Performance Report
This is an update of the portfolio as of December 1, 2011
Portfolio
Details of the overall portfolio (YTD) are as follows:
| Portfolio Return-actual | 4.0% |
| Portfolio January 1, 2011 | $149.7 million |
| Portfolio December 1, 2011 | $156.2 million |
| Investment earnings 2011 | $6.0 million |
| Investment Earnings 1981-2011 | $103.5 million |
We emphasize two things with the portfolio and they are of equal importance. We avoid major exposure to significant dangers (e.g. 2008-9 and the 2000-2 technology crash). The other thing we emphasize is to view things with a long-term perspective and, as you know, our results since 1981 have been quite satisfactory AND not subject to extreme volatility. In industry parlance, we have excellent risk adjusted returns.
Little seems to have changed since our last report on October 31st but, in fact, November was an extremely turbulent, and challenging, month. We had one of the worst weeks on record prior to Thanksgiving followed by an extremely sharp updraft over the last few days of November.
Dangers abound but so, equally, do opportunities. We are, as is usual, approaching the future carefully and opportunistically. We aim to be greedy when others are fearful and fearful when others are greedy. It isn’t always easy to stay the course and to buy what is unpopular and unfashionable and this is one of the key reasons why value investing has never caught on in the mainstream (i.e. it doesn’t market well to the masses and much of “investment management” is marketing and packaging). Value investing also requires patience, often great patience, which is always and everywhere in short supply.
Feb. 2, 2011 |
June 30, 2011 |
Dec 1, 2011 |
|
|---|---|---|---|
| Stock | 13% |
44% |
46% |
| - Shorts | (0) |
(-16%) |
(7%) |
| Net Stock | 13% |
28% |
39% |
| Oil | 0% |
5% |
1% |
| Real Estate | 0% |
0% |
0% |
| Gold | 5% |
6% |
6% |
| VR Bonds | 3% |
11% |
5% |
| Bonds | 0% |
0% |
0% |
| Distress/Hedge | 0% |
5% |
0% |
| Foreign Cash | 0% |
0% |
0% |
| Cash | 79% |
45% |
49% |
| TOTAL | 100% |
100% |
100% |
The portfolio is very active these days and this reflects the environment rather than any change in our fundamental value strategy.
You can expect the volatility to continue and, while it is disturbing, it is also advantageous to us as we benefit from the irrational movements and herd mentality amongst lay investors but, more significantly, amongst professional investors.
Statistics 1981-2010
Details of the individual years are as follows:
| Year | Rate of Return | Year | Rate of Return |
|---|---|---|---|
| 1981 | 15% | 1996 | 15.5% |
| 1982 | 15.4% | 1997 | 6.9% |
| 1983 | 16.0% | 1998 | -4.5% |
| 1984 | 9.8% | 1999 | -2.3% |
| 1985 | 18.3% | 2000 | 15.3% |
| 1986 | 13.8% | 2001 | 18.4% |
| 1987 | 9.7% | 2002 | -0.6% |
| 1988 | 18.0% | 2003 | 25.2% |
| 1989 | 10.7% | 2004 | 9.9% |
| 1990 | 0.7% | 2005 | 8.7% |
| 1991 | 14.9% | 2006 | 11.7% |
| 1992 | 10.0% | 2007 | 6.2% |
| 1993 | 13.7% | 2008 | -5.1% |
| 1994 | 0.3% | 2009 | 14.3% |
| 1995 | 13.2% | 2010 | 10.2% |
| 30 Year Avg. | 10.3% |
Our compounded rate of return over the entire 30 year period was 10.3% p.a. Inflation over the period was compounded at 3.2% p.a. This produced a real rate of return of 7.1% p.a. Our financial planning summaries are based on achieving, in the long run, a real rate of return of 5% p.a. In the 30 year span, we had only four negative years with the largest decline of 5.1% occurring in 2008.
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.
% of Portfolio |
Category | |
|---|---|---|
| Cash | 49.0 |
AAA Cash |
| Microsoft | 10 |
AAA Stock |
| Hewlettt Packard | 8.5 |
A Stock |
| Cisco | 6.5 |
A+ Stock |
| Pfizer | 6.1 |
AA Stock |
| Barrick Gold | 5.3 |
A- Stock |
| Sanofi Aventis | 3.1 |
AA- Foreign Stock |
| Vivendi | 2.2 |
BBB Foreign Stock |
| SK Telecom | 2.1 |
A Foreign Stock |
| France Telecom | 1.2 |
A- Foreign Stock |
| Total of Top 10 Holdings | 93.4 |
As you can see, the portfolio is very conservatively invested with over half the portfolio in cash and cash equivalents. All of the top 10 holdings are of high quality and make up the bulk (94%) of the portfolio. I should add that this can, and frequently does, change rapidly so I would caution the casual reader against assuming that owning these securities is a blueprint for a successful year ahead in the markets.
Summary
Europe continues to be an area of great concern and I am spending a lot of time, and thought, on the ongoing drama. It is highly unlikely that we will have another 2008 Lehman debacle as this crisis is receiving a LOT of attention and the Lehman debacle is still fresh in the minds of policymakers. We will, however, almost certainly experience a lot of turbulence as the EU moves haltingly towards fiscal union (something they should have arranged before they formed a common currency).
I want to thank you for the trust you have placed in myself and, of course, in Nancy. The last 31 years have been full of challenges and we expect no less in the years ahead. We look forward to the challenge. We scour the markets of the world every day, on your behalf, searching for value with a significant margin of safety.