I finished 2019 on something of a low note, down 3.88% in December. The benchmark fared better, dropping only 2.17%.
*Returns are pre-tax, include franking credits, and assume dividends are reinvested. The SPAX2F0 is simply the total return of the S&P ASX200 Accumulation Index adjusted to include any franking credits received. My returns are not audited. I do not account for cash in the portfolio. The net result is that my performance is somewhat overstated, although I endeavour to be fully invested. I unitised the portfolio to assist in calculating performance.
The benchmark I use is the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt). Here's how it fared over the same period.
Considering the bumper 2019 experienced by many investors, I can't help but feel my year has been pedestrian. An investment in an index fund tracking the S&P500 gained about 30% in 2019; my benchmark — which is a proxy for the before-fee returns (including franking credits) of an ASX200 index fund — was up more than 25%. One of my fund managers returned an astounding 73% before fees between February and December, and stories abound on Twitter and elsewhere of 50+% returns.
One year is an arbitrary time frame to judge investment results. What matters is results over the long term. Nevertheless, reading about how others have done, and feeling underwhelmed by my "paltry" 21%, has made me reflect on where we are in the market cycle. Making money seems pretty effortless right now, and stocks seem to be the only game in town. (There was an interesting discussion about this on a recent episode of Tobias Carlisle's podcast.)
Perhaps another reason I'm left feeling somewhat underwhelmed by my 2019 performance is that I made a number of unforced errors. Here are a few particularly egregious ones.
Nzuri Copper (ASX:NZC)
Nzuri Copper is a ASX-listed company with a mine in Congo. I bought a position in the company in July, after a Chinese company, Chengtun Mining, announced a takeover offer. The spread was large, and it seemed likely the deal would go through, so I put about 2 per cent of the portfolio into NZC. Since then, the takeover has been plagued by delays and lack of communication from the Chinese acquirer. The deal may well go through, but I sold my position in December after it became clear I had no real insight into the Chinese legal/regulatory issues on which the outcome depends This was a simple case of investing in something outside my circle of competence. On the plus side, NZC was a very small position, which limited my losses. I lost 13.56% on my NZC investment over a 153 day holding period, which works out to -32.34% annualised.
OneMarket (ASX:OMN)
I have written quite a bit about OneMarket in previous blogs, most recently in September. While I managed to eke out a small gain on OMN overall, I made a number of mistakes along the way. Initially, I underestimated the downside risk of OMN. Secondly, I underestimated the company's cash burn. Third, I made a number of errors in terms of portfolio sizing. I can only hope I learn from my mistakes.
Vical/Brickell (NASDAQ:BBL)
Perhaps the most regrettable mistake of the year concerns Vical/Brickell. I detailed the situation and my mistakes in my blog in August. I lost 30% on my investment in about 230 days, for a roughly 50% annualised loss. One small consolation is that I could have lost a lot more. At the time I sold my Brickell shares, they were trading at $4.34; today, they're trading at $1.52.
Canadian net-nets
I bought two Canadian net-nets early last year, knowing full well the management of the two companies were sketchy. As I have mentioned previously, when investing in the net-nets, I try to focus on quantitative data — like NCAV/Price — rather than qualitative data like business or management quality. Using a basket approach, this is a good way to invest in these types of stocks because often the ugliest ones provide the highest gains. Nevertheless, I should have updated my thesis to fit with new information, such as when management issued shares at prices below NCAV. I'm still not entirely sure the best approach to handle these situations, and had these stocks gone up in price, I might be celebrating them as wins instead. I currently still hold these two stocks, which may be another mistake. Overall, my portfolio of net-nets worked out well in 2019. My Interactive Brokers account where I hold the net-nets and a few other stocks was up 40% over the year. Lately, I have been finding it harder to find net-nets for the portfolio using my criteria, which again might have something to do with the bull market.
I hope you had a profitable 2019, hopefully with fewer mistakes than me.
August 3, 2017
|
December 31, 2019
|
Since July 1, 2019
|
Since Inception
|
Annualised
| |
G&W Portfolio*
|
1.0000
|
1.4264
|
0.22%
|
42.64%
|
15.87%
|
Benchmark (SPAX2F0)
|
61,250.80
|
81,712.72
|
4.65%
|
36.36%
|
12.70%
|
*Returns are pre-tax, include franking credits, and assume dividends are reinvested. The SPAX2F0 is simply the total return of the S&P ASX200 Accumulation Index adjusted to include any franking credits received. My returns are not audited. I do not account for cash in the portfolio. The net result is that my performance is somewhat overstated, although I endeavour to be fully invested. I unitised the portfolio to assist in calculating performance.
Performance review
Here's how the portfolio has performed to date:
- 2019: 21.33%
- 2018: 10.13%
- August 3, 2017 - December 31, 2017: 6.75%
The benchmark I use is the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt). Here's how it fared over the same period.
- 2019: 25.29%
- 2018: (1.07%)
- August 2017 - December 31, 2017: 7.62%
Considering the bumper 2019 experienced by many investors, I can't help but feel my year has been pedestrian. An investment in an index fund tracking the S&P500 gained about 30% in 2019; my benchmark — which is a proxy for the before-fee returns (including franking credits) of an ASX200 index fund — was up more than 25%. One of my fund managers returned an astounding 73% before fees between February and December, and stories abound on Twitter and elsewhere of 50+% returns.
One year is an arbitrary time frame to judge investment results. What matters is results over the long term. Nevertheless, reading about how others have done, and feeling underwhelmed by my "paltry" 21%, has made me reflect on where we are in the market cycle. Making money seems pretty effortless right now, and stocks seem to be the only game in town. (There was an interesting discussion about this on a recent episode of Tobias Carlisle's podcast.)
To be clear, I'm near fully invested and plan to keep putting my money to work in the market. My point is simply that investors are optimistic and seem focused on maximising returns rather than protecting their capital. My portfolio is designed to minimise the risk of losing money permanently. While it's not the most fashionable approach for the time being, I'm confident it will serve me well over the long run.
My biggest mistakes
Perhaps another reason I'm left feeling somewhat underwhelmed by my 2019 performance is that I made a number of unforced errors. Here are a few particularly egregious ones.
Nzuri Copper (ASX:NZC)
Nzuri Copper is a ASX-listed company with a mine in Congo. I bought a position in the company in July, after a Chinese company, Chengtun Mining, announced a takeover offer. The spread was large, and it seemed likely the deal would go through, so I put about 2 per cent of the portfolio into NZC. Since then, the takeover has been plagued by delays and lack of communication from the Chinese acquirer. The deal may well go through, but I sold my position in December after it became clear I had no real insight into the Chinese legal/regulatory issues on which the outcome depends This was a simple case of investing in something outside my circle of competence. On the plus side, NZC was a very small position, which limited my losses. I lost 13.56% on my NZC investment over a 153 day holding period, which works out to -32.34% annualised.
OneMarket (ASX:OMN)
I have written quite a bit about OneMarket in previous blogs, most recently in September. While I managed to eke out a small gain on OMN overall, I made a number of mistakes along the way. Initially, I underestimated the downside risk of OMN. Secondly, I underestimated the company's cash burn. Third, I made a number of errors in terms of portfolio sizing. I can only hope I learn from my mistakes.
Vical/Brickell (NASDAQ:BBL)
Perhaps the most regrettable mistake of the year concerns Vical/Brickell. I detailed the situation and my mistakes in my blog in August. I lost 30% on my investment in about 230 days, for a roughly 50% annualised loss. One small consolation is that I could have lost a lot more. At the time I sold my Brickell shares, they were trading at $4.34; today, they're trading at $1.52.
Canadian net-nets
I bought two Canadian net-nets early last year, knowing full well the management of the two companies were sketchy. As I have mentioned previously, when investing in the net-nets, I try to focus on quantitative data — like NCAV/Price — rather than qualitative data like business or management quality. Using a basket approach, this is a good way to invest in these types of stocks because often the ugliest ones provide the highest gains. Nevertheless, I should have updated my thesis to fit with new information, such as when management issued shares at prices below NCAV. I'm still not entirely sure the best approach to handle these situations, and had these stocks gone up in price, I might be celebrating them as wins instead. I currently still hold these two stocks, which may be another mistake. Overall, my portfolio of net-nets worked out well in 2019. My Interactive Brokers account where I hold the net-nets and a few other stocks was up 40% over the year. Lately, I have been finding it harder to find net-nets for the portfolio using my criteria, which again might have something to do with the bull market.
I hope you had a profitable 2019, hopefully with fewer mistakes than me.
