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A market-beating year, but not good enough ...



January 01, 2008 – Comments (5)

Hey Fools,

First, the good news: my total portfolio return -- after accounting for cash contributions made during the year -- was 12.21%. That's a market-beater. (The S&P 500 was up 3.53% during 2007, AP reports.)

Now, here's the bad news:

2006: Up 11.96% (lagging the S&P's 15.8%)

2005: Up 3.63% (lagging the S&P's 4.9%)

2004: Up 13.01% (beating the S&P's 10.9%)

Four years. Two years of market-beating returns. I can do better.

What happened? Worse than average portfolio management. Before 2007, I didn't "swing hard at fat pitches," as Bill Mann likes to say. Take Akamai. Even though, in 2004, I was convinced the stock was a multibagger, I bought in for only 2% of my portfolio.

Not that you should be surprised. Look at the numbers again. My returns weren't much different than the returns of the overall market. In fund parlance, you might say -- from 2004 to 2006 -- I was an index hugger; my best picks didn't add enough value.

But I learned my lesson in 2007. No longer a timid investor, I (mostly) arranged my portfolio bets according to prospective returns, and was rewarded as a result.

aQuantive was a multibagger after Microsoft offered $6 bil for the company. Applix provided a more modest, but still market-beating, return after Cognos bought the company. Nokia and Oracle finally realized their multibagger potential.

You get the idea.

So, even though my multi-year record as a portfolio manager -- not as a stock picker; on that, my record is pretty solid -- isn't as great as I'd like, my 2007 "alpha" was as good as it ever has been.

Foolish best wishes for 2008 and beyond,



5 Comments – Post Your Own

#1) On January 01, 2008 at 1:33 PM, HistoricalPEGuy (63.79) wrote:

12.21% is amazing - keep it up. 6.92% for me and I couldn't be happier!

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#2) On January 01, 2008 at 2:16 PM, dwot (29.20) wrote:

I ended up being far more a trader than an investor.  My picks often went up 5-10% in just a few days or weeks and I sold.  I never intended to be a trader, I researched my picks for buy and hold strategies, but calculating the annualized return for such large short term returns, well, I hit the sell button.

I suppose my longest hold ended up being only around 4-6 months in the 15 months I was invested in the market.

I also sold pretty quick when I had losses.  I don't think I took more than about a 10% loss on any pick either, but I had way more winners than losers.  But, when I looked at how quickly the fundamentals were changing, and no so favorably and beyond what I expected, I decided to just watch the markets.  Here it is a year later and some stocks that the fundamentals looked fantastic look disasterous now.  Is that investing or is that luck?


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#3) On January 01, 2008 at 5:02 PM, StockSpreadsheet (67.48) wrote:

Almost all of my new investment money over the past few years has gone into my investment club, so I would submit their performance in this list of how everyone did.  From 12-31-06 through 12-31-07 my investment club's returns were 27.93%, handily beating the S&P, which gained 5.49% during that time, counting dividends.  We are very happy about our performance this year.  We did not always do as well, so we are celebrating our performance this year and hope to continue it into the future.   Overall gain => 164.80% since founding on 2-13-03 vs. a 96.37% gain for the S&P.  Pretty good I think.

What we did right, what we did wrong.  

Year 1 => 2-13-03 through 12-31-03 => 59.70% gain vs. S&P 38.19% gain => We refined our investment strategy and stuck to it.  This served us well, as the gains showed.  We brought in new members, taught them the strategy, and we all stuck to it.  If it ain't broke, why fix it?  We also caught a lucky break, (bought JKHY right before it made a 75% gain in four months), and we taught ourselves patience to hold onto a stock we believe in, (held COF through a 60% drop that we thought was overdone, and rode the stock to an overall 150% gain before we sold it).  Worked on portfolio diversification with our new money.

Year 2 => 12-31-03 through 12-31-04 => 21.08% gain vs. S&P 10.88% gain => We stuck to our strategy and worked on diversifying our portfolio further.  COF was our best-performing stock, but others worked out well also.

Year 3 => 12-31-04 through 12-31-05 => 2.27% gain vs. S&P 4.91% gain => We got cocky.  We deviated from our strategy, buying more speculative stocks with less research and without considering the volatility of the speculative stocks.  Once the stocks showed their volatility, some members couldn't stomach the volatility and thus we sold the stocks for a loss instead of waiting out the volatility for future gains.   We thought we could do no wrong and paid the price for our arrogance.

Year 4 => 12-31-05 through 12-31-06 => 4.67% gain vs. S&P 15.79% gain => Started out still cocky, then looked at last year's sub-par performance and started rethinking our strategy and started getting back to our original investing style.  Expanded the membership, adding several new members, some of which didn't work out and they are no longer with the club.  Also, some of our conservative stocks, (utilities, consumer staples, etc.), weren't as high-flying as the rest of the market.  

Year 5 => 12-31-06 through 12-31-07 => 27.93% gain vs. S&P 5.49% gain => We went back to the investment thesis that got us the good gains after our founding.  Full research is required for buying a stock.  We do short reports each month on our stocks, updating the club on any notable news that transpired over the last month, and we do full reports every 6 months, looking at how the stock has done and what our future expectations are.  This is the strategy that worked well for us for the first two years and it worked well for us this year also.  We also added a few new members and taught them our strategy.   We also benefited from some good stock picks, (RIO, POT, SRCL and QMAR have done well for us, with RIO up 115% since we bought it, POT up 105% since we bought it, SRCL up 92.94% since we bought it and QMAR up 80.33% since we bought it).  Not all of these stocks were bought this year, but they are stocks we still hold in our portfolio.  

One thing we have always done is to try to find better stocks for our portfolio than the ones we are currently holding.  Each month we present new stocks to consider for our portfolio and decide if we think the new stock is a better investment than one of our existing holdings.  (Our charter currently limits us to 20 stocks maximum in our portfolio, so to buy a new stock we have to sell an existing holding.)  The new stock hasn't always been a better investment than the stock that it replaced nor better than our existing holdings, but we do try.   Six months is usually our minimum holding period, (unless we find out something very seriously wrong with the company), and several of our stocks we have held for several years, including one stock we bought in 2003 and still hold, along with some stocks originally purchased in 2004.

Hopefully 2008 will be another banner year for us.  We plan on sticking to our strategy and are looking at having some new members join us this year.  (Several guests are supposed to be attending our meeting next week, so we will have to see if any of them decide to join and if we decide to let them in.  We have room for five more members before we max out the number of members allowed by our charter, (unless we vote to change the charter), so we are looking for a few good men, (to help balance out the men/women ratio currently in our club), but a few more good women would be welcome also.)   With some good luck, some good research and some good decisions, we have every hope of making 2008 another successful year for our club.  Hope all of you do as well as we have done.  Good luck in 2008.


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#4) On January 01, 2008 at 5:16 PM, allstar31 (99.89) wrote:

I hate to break it to you, but its probably luck.  I would never dare to market time.  I would have lost some of my biggest winners, if I wasn't afraid to stomach a little loss.


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#5) On January 01, 2008 at 10:32 PM, allstar31 (99.89) wrote:

I hate to break it to you, but its probably luck.  I would never dare to market time.  I would have lost some of my biggest winners, if I wasn't afraid to stomach a little loss.


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