Portfolio Performance

Two years strong

July the 4th marked the two year point for the portfolio, landing (a little sadly) while I was away. This meant the portfolio update – and the birthday celebrations, with a dollar-shaped cake and novelty £50 pound note serviettes – were delayed for a while, notably until after I’d actually caught up with what was going on and rambled on about Communisis for a little bit. We’re here now, though, and after the extremely tedious task of updating all the spreadsheets which keep my backend calculations in working order, I’ve put together the usual charts and figures Satisfying reading they make for, too! Through a combination of blind/beginner’s/sheer luck and some modicum of improving stock picking analysis, its done rather well for itself over the last couple of years:

Though, I must say, the graph is flattered by two factors. Firstly; the benchmark I use, the FTSE All-Share, is quoted as an index. This means it’s just the value of all the shares inside it. If you were to actually buy an All-Share tracker, you’d receive or reinvest dividends. Over the two years shown, that probably accounts for about 7% more growth than the graph above shows – so you can safely bump that line up a little. Secondly, and more intangibly, the choice of benchmark used will always alter perception of performance. The FTSE Small Cap (ex investment trusts), another perfectly reasonable benchmark for me to go against, is up 28% (pre-dividends) in the same time span – significantly more than the 12% gain the All Share is sitting on. Which is a fairer benchmark? In favour of the All Share, I don’t limit myself to small caps – I’ve had several FTSE 250 companies in the portfolio, and currently about a quarter is invested in companies falling into that category. The majority weighting is still in small caps, though, and since my portfolio is likely to be much more volatile over the long-term as a consequence of this, there’s a strong argument for using that index instead. The choice of benchmark doesn’t hugely bother me – it’s just a nice comparator, and since I’m up on both, I’m not hugely fussed.

I’ve also compiled a list of all the equities the portfolio has ever owned, along with their performance. To save my sanity, I haven’t included dividends, so like above with the index my returns figures here slightly downplay the actual performance.

The flat mean performance of the group is +50%, which is mainly down to two things. Firstly, my allocation has been pretty good, since the portfolio is up significantly more than that – even after taking dividends into account! Evidently, I haven’t put too much into shares that have gone down. Perhaps I should only stick with my higher conviction picks? Perhaps it’s just chance, though, and time will tell on that one. Secondly, the returns figures for a number of shares understate my attempts at market timing. The way I’ve calculated the ‘return’ for my shares is by simply dividing the price the stock exited my portfolio by the price it entered it at. This is fine in most cases, but in some – for example Barratt – I bought a huge number of shares after their price halved. The returns figure doesn’t take into account that I (rather shrewdly in hindsight) picked up some shares at 60p, which then went on to be sold at over 300p – more than a 400% gain.

The table does make for interesting reading for me, though, and reminds me of some of my poorer decisions. Positively, I think a lot of the shares nearer the bottom – RSM Tenon without a doubt, and perhaps Stadium/Morson/Character, wouldn’t meet my criteria nowadays. It’s easy to say that looking back, though. Maybe I also wouldn’t have picked up Communisis or Barratt. As ever, talk is idle and pointless – the only way to judge an investor’s value is by the choices he makes. It’s easy to be an armchair warrior.

Hopefully I’ll continue to improve as a stock picker, and the portfolio will come with me. I don’t expect a continuation of this fantastic performance – this really is right at the top end of what anyone can reasonably expect with an extremely generous heap of good fortune – but the real test will come if the market starts falling again. It could well be that my method of picking shares is simply particularly good in bull markets, where opinions on the economy are markedly improving – as they have done. I almost hope we’ll see a bear market, so I can test out that theory and see how I fare.

As ever, thanks for reading and emailing/commenting – it’s made the last two years a lot of fun!

9 Replies to “Portfolio Performance”

  1. red.

    Extraordinary. And not a junior resource stock in sight!

    It would be interesting to know which of them you felt really good about at the time of purchase and which of them had you feeling that you were taking something of a risk.

    • Lewis

      Red,

      I’ve just opened the Excel spreadsheet and gone to the table to try and do exactly that – only to find, as I probably should’ve expected, that it’s basically impossible for me to do it in hindsight. I find myself feeling positive about most of the ones in the top half, and negative about the ones in the bottom.

      The only ones I can say with any certainty I was confident about are the larger ones I bought at the start – Barratt I was absolutely certain on (too certain, in retrospect), along with Howden, Dart, Cranswick and, more recently, Vertu and Northgate.

      I think much of the problem comes about because of how much I’ve changed as an investor since my first tentative steps back then. It was something I got into by reading blogs in my downtime, and after about 3 months of that I wanted to start my own to chronicle my journey from rookie to slightly less rookie. I find it hard to ‘read’ my mind back then, because I interpreted things completely differently.

      My first post on RSM Tenon is a fantastic example of this, back in August ’11:

      http://expectingvalue.com/shares/rsm-tenon-tno

      This was a dire company. I was drawn in by good headline figures and management’s honeyed words, and these things are right in front of my face if I re-read the article. The first comment, rightly, slaughters me. I hope, and am fairly certain, that I would never get it this wrong on a company so clearly dodgy again.

      • red.

        Well, that’s fair. (My own tell is that when I have a gut feeling that I’m taking on above-average risk I tend to be miserly with position size).

        It’ll be very interesting to see how your style evolves over time. Here’s to the next two years.

        • Lewis

          You’re probably right with that one – as I noted, my big positions have done very well and my small ones haven’t, generally.

          At the moment I hold a huge amount of Northgate, a sizable amount of Vertu, and an insignificant amount of Plastics Capital and Creston. This exactly matches my convictions.

          Thanks – here’s to it!

  2. Hannibal

    Terrific performance.

    You may have noticed that there is a moderate correlation between your holding period and return. That is, the your biggest ‘winners’, generally seem to be those that you have held for some considerable time.

    One of the hardest things in investment is sticking to your guns when the market goes against you. Was this much of a factor? Equally, at any stage did you end up doubting yourself?

    It seems to me that you had the strength to stick with your convictions and have profited handsomely as a result.

    Hannibal

    • Lewis

      Thanks Hannibal.

      Yes and no – I’d be hesitant to suggest any sort of causality, though there does seem to be a correlation. While some of them I stuck with, and stuck with hard – I bought more of Barratt and Dart when they dipped, for instance, other shares – like Creston and Plastics Capital – have done very little over the two years they’ve been sitting here, and I neither bought more on dips or sold.

      I am a little stubborn as an investor.I don’t buy into the stoploss mentality. I think buying shares because you think the market is irrational and misprices securities is a perfectly reasonable thought process – but then saying that you’ll sell if it falls below some arbitrary, predetermined value is a little suspect. I stick to my guns almost relentlessly unless either I realise I was wrong in the first place or something significant changes.

      I do agree with the last sentence. As an amateur economist, I like to see where I add value in the chain – a reason I should earn superior returns. Am I a better stockpicker than the market? Maybe, but I doubt it. Do I have the ability to be more long term focused than the market; to absorb volatility in a way fund managers (with impatient investors) are unable to? That I surely can. I also think, and hope, I am more immune to the temptation to buy and sell with the crowd – jumping out at scary looking times (as so many did with Barratt at 60p) and jumping in at times when the price already reflects the improved consensus (look at the growing interest in housebuilders now, at 6 times the price).

      It’s all tentative, though. It’s a short time span in a specific type of market – I expect things to get a lot more ‘normal’ after this!

  3. Investing Sidekick

    Nice returns.

    I’m almost in tears reading some of the names at the top of that list and recognising them as ones I passed on just over a year ago haha. Particularly Dart and Barratt, they seem like such no-brainers now!

    • Lewis

      Thanks IS.

      Everything’s obvious in hindsight, as I know all too well from beating myself up about the names at the bottom of that table!

  4. Monevator

    Congratulations, great performance.

    Not to take anything away from it, but I do think the past year or so has been a great time to be a small to mid cap stock picker who doesn’t do resource companies. I say that because that largely fits my investing style, too, and I’ve had a good run of it also.

    Here’s to keeping with it for the long haul. I’ll keep reading! 😉

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