I like to do a little investment review from time to time. This takes the form of a few folders in my computer, filled with little text file scribbles - one of my file names is 'investment scribble' - and maybe a few Excel files, often .csv files exported from Fidelity, where I maintain my investment accounts.
I try to put a date on these documents, and enter in my thoughts at the time - pretty much anything I am thinking about my investments are fair game.
I do this because my thoughts and attitudes regarding investments change over time, and I find that process to be gradual and unnoticeable; it is good to be able to go back and watch the evolution of my ideas over time.
Around April 2010 I was 65% in cash, so I figured that was a good time to do some review. In the interim 3 years I achieved a 77% return; root three, this is about 21% yield to basis per annum. S+P 500 dividends reinvested over the same time period achieved 14.3% per annum, so, roughly 7.7% annual outperformance. I have averaged a 20-25% annual return (absolute) over the 10 years that I've been managing my investments, and I think that's pretty decent.
I have achieved this with a variety of strategies. Asset allocation is something I've spent a lot of time thinking about and managing. Over the last 10 years, the US stock part of my portfolio has consistently outperformed, and the other things I'm allocated to - foreign stocks, a tiny bit of gold, and high yield bonds (convertibles, corporate junk and high-yield emerging markets sovereign debt) have proven to be in general poor hedges; correlation has increased every year. I am less excited about diversification and asset allocation than I was 10 years ago, although I do strive to have sector diversification in my US stock portfolio.
Stock picking has been the major area of outperformance, and most of this is attributable to my AAPL investments. I have been overweight AAPL since I started picking stocks and it has juiced my returns considerably, although that era may well be coming to an end.
I distinguish stock picking from betting on more or less sure things. MO and PM have been my next best investments and I recently reviewed a few years of 10-Qs and transcripts. I found no reason to change my thesis on these companies, which are basically efficient manufacturers, advertisers and distributors of addictive widgets. The decline in the US cigarette market is offset by MO's management: by share repurchases, dividends which I reinvest, and diversification including a great minority stake in SABMiller, smokeless products, and wine and other non-cigarette products. PM is still a growth stock and its international diversification buffers it against legislative/regulatory risks.
I have done well in investments that are organic growth investments. BWLD and CMG have made good on their promise to keep opening stores; everyone cares about comps and margins but I don't because I know that new locations are the drivers of revenues and earnings over the long haul. This thesis has panned out and made me lots of money. WAG was the same thesis but they failed to gain traction in opening stores and the mail-order pharmacy revolution kneecapped them and I lost a lot of money there. I also did not expect GM to restructure away my equity investment and I would probably have had an additional 5% of alpha had my outsize investment in them not gone to zero. That was a lesson about position size and I have tried to heed it.
As a stock picker I have found entry and exit points critical and I have been in and out of BWLD and CMG to get my basis optimized. Other stock picks I fared worse; I lost a great deal of money on JMBA and SIRI, which if I had held to date would each have been three-baggers. But I gave up on them. PTN was an invest-in-what-you-know strategy, but I knew less than I thought; the stock is worthless, so do not think I am a great stock picker.
I have taken other investments with a macro view: EEM and ITB are two investments which have returned decently over the time period, the latter being my most profitable single investment. A certain Fool user clued me in to the right time to buy ITB and I owe him a beer or two.
And, contrary to accepted wisdom, a lot of my outsize gains are due to market timing. It is not hard these days to get a read on sentiment; after a few years you begin to catch on to how the market behaves during times of strong sentiment.
I have tried value investing a number of times: INTC, MMM, GLW, and a few other names whose prospects were good and whose valuations were historically low. I have learned that I am poor at making money off this kind of investing.
How about it, Fools™? Do you do this kind of review? Do you find that your gains come from practicing what you preach?