March portfolio update

March 2020 was an extraordinary month for investors, and it will be helpful for me to have a contemporaneous account of my thinking to reflect on in months and years to come. For that reason, this update will be a bit longer than usual.

My stocks held up relatively well, but there are some caveats to my reported results which I will discuss shortly. For the month of March, the portfolio fell 5.63%, while my benchmark (the SPAX2F0) fell 20.65%. My performance since inception is summarised in the table below.

	August 3, 2017	March 31, 2020	Since July 1, 2019	Since Inception	Annualised
G&W Portfolio*	1.0000	1.3976	-1.80%	39.76%	13.41%
Benchmark (SPAX2F0)	61,250.80	62,838.41	-19.52%	2.59%	0.97%

*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. 

Investing during a pandemic

Markets plummeted in March as COVID-19 rapidly spread around the world. This week, the number of confirmed global infections surpassed 1 million. (In reality, this number is likely to be much higher, due to lapses in testing and underreporting.) In Australia, there are currently 5,635 confirmed cases and 34 deaths.

The situation has escalated rapidly, and has resulted in changes that would have seemed implausible at the start of the year. The majority of consumer-facing businesses in Australia are closed, there is a record number of people looking for work, landlords are being prevented from evicting their tenants, and the conservative Australian Government has announced an unprecedented scheme that is tantamount to a wage subsidy. 

I did not foresee the situation evolving as rapidly as it has, and I don't have a forecast or sense when it will end. What is clear is that most if not all businesses will be impacted by the downturn, and that the current social distancing measures and directives to stay at home could continue for months.

This grim outlook, coupled with uncertainty, is what has driven markets lower. While there are huge risks — particularly to industries like travel, airlines, retail and hospitality — there are incredible opportunities available to investors with the resources and temperament to focus on the long-term.

How my thinking changed throughout the month

While I was aware of COVID-19 before March, I never thought it would lead to the shutdowns or major changes to our lives. Living in Australia, I have never experienced a pandemic like this. We Australians were relatively untouched by SARS, MERS and the like. I imagined (naively, in hindsight) that COVID-19 would be similar. 

The key problem with COVID-19, of course, is its transmissibility.  Death rates appear to be relatively low, provided patients have access to quality medical care and equipment such as ventilators. The measures we have seen have the aim of decreasing the load on health systems, so as to keep as many people alive as possible. 

While I am not normally an anxious or worrisome person, I was very concerned this month. We are still staring down widespread business closures, skyrocketing unemployment and loan defaults. My fears about the situation unfolding in Australia have been allayed by the Government's Jobkeeper package, which should help prevent a complete economic meltdown. It is also as firm an indication as there is that the Government here will do whatever it takes. 

While I didn't do anything drastic with my investments, and I never entertained the thought of moving significantly to cash, I do think the current situation played with my thinking. While I kept investing, I became more risk averse, focusing on businesses with fortress-like balance sheets or quality business models that could withstand a pandemic. 

However, now might be the exact time to start taking risks. There appear to be some excellent opportunities in industries like shipping, which is both cyclical and highly leveraged. Another example is Donaco International (ASX:DNA), one of my holdings which fell significantly during the month. DNA is going to be significantly impacted by the fallout from the virus, but could be worth multiples of its current share price should it survive. My lack of risk tolerance or unfamiliarity (in the case of shipping stocks) has meant I'm staying on the sidelines, which could be a mistake. 

What I did and didn't do this month

My portfolio fell less than the market this month. There are three key reasons, and they're all a product of circumstance rather than foresight or skill.

1. As I mentioned last month, about 40 per cent of the portfolio is invested in a basket of statistically cheap unlisted stocks. While the intrinsic values of these shares has obviously been affected by the COVID-19 situation, they did not trade much at all during the month. In fact, as a basket, these shares were carried at higher values than February, as two stocks were bid up in the early days of the month. Just because something doesn't trade, doesn't mean it hasn't been impacted by the virus. (Something to think about for those who own property in Australia!) Nevertheless, I don't feel it is appropriate to start manually marking down the prices. For one, the stocks were already very cheap.
2. My three largest holdings, besides those in the group above, are Boustead Projects (SGX:AVM), Naked Wines (LSE:WINE) and Million Hope Industries (HK:1897). All three have very strong balance sheets, with substantial cash and limited leverage. Obviously, these types of businesses are better placed to handle the current situation. I bought more of all three stocks during the month when volatility presented opportunities. Boustead and Million Hope fell during the month, while Naked Wines actually closed higher. (Selling direct-to-consumer wine appears to be pandemic friendly, at least according to Mr Market.) 
3. Again, I had a tailwind from the weakening Australian dollar. More than half of the portfolio is denominated in foreign currencies like the JPY, SGD and HKD. Without foreign currency gains, the portfolio would have been marked down roughly 2.75% more in March. 

I added to one stock, KG Intelligence Co, which is a Japanese net-net. KG Intelligence is a true cigar butt with a lousy business. Nevertheless, it is selling below its liquidation value, and I think a basket of such stocks will perform well over time. I also bought shares in another Japanese-listed company, Taihei Machinery Works. It is trading for roughly its NCAV, after significant discounts are applied to receivables and inventory, and a trailing P/E of 4. Again, this is a relatively small position, which I have added to my basket of statistically cheap stocks.

I sold my stake in Salmat, as mentioned in last month's report, as well as my shares in KLW Holdings (SGX:504). While KLW is still cheap, I felt there were better risk/reward opportunities on offer elsewhere. I also sold a small holding in Aberdeen International, a Canadian net-net that has been amongst my worst-ever performers. Selling Aberdeen was a capitulation, because I have long held concerns about the company's management. I sold my shares at 2.5c, thinking I could put the money to work in other opportunities. Unsurprisingly, the stock quickly rallied 40% to 3.5c. I originally paid 5.5c per share for Aberdeen. My loss has been about 53%, taking into account the 10 per cent forex gain over my holding period. I have another of this type of stock in my portfolio that is causing me grief, and my experience with Aberdeen might make me hold on a bit longer. In future, my plan is to avoid buying these kinds of stocks — or at least exiting much earlier on — to help avoid the challenges they pose for decision making. 

A note about cash

As I note under my performance numbers, I have generally tried to be fully invested. There's a few reasons for this. For one, my experience thus far has shown that investing in stocks has generally provided a double-digit return. Secondly, I try to avoid making macro calls, which is lucky because I certainly wouldn't have predicted or been prepared for a pandemic. As a smarter investor than me mentioned this month, one of the risks that COVID-19 presents is that the current experience might lead us to overreact in future. The third reason I try to avoid holding cash is because of my personal circumstances. I am regularly adding to my portfolio as I get paid, so it's growing all the time. If I was managing a fund, and dealing with redemptions and additions, I would obviously need to take a different approach.

Nevertheless, the experience this month has shown there is real value in having some extra cash up your sleeve, whether to invest in good opportunities or simply to keep yourself afloat during a crisis. That said, I'm not going to be raising cash now, as I'm seeing the best opportunities since I started the portfolio. But should I ever be feeling a bit cynical, like I was in early January, I might be a bit more willing to hold onto some cash for a bit longer. 

Some notes to my future self, wondering what to do in the next crisis

• You need to have done the work on companies beforehand. There were a lot of opportunities around this month, but I stuck to buying things in my portfolio or that I was already familiar with. While I am confident that I bought well, it would have been better to have a larger list of companies to pull the trigger on.
• Things can change quickly. I was most pessimistic during the middle of the month, when the extent of the Australian Government's response was unclear. There was immense uncertainty, and I was not confident the Government would be willing to take the kind of steps it has. A few days later, we had Jobkeeper and I felt much less pessimistic.
• At the moment, it is April 5, and it feels like we are in a period of stability after the earlier turmoil. While the measures in place could last for months, I am optimistic that we will get through this period and the economy will get back on track. I am writing this now so I can refer to it later.
• The reason I performed better than the market this month was purely luck. I had no special skill or insight that helped, and it's unclear whether my portfolio will do any better than the market over the course of this thing. 
• Diversification should not be underrated. It has been helpful to have a widely diversified portfolio, not just in terms of geography but also in terms of business types and risk profiles. I felt more comfortable investing in Boustead and Million Hope this month because Hong Kong and Singapore seem to have done a better job at getting the virus under control.

February portfolio update

February saw the biggest one-month drop from the benchmark since the portfolio's inception in 2017. The S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt) — or SPAX2F0 — dropped 7.69%. My portfolio held up well in the market ructions, dropping only 2.88%

The performance of my portfolio and the SPAX2F0 are summarised in the table below.

	August 3, 2017	February 28, 2020	Since July 1, 2019	Since Inception	Annualised
G&W Portfolio*	1.0000	1.4811	4.06%	48.11%	16.50%
Benchmark (SPAX2F0)	61,250.80	79,191.88	1.42%	29.29%	10.50%

*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 good news

Over time, I hope to do better than the average stock market investor. The strategies I use mean that it's likely I'll do worse than the market averages during bullish markets, and (hopefully) a little better during downturns. It's pleasing that — at least for the time being — things have been going to plan.

So why did my portfolio hold up better than the market this month? There are a few reasons.

1. About 40 per cent of the portfolio is invested in a basket of statistically cheap unlisted stocks. These stocks rarely trade, and I expect to earn my returns from dividends rather than price appreciation. (Sometimes I will be lucky and get both.) These stocks were flat for the month, which insulated the portfolio from the market falls. They remain very cheap, and I would happily buy more of many of these companies at current prices.
2. More than half the portfolio is invested in overseas stocks. The three largest of these — Boustead Projects (which dropped -5.2%), Million Hope Industries (-3.94%) and Naked Wines (a recent purchase) — fell less than the benchmark. On top of that, I had a tailwind from the weakening Australian dollar, which is product of luck rather than skill.
3. My net-nets generally performed poorly, but they have become a smaller part of the portfolio in recent months.

I've done all the dumb things

Now for the bad news. I made at least three big mistakes this month. The first one was to buy Salmat (ASX:SLM). Salmat recently sold off its major assets and will distribute the proceeds to shareholders in coming months. I have been aware of Salmat for a while, because a few smart investors I know hold the stock. (In fact, I should have bought it when I first looked at it and it was trading around 55c.) I hadn't kept up with the story, but when it traded down to 80c in late February, I took another look.

At 80c, SLM's market cap was roughly ~$160m. Following the sale of its two businesses, SLM had roughly $170m in cash and other current assets. (I applied a haircut of 50% to other current assets and 25% to receivables.) 

I assumed the distribution would happen by early July, and assumed another ~$3m of expenses, which is in line with the December half-year. That left me with an estimated distribution of roughly $167.45m, or 84c per share. That would imply a return of 7.83%. Should the funds be distributed on June 30, that works out to be 22.88% annualised. On top of that, SLM has roughly 9.5c per share in franking credits. If they were able to be distributed too, the return would be quite attractive. Salmat has tax losses of ~$55m available at the corporate level, which I assumed would account for any tax arising from asset sales. 

My eyes lit up, and I put about 4% of the portfolio into SLM at 0.80. It was a mistake.

While I am no expert on corporate tax matters, it appears SLM could be liable for $11.3m in tax arising from its asset sales. (In calculating this, I assumed $93.32m gain on disposal, less tax losses of $55.6m, which leaves $37.72m net. That works out to a liability of $11.32m at the 30% corporate tax rate.) Once we subtract that, we are left with an estimated distribution of ~78.4c, which is less than my purchase price.

There's a few things to note here. First, I could be wrong in assuming SLM's tax liability. Second, there is a possibility that the distribution could be above 80c. This could happen if SLM spends less than $3m to wind up the company, or if there is some premium paid for the company shell, which is a possibility. Third, if you have a low-tax entity to invest in, such as an SMSF in pension phase, SLM could still be a very good investment due to the franking credit situation. If the proceeds are distributed soon, it could result in a very decent IRR, and the situation appears to be low risk.

My portfolio, however, is subject to personal income tax of >32.5%, which means I'm still liable for some tax from distributions franked at the 30 per cent rate. (If you'd believe, in my excitement to buy SLM, I also overlooked this pertinent fact.)

What is disappointing is that this is not the first time I've been too quick to pull the trigger on a situation like this. (See, for example, my recent discussion of Nzuri Copper.) And while SLM — like NZC — could work out, it was clearly a mistake in process. Thankfully, with the help of a fellow investor, I was able to recognise the mistake quickly. I recently sold my SLM position for 78.5c for a loss of about 2.4% in a week. While the impact on the portfolio will be limited, I'm upset by the sheer stupidity of my decision making. In future, I will use a checklist to ensure I avoid dumb mistakes in these types of situations. 

I also made two mistakes of omission in February. I had two opportunities to buy more of the unlisted stocks I described earlier in the post. Both times, I was reluctant to pay the asking price, because I didn't want to bid up the stock. Both parcels of shares were sold to other buyers who were willing to pay up. Even at these higher prices, the trailing gross yields were > 15%. I think it was a mistake to pass up on these opportunities. 

If you have thoughts on SLM, or if you think there's a mistake in my thinking outlined here, I'd be very interested to hear from you. You can find my contact details in the "get in contact" tab at the top of the page.

January portfolio update

I had a good month of performance in January despite all the calamities going around in the world. My portfolio returned 6.92% for the month, while the benchmark gained 4.98%.

	August 3, 2017	January 31, 2020	Since July 1, 2019	Since Inception	Annualised
G&W Portfolio*	1.0000	1.5251	7.16%	52.51%	18.42%
Benchmark (SPAX2F0)	61,250.80	85,785.44	9.87%	40.06%	14.45%

*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.

In my post last month, I discussed selling Nzuri Copper, a merger arbitrage play. I bought a small position because I was attracted to the large spread on offer. I decided to sell my NZC position in December when it became clear that I had not properly appraised the situation. Unsurprisingly, the regulatory approvals that were holding up the merger were quickly approved shortly after I sold my position. 

The situation is interesting to me because it highlights one of the strange things about investing performance. Had I held on to the stock, I would have profited, even though my purchasing decision was a mistake. Of course, the flip side can also be true: sometimes prudent decisions to purchase stocks can result in losses because of low-probability events, etc. In these situations, the feedback we get by way of profits or losses can be harmful to our long-term financial wellbeing. It's what Annie Duke — a former pro poker play — calls "resulting". As investors, we should be constantly trying to improve, and the best way to do that in my view is to focus on whether we made the right decisions rather than outcomes.  

In Nzuri, it is clear that my initial purchasing decision was a mistake. I didn't properly research the situation for starters. On top of that, Chinese merger arbs are not in my circle of competence. I have no edge in terms of handicapping potential outcomes and have no specialist knowledge about Chinese regulatory or legal issues pertinent to mergers.

But was I right to sell it when I did? This part is less clear to me. My inclinciation in these situations has been to sell as soon as possible. For me, it's psychologically difficult to hold on to a stock purchased for the wrong reasons. But what's the rational thing to do? For starters, the decision making process should ignore prior decisions. As Buffett says, the stock never knows that you own it. It's something I should have done, but I didn't. (To be clear, I'm not sure I would have held on to NZC even if I did look at it in this way.)

So what's the takeaway? I personally have found it helpful to write down my thinking when making buy decisions to refer back to later. From now on, particularly in tricky situations, I'm going to write out my reasons for selling, too. Additionally, I think the right way to invest in stocks like Nzuri is by using a basket approach, which is not something I had done. People like Alpha Vulture — who first wrote about the idea — get paid because they can stomach risk and volatility that others can't handle. It's a good strategy in my view. Nevertheless, it is interesting to read Alpha Vulture's post-mortem on Nzuri:

While in the end I got the result I was betting on, it’s tough to say in hindsight if my thesis was correct or not. It’s quite possible that those delays were indicative of a real problem that could have blown up the merger. Or perhaps it was just some administrative issue. Who knows?

Even though we're only a month into the year, I've already made some more mistakes. Thankfully, they have been relatively small. Elsewhere in the portfolio, I have a stock that has been affected by an unforeseen, low-probability event. It is likely I will take a loss on this position, even though I believe my purchasing decision was correct. On the plus side, I received a good price when selling Open Orphan (formerly Venn Life Sciences), a net-net that ballooned 300+% since my purchase last year. It rose significantly between the start of the year and when I sold it, which accounted for some of this month's gain. In February, I'll be looking to put some of the proceeds to work.

Finally, if you got this far, you might be interested to check out this excellent blog post from Lyall Taylor, which touches on issues related to my discussion of Nzuri and "resulting". 

December portfolio update

I finished 2019 on something of a low note, down 3.88% in December. The benchmark fared better, dropping only 2.17%.

	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.

November portfolio update

The portfolio rose 5.96% in November while the benchmark gained 3.28%.

	August 3, 2017	November 30, 2019	Since July 1, 2019	Since Inception	Annualised
G&W Portfolio*	1.0000	1.4840	4.27%	48.40%	18.50%
Benchmark (SPAX2F0)	61,250.80	83,521.68	6.97%	36.36%	14.26%

*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. N.B. I do not account for cash in the portfolio. The net result is that my returns are somewhat overstated (although I am nearly always close to fully invested). I unitised the portfolio to assist in calculating performance.

I added three new positions this month. 

• Boustead Projects (SGX:AVM) is a Singaporean property developer. 
• Tomita Electric Co. Ltd (TYO:6898) is a Japanese manufacturer of soft ferrite cores trading below NCAV. 
• I also bought a minuscule position in RFM Poultry (NSX:RFP), an NSX-listed poultry producer which is subject to corporate action.

While I'm very happy with the month's gain, it could have been much better. Shortly after I purchased my position in Tomita, the stock spiked up about 60% on no news. Instead of selling — which in hindsight would have been advantageous — I held on and the stock came crashing to Earth. While this appears to be a classic pump and dump, I can't be sure exactly what caused the price action — which is one of the difficulties of investing in overseas stocks with a language barrier. 

While the best course of action is rarely clear in these moments, my feeling is that I should have been prepared to take the gain and move on. Japanese stocks can languish well below their asset value for years, and these spikes are few and far between.

At the time, there were a few factors that caused me not to sell my stake. Firstly, I was concerned there was some information in the market that I wasn't aware of. (There was no official announcement from the company, and I couldn't find anything searching through Google or social media.) The other risk was that I would be leaving some money on the table by selling too early. (Many of these net-nets trade at such low valuations that they can rise far more than 60 per cent.)

On top of that, there were two other things I was thinking about. Firstly, because my net-net strategy is based around a one-year holding period, I was reluctant to sell a stock I'd held less than a month; the second reason is that had I sold, I would not get the long-term capital gains tax discount. (Like David Dodd, I often tell people not to let tax factor into their selling decisions but I don't always take my own advice.)

My feelings about these events are obviously coloured by what happened subsequently. Had the stock continued to rise, or if it remained elevated rather than falling back, I would likely be patting myself on the back in this month's blog. Nevertheless, I think at least sometimes, especially with some of these Japanese stocks, I'd be better off to sell on the spikes — especially when, like Tomita, they happen without any apparent reason.

Finally, I recently stumbled across this fascinating YouTube video showing some of the excesses in the US stock market in 1997. We're told how Sharon, a retail investor, has put the majority of her family's net worth into a stock that she doesn't know the name of. It's a small reminder of some of the crazy things that happen in markets and how we can be our own worst enemies.

October portfolio update

The G&W portfolio fell 1.74% in October; the benchmark fell 0.35%.

	August 3, 2017	October 31, 2019	Since July 1, 2019	Since Inception	Annualised
G&W Portfolio*	1.0000	1.4005	-1.60%	40.10%	16.20%
Benchmark (SPAX2F0)	61,250.80	80,871.57	3.57%	32.03%	13.18%

*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. N.B. I do not account for cash in the portfolio. The net result is that my returns are somewhat overstated (though I am nearly always close to fully invested).

In October, I added two new names to the portfolio. The first, Yotai Refractories (TYO:5357), is a statistically cheap Japanese stock which is also held by Michael Burry's Scion Asset Management. The second is a company in Singapore which I won't disclose as I may purchase more shares.

There was very little movement otherwise. Some of my Australian holdings reported their full-year results, and the news was overwhelmingly positive. Many of the stocks I hold are exceptionally cheap at current prices, which puts me in good stead for the coming months.

September portfolio update

The G&W portfolio gained 2.77% in September, while the benchmark gained 2.67%.

	August 3, 2017	September 30, 2019	Since July 1, 2019	Since Inception	Annualised
G&W Portfolio*	1.0000	1.4253	0.14%	42.53%	17.84%
Benchmark (SPAX2F0)	61,250.80	81,159.48	3.94%	32.50%	13.92%

*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. N.B. I do not account for cash in the portfolio. The net result is that my returns are somewhat overstated (though I am nearly always close to fully invested).

This month I sold two stocks: Brickell Biotech and OneMarket. I discussed my unpleasant experience with Brickell in last month's report. I sold my holding early in September at the price of 4.34 because a) I'm not confident valuing the business; b) I felt there were other opportunities for me to deploy the capital. I lost about 31% on the position in about 230 days for an annualised return of roughly -50 per cent. It's not an outcome I'm proud of but I did learn some valuable lessons from the experience. I can only hope I avoid making a similar mistake again in future. 

I was also able to sell my holding in OneMarket (which was also discussed in last month's report) for 0.97 late in September. At this price, I felt the stock roughly reflected the price of OMN's net assets adjusted for dilution of all RSUs. My experience with OMN has been up and down, but thanks to this positive last transaction, my total return was a modest ~8% on an annualised basis. My thinking on OMN turned out to be pretty accurate, but I could have traded this one a bit better along the way. 

I have some money to deploy in coming weeks, so it's likely I'll be adding some new names to the portfolio in October, which is exciting.