Tuesday, 14 May 2013

My Performance So Far

I believe in being fully transparent about my investment record, good or bad. I find it unfortunate that the public is largely left unable to make informed decisions about the merits of investment managers, advisors and the like - the less competent ones are not too forthcoming about their past. Neither do I feel that they are held as accountable for their actions as they should be. Substandard decisions or performance seem to be forgiven and forgotten too easily.

You need only look at the story of John Meriwether, who played a significant role in the near collapse of Salomon Brothers in 1991, nearly causing a financial disaster if Warren Buffett had not risked his reputation to save the investment bank. In 1994, he founded Long-Term Capital Management (LTCM), a highly leveraged hedge fund. Four years later, it blew up spectacularly, almost bringing down Wall Street again, prompting 14 financial institutions to inject $3.6 billion. Surely people would have learned to avoid Meriwether at this point, but alas, they didn't.

The next year he raised $250 million to start another highly leveraged fund which closed down in 2009 after taking a beating from the global financial crisis. I must give the man some credit, he's certainly persistent - in 2010 he started a third highly leveraged hedge fund, although with far less interest from investors. If someone as high profile as Meriwether can get away losing billions of dollars with minimal consequence, surely there must be thousands of others like him hiding in obscurity.

But I digress. Below is the record that I use to keep track of my performance, as of 14/05/13. If my performance turns out to be decent, you may decide to pay some attention to my ramblings, if it is poor, then I expect you'll immediately browse elsewhere, unless you wish to delight in my financial misery.

Now you may be rather sceptical about the veracity of these results so far, after all, I could have plucked the figures out of thin air. I would be too. Short of looking at all my paperwork or auditing my brokerage account, I'm afraid you'll just have to take my word for it. My intention is to provide periodic updates and post any significant events, such as a buy or sell, so that the authenticity of all future results is unquestionable.

I should add that this is only a record of 2 years and 4 months of investing, which I deem too short to form a definitive opinion of any long term investor's ability. I think 3 years is the absolute minimum whilst a preferable timeframe would be 5 years of results. Nevertheless, the early numbers are encouraging, comfortably surpassing my target of a 5% p.a outperformance of the All Ordinaries Total Return (Accumulation) index. The annualised outperformance currently stands at 11.3%.

You may infer from the figures that my investment style is quite a concentrated one. That would be true: for the first year and a bit, I held only one stock, although I now view that as extreme and unlikely to occur again. This explains the initial volatility depicted in the chart, however, since diversifying into 5 or so stocks (which is still quite concentrated), results have been much smoother. But my views on the topic of diversification vs concentration are too long to expound upon here. Perhaps another time.

Please click on this image and zoom in for a better view


  1. I've just stumbled on your blog and I'll be following this with interest, if only because you remind me of myself 5 years ago: still at high school, reading the same books, practising the same value investing philosophy and starting off with around the same amount of capital.

    I'll be especially keen to hear your thoughts on concentration as well. I share Carnegie's and Munger's view that concentration can produce superior returns if done correctly . Looking at your portfolio, I suspect you may share the same view.

    1. Thanks anonymous, I'd love to hear how you've done over the last 5 years and where you're at now. I'm sure there are some valuable lessons to be learned, particularly your experience of the GFC. It's easy for one to say what they would've done in hindsight but it would be very interesting to go through something like that first hand.

      Unfortunately, I haven't found much time to write recently (inundated with schoolwork) but hopefully I'll post something about concentration soon.

    2. Using the XIRR function in excel (which is apparently the most appropriate method when you have a dynamic portfolio like I do where you add and take out cash), I've managed an (annualised) return of around 50% for the past 5 yrs. I suppose this performance can be attributed to my preference for smaller cap stocks, and I notice from your portfolio that you have the same inclination, which is great - we'll have plenty of common stocks in mind.

      In terms of lessons, I'm not sure that there's anything particularly insightful I can offer. The GFC was an interesting time. I was fresh out of high school and eager to invest with the money I made from a casual job. But after seeing red ink every day, I admit I became a little disheartened. At first I was insistent that I was buying shares that were significantly undervalued - after all, I'd read about the fortunes made by Nielson, Buffet, Lynch etc. in times of great market distress and I was eager to seize this chance. Then as the red ink kept haemorrhaging for more than a year, I lost interest. While I did buy some shares very close to the bottom of March 09, in retrospect I should have added more, and consistently, throughout that time. In any case, since then those stocks have done rather well.

      Not entirely sure what lessons you can glean from that, but I guess it only serves to emphasise Graham's apt metaphor of voting and weighing machines.

      Looking forward to your views on concentration

    3. Wow is all I can say. 50% pa for 5 years? That's legendary performance if you can keep it up, good on you. Perhaps you could email me your spreadsheet, I'd love to see which stocks you bought. And yes, I find that focusing on smaller cap stocks is where you're likely to find mispricings since most institutional investors are restricted to the larger end, but that doesn't preclude me from larger stocks entirely. If I could buy REA or Cochlear at a reasonable price I would.

      Interesting story about your experience. I guess it's human nature to think short term, see the losses and think your initial purchase was a mistake rather than buying more. Although, sometimes you really are making a mistake and you should be getting out, but telling the difference between the two is what separates the wheat from the chaff. Investing is a psychologically challenging game.

      By the way, I just posted that article on diversification and concentration.