Investors usually go down the stock picking route because they think they can outperform both the ‘market’ (typically the FTSE 100) as well as professional fund managers. Of course there is an element of interest and even excitement in stock picking, but at the end of they day if you’re investing thousands of pounds in your own stock picks you’re doing it to make more money than you could elsewhere.
Since that’s the case, tracking your returns over the long term is important just to make sure your efforts are worth it and if they’re not, then perhaps you should either buy the footsie and find another hobby, or get someone else to make your stock picks.
In my case I started value investing in the middle of 2008 and so I now have a three year track record. In that time I have learnt an enormous amount about both the technical and behavioural side of investing and I hope to put that knowledge to good use in the future. You can see my results so far on the about page and you can see them in the table below too.
|
Year
|
FTSE 100 total return
|
UK Value Investor
|
Difference
|
|
2008 (from 31/07/08)
|
(16.6%)
|
(11.6%)
|
5%
|
|
2009
|
27%
|
37%
|
10%
|
|
2010
|
12.2%
|
22.8%
|
10.6%
|
|
2011 YTD (May)
|
2%
|
(14.9%)
|
(16.9%)
|
|
Total from start
|
21.2%
|
26.6%
|
5.4%
|
|
Annualised from start
|
7%
|
8.7%
|
1.7%
|
If you turn a somewhat blind eye to 2011 (where performance has been hit in the short term due to a number of speculative turnaround situations I bought into that still have a long way to turn) then the results are satisfactory, as Ben Graham used to say.
In his new book The Investor’s Manifesto, William Bernstein has said that investors who manage their own money must have four traits:
1. An interest in the process.
2. More than a bit of math horsepower.
3. A firm grasp of financial history.
4. The emotional discipline to execute their planned strategy faithfully, come hell, high water, or the apparent end of capitalism as we know it.
Although he concludes that “no more than a few percent of the population is qualified to manage their own money”, for those that are lucky enough to possess those four traits, the extra rewards may well be worth the effort.
For the vast majority that don’t possess all of those traits the answer may be to either find someone who does, or just track the indices and forget about stock picking altogether.
You say those are "total return" figures, but the benchmark figures look like the capital returns only. e.g. in 2010 you should get around 14.5%.
-> Lemondy
Hmmm, your numbers match those on Morningstar. That's really weird. The total return on the HSBC passive index tracker for 2009, 2010:
2009: 28.75% 2010: 14.71%
why the heck are the ISF numbers smaller than these?
-> Lemondy, confused.
Remember, even Warren Buffett had a three year period of underperformance. Anthony Bolton, too. The first three periods were excellent; it's just a shame about the current. Markets have been tough ombres the last few years.
Things are a little timing-dependent, but according to a statement I got earlier, Artemis UK Growth has only outperformed its index by 1% over a 3-year period, so you're beating them for starters. Fidelity Special Situations has only matched market performance over that period, and AXA Framinlington has outperformed its index by 12%. That's a bit more than your outperformance, but not staggeringly so.
Also, just because you're hurting for the first half of this year, doesn't mean that you wont shine towards the end of the year.
Hi Lemondy. You're right in that the iShares FTSE 100 ETF (ISF) which I actually track against is down quite noticeably against the actual index (out by about 0.53% annualised according to iShares). I'd be a bit miffed if I was an ISF investor, which I am, so I am a bit miffed.
The reason given is "transaction costs, annual fees, rebalance costs and portfolio optimisation".
It will be interesting to see if ISF can 'catch up' with the real index in the next few years.
Hi Mark, I totally agree. Investing is for the long term and periods of less than 5 years are not indicative of anything. However, I spent quite a while getting these numbers together so I wanted to put them on the site to be as transparent as possible.
The under performance so far this year is partly because of the 10% I gained in December (i.e. the 2010 figures were lucky and should really have been a bit less) and also that I bought those damn turnarounds (Yell and Enterprise Inns, plus some more) all at the same time, and they still probably have a couple of years before rebounding.
So the pain this year is my own fault but I understand it and am happy to ignore Mr Market's opinion of the value of my investments.
All things come to he who waits…
As both Warren Buffet and Anthony Bolton have said, fund managers have such huge limitations placed upon them. For example, they deal with such massive amounts of cash that they are limited in what they can buy. Not only that but they are also judged on they perform over short time frames so it makes them less likely to take on significant risk or volatility. Given these restrictions, I'm sure surprised that ANY funds outperform. Still, I think this is a perfect excuse to snoop around in micro cap companies that no one cares about to try and score some extra gains. At the very worst, If I only break even or lose slightly, I'm thankful that I've spent time picking individual stocks because I've learnt a lot by doing so.
Hi Ash. That's half the problem with investing, that it's so interesting it's possible to whiz off on all sorts of tangents so that you never get any traction with any one idea. You can learn a lot, but it doesn't always earn a lot.