Annual Report - January 5, 2010

This is a report of the portfolio performance in 2009. The rates of return reflect the overall rate of return on all the funds that I have managed since 1981.

Statistics

Details of the overall portfolio are as follows:

Portfolio Return-actual 14.3%
Portfolio January 1, 2009 $110.90 million
Portfolio January 1, 2010 $134.70 million
Investment earnings 2009 $16.3 million
Investment Earnings 1981-2009 $83.7 million

The annual performance data is shown below and it lists the annual returns of the entire portfolio over the last 29 years. Your individual investment report will be mailed to you in the next week and, in each and every case, it will make equally pleasant reading.

The main goal in managing your funds is to earn a rate of return that exceeds the annual rate of inflation by 5% p.a. It is equally important that we achieve this goal with a minimum of volatility (i.e avoiding universally bad years like 2008) because bad years have two important effects:

  1. They tend to ruin a record of many years of compounded growth.
  2. They tend to semi-permanently and negatively affect investor behavior.

We are very pleased to have met, and exceeded, our targets over both the medium and longer term throughout the entire period of our management.

Details of the individual years are as follows:

Year
Rate of Return
Inflation
Real Rate of Return
1981
15.0%
8.9%
6.1%
1982
15.4
3.8
11.6
1983
16.0
3.8
12.2
1984
9.8
3.9
5.9
1985
18.3
3.8
14.5
1986
13.8
1.1
12.7
1987
9.7
4.4
5.3
1988
18.0
4.4
13.6
1989
10.7
4.6
6.1
1990
0.7
6.1
-5.4
1991
14.9
3.1
11.8
1992
10.0
2.9
6.9
1993
13.7
2.6
11.1
1994
0.3
2.7
-2.4
1995
13.2
2.5
10.3
1996
15.5
3.3
12.2
1997
6.9
1.7
5.2
1998
-4.5
1.6
-6.1
1999
-2.3
2.2
-4.5
2000
15.3
3.4
11.9
2001
18.4
2.8
15.6
2002
-0.6
1.6
-2.2
2003
25.2
2.3
22.9
2004
9.9
2.7
7.2
2005
8.7
3.5
5.2
2006
11.7
3.2
8.5
2007
6.2
2.8
3.4
2008
-5.1
3.8
-8.9
2009
14.3
1.7
12.6
29 Year Avg.
10.3%
3.3%
7.0%

Discussion

The key facts are:

Our compounded rate of return over the entire period was 10.3% p.a. Inflation over the period was compounded at 3.3% p.a. This produced a real rate of return of 7% p.a. Our financial planning summaries are based on achieving, in the long run, a real rate of return of 5% p.a.

Our target rates of return may have seemed relatively modest but, in fact, the history of the last 100 years suggests that they are really quite difficult to attain over the longer term. It certainly hasn’t helped market participants that the last decade in real terms was the worst decade in recorded history (stunningly it was worst than the decade of the 1930’s).

The period from 1981 – 1999 was a strong bull market, but even in that period the Dalbar research showed average individual investor returns in the area of 4% p.a. (i.e. barely keeping pace with inflation). This was in the very best of times!!! The reasons were a function of the usual suspects – abysmal professional guidance, investing with a rear view mirror and being susceptible to the hype and excitement generated by Wall Street.

Our goal of earning inflation plus 5% p.a. has been an integral part of our planning process. We will be very satisfied if we can achieve similar results over the next 29 years. I take the responsibility of managing your finances very seriously and I thank you for your ongoing trust.



We all wish you the happiest of New Year’s and a peaceful and healthy 2010.


The portfolio is currently invested in the following fashion:

 
January 1, 2009
December 31, 2009
Stock
30%
14%
Oil
4.5
0.0
Real Estate
2.0
0.5
Gold
5.5
4.5
VR Bonds
5.5
3
Bonds
1.0
0.0
Distress Inv.*
0.0
10.5
Foreign Cash
0.0
3.0
Cash
51.5
64.5
TOTAL
100%
100%
*This is a new category (distress). It can be broadly described as an eclectic mix of opportunities, which have arisen from the aftermath of the economic collapse. What I have tried to create in this category is a “hedge fund equivalent” for special situation opportunities without the exorbitant fees that are unavoidable in the mainstream hedge fund community.

I have attached a copy of the performance chart for the whole portfolio over the last 29 years Click here to view