Performance Report - Annual 2011
This is a report of the portfolio performance in 2011. 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 | 2.6% |
| Portfolio January 1, 2011 | $149.7 million |
| Portfolio January 1, 2012 | $154.6 million |
| Investment earnings 2011 | $4.0 million |
| Investment Earnings 1981-2011 | $101.5 million |
The annual performance data is shown on the next page and it lists the annual returns of the entire portfolio over the last 31 years.
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:
- They tend to ruin a record of many years of compounded growth.
- 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 and throughout the entire period of our management. It is important to note that this will not be true, necessarily, in the short term (i.e. 0-5 year time frames).
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 |
2010 |
10.2 |
1.1 |
9.1 |
2011 |
2.6 |
2.2 |
0.4 |
30 Year Avg. |
10.3% |
3.2% |
7.1% |
Discussion
The key facts are:
- Our compounded rate of return over the entire period was 10.1% p.a. Inflation over the period was compounded at 3.1% p.a. This produced a real rate of return of 7.0% 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 (2000-2010) in real terms was the worst decade in recorded history (stunningly it was worst than the decade of the 1930’s).
- The period prior to that, 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 thrilled if we can achieve similar results over the next 31 years
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The hard copy of this report will be included as part of the mailing of your printed investment policy statement. The latter document will go into great detail about every aspect of our approach to investing and your individual portfolio. Questions are always welcomed.
The year just finished was a hard grind throughout the year with extreme volatility. The main indices finished about level for the year and the main international indices were down by 10%+. Bonds had decent returns but, as I mentioned before, this was like picking up nickels in front of a bulldozer. NOT my kind of opportunity. As always I emphasize equity returns as a benchmark as they have, through time, provided the best compounded returns when measured against EVERY other asset class.
We all wish you the happiest of New Year’s and a peaceful and healthy 2012.
Jan. 1, 2011 |
Dec. 31, 2011 |
|
|---|---|---|
| Stock | 14% |
35% |
| Oil | 1 |
2 |
| Real Estate | 1 |
0 |
| Gold | 5 |
6 |
| VR Bonds | 3 |
4 |
| Bonds | 0 |
0 |
| Distress/Hedge | 0 |
0 |
| Foreign Cash | 0 |
0 |
| Cash | 76 |
53 |
| TOTAL | 100% |
100% |
We look forward to the challenges of 2012.
Mike