how to designate which shares are sold.

What To Do With The Money?
Of course the final question is what would I do with the gains. I could reinvest them in another mutual fund or stock but the market has been going up for several years now. It seems like the stock of many companies have grown “expensive” with all the growth and it would be harder to find a good value investment. Of course, if I do put it back into the market, I’ll have to look at my overall portfolio allocation and see how the new investment would fit in.

My other option is to invest the money into my business. I’ve been able to make a pretty good return on my investment so far and with additional capital I’ll have more opportunity for growth. The main question is can I be consistent enough with my earnings to match and preferably surpass the returns I can find in the stock market?

Decisions, Decisions
Looks like I have some research to do:

  • How Many Shares to Sell?
  • How to Sell Only “Old” Shares?
  • Where to Put The Money?
  • Stock Market – Which Investments?
  • Business – Expected Rate of Return?

I’d love to hear your comments and suggestions.

Ben

Will this article help you save or earn more money? Get others like it simply by entering your email address below. Your email is used only for delivering daily money tips and you can opt out of delivery at any time. Click here to see all your free subscription options.

  

Ben

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn’t like the other kids… His addiction to personal finance has paid off for his family and now he’s helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.


All posts by

Comments

13 Responses to How Oakmark International Helped Me Turn $6500 into $10000

  • Ben

    Okay guys, I changed my title and first paragraph to better reflect the total amount I invested.

    mapgirl, it’s not that I have a pessimistic outlook on the international markets, I just know not all upward trends last forever so I’d like to take some profits now to hedge against scenarios where they would stop growing or lose value. I’m sure long term the international market will grow so I’m not looking to sell it all, just some. The question is how much.

  • mapgirl

    Tsk tsk! Definitely misleading, but still a very good post. And the 20+% annual gain is still pretty awesome compared to the S&P.

    I have always wondered when to sell. In my case, I have most of my investment in tax-deferred accounts, so I don’t worry about capital gains taxes. What I do worry about is when to lock in profits. I never, ever know when to sell. In this way, I’ve ridden individual stocks down.

    In a case like yours, I’d probably go with the portfolio rebalance and leave it at that. I know I recently rebalanced mine by changing allocations around. (Less large cap, more international growth.) I didn’t sell anything off, just had my future contributions routed differently.

    I guess you have a pessimistic outlook about the future of the international market. But do you think it’ll still be positive the next year? Next 2 years? Next 5? If there’s a sign telling you that the international market is going to tank, I’d love to hear why. I mean, could you ride out a short term fall of 2-10% on the fund, keep buying in to reduce your dollar cost average, and ride the next wave up?

    Just curious since I only hear a pessimistic view that doesn’t actually have a researched opinion about the view of international market outlook. I’m not trying to be nitpicky, but maybe understand my own opinion of the matter. I am holding a US large cap stock that has appreciated 30% (before commissions) and I am ready to sell it any day now. However, I think the stock could go up almost 50% in the next 2 years which is how I keep talking myself out of selling. (The 1-yr estimates are about 50% higher than my buy price. Their earnings outlook and forecasted industry outlook is strong, etc.) I think I’d rather watch this stock go to 50% and sell it as it slides, rather than sell it early and watch it keep rising so I can’t buy back into it.

    Decisions, decisions!!!

  • Denney

    Although your title is misleading, your story does bring up an interesting point. Should I stay or should I go? At the current pace you will double the amount of money in another 2 years all things being equal. Now what you should consider is not only the taxes but where you move that money. As a person who lends money to small businesses, I ask business owners if there is an ROI in the equipment or product they need to expand their business. If you can answer yes to that with confidence and it beats your 2% a month then yes invest in your business. If not continue to grow at a slower pace. I see business owners who have terrible personal credit and want to purchase a piece of machinery that will increase their revenue by 60% with a 30% ROI and they are unwilling to pull the trigger. The first question is what is the interest rate? Does not really matter if there is and ROI.

  • Ben

    Thanks for the tips Art, I’ll talk to my tax friend.

  • Ben

    I’m afraid I don’t know of a way to earn a 2,000% ROI with the level of risk I’m comfortable with. I guess the first paragraph could have been worded a little better. You’re right my regular contributions following the initial investment, coupled with good returns, got the investment to 10K.

  • Gaming the Credit System

    Sorry, but your headline and your first paragraph (“A $500 investment is now worth $10,000”) are misleading. If you’ve paid $125/mo for 4 years (roughly from July 2003 to June 2007), plus your initial $500, you’ve put in roughly $6,500 which is now worth $10,000. This is a big difference. You make it sound like this fund has produced a 2,000% ROI.

  • Millennium Mommy

    I wish you luck.

  • Art Dinkin

    Ben, The tax issues you raise are interesting. Cost basis on mutual funds can be tricky, since the mutual fund is buying and selling securities throughout your holding period and passing the tax implications on to you… all of which effects your basis.

    You have two choices. Either account for the basis of each individual share and then select which specific shares you are selling, or take an average cost basis. Frankly, this is not my area. I would seek a CPA’s advise. Once you choose one method, I believe you must stick with it for the life of the investment.

    Art Dinkin, CFP

  • Ben

    You guys make a good point about allocation. My international investments have grown larger than their intended allocation due to their performance. Maybe I’ll sell enough to get me 1-2% under my international allocation level.

    Harm, I know what you mean about timing the market. I generally stay away from buying and selling based on market conditions but as I just mentioned my investments in international funds have grown larger than planned so I’m looking to trim them back.

  • Q at $1 Million to My Name

    IMHO, only sell a portion of the position if the position has become an uncomfortably outsized portion of your portfolio. If it’s over 5% of your holdings, I’d pare back.

  • MoneyNing

    You need to look at this fund along with the rest of your investments/money to figure out how much you should sell or if you should sell at all.

    You would want to diversify your entire portfolio, and if that means reducing your international explosure, then sell some shares. If it means increasing your international shares, you might even want to buy more.

  • Harm

    I know that as an INVESTOR (as opposed to
    someone who is living off the proceeds of
    your investments) it’s frustrating as well as
    gratifying to see your stocks, mutual funds,
    or whatever, do well. “Buy low, sell high”? What
    happens when “High” is here? If you are young(ish),
    I’d have to say “keep investing”, otherwise you
    run the risk of taking money out, the market goes
    down, and you are so glad you took some money
    out, you leave it forever in a low risk, low yield account
    somewhere, waiting for the magic moment, for the market to go REALLY low
    so you can put it back in (been there, done
    that). Or, the market keeps going up, teasing
    you, till you throw all the money you took out
    back in, THEN goes down. I’ve found a good
    performing market works on your mind in ways
    a bear market doesn’t…..’high class problem’,
    my Mom would say. Good luck!

Trackbacks/Pingbacks

  • Posts I Enjoyed Last Week