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At times I get discouraged with my SLO performance, which has me languishing somewhere in the second 100 on the Leaderboard. On a more cheerful note, my annualized return is 42.86%. If I could consistently achieve that type of performance in my personal portfolio, I would be a very happy camper. Last weekend I did a spreadsheet and projected that 42.86% return forward for a few years. Starting with 1 million, I would reach 1 billion in 19 years, when I would be 79 years old. Then I could start taking it easy and savor my retirement, spend a little time with the family and enjoy my hobbies, travel a bit, so on and so forth.
Getting back to the question, my best investment was Tessco (TESS) in August at the low point in the market. The stock reported disappointing earnings and provoked an over-reaction. The company has been profitable on an annual basis every year for the past 5 years. I paid less than book value and made a quick 50% profit when the stock recovered.
Dry powder - what I learned was that it is easier for me to make good investment decisions when I have ample cash on hand. The SLO provided me with 1,000,000 and I still had enough left in cash at the bottom to pounce on this excellent opportunity. In my personal portfolio, I was almost fully invested and bought a few shares of TESS as it declined; but by the time I figured out how cheap it was and decided to use margin if necessary, it had headed back up and I made a very small profit.
I read a study somewhere that most high performing individual investors keep a fair amount of cash on hand and do not use margin or leverage. Comparing what I did in my SLO portfolio to my real world performance shows why that may be true.
My worst investment to date is Applied Materials (AMAT), bought early in the contest and I have a loss of 5%, more or less.
Routine handling - When I opened my SLO portfolio, I simply copied the largest positions in my personal portfolio, where I am holding AMAT long term and expect to do well as the company's solar initiative becomes profitable and its valuation multiples increase to the average for its industry. Looking over my notes, guidance when I bought the stock for SLO was flat. In June I became aware of heavy volume in the August puts, which provided a clue that someone expected that month's report of earnings, bookings or guidance to disappoint.
Given the information I had in my notes on AMAT, if I had taken the trouble to look at them before setting up my SLO portfolio, presumably I would have invested the money elsewhere or held it until I could get a look at the earnings report. Routine handling can cost money: it is better to look carefully at each investment and work at a comfortable pace.
Overall, I am happy with my SLO performance as we pass the halfway point. I entered the contest because I would like to win the prize: however, realizing that is unlikely, my performance objective has been to beat the major indexes while consistently applying my value strategy, documenting my decisions in my blog similar to what I do on my personal portfolio. I was also looking forward to a little feedback from others about my investment thinking, which I have received and appreciate.
On the blog, when I do the work and spend some time on a topic of general interest or investment philosophy most readers seem to appreciate my efforts: on my routine notes of buy/sell decisions, nobody cares too much, with the exception of a few negative scores when I am averaging down.
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Comments (1)
As always, I appreciate your thoughtful analysis of what you've done and might have done differently.
Our positions in the competition are similar and so, it seems, is our approach. I too have resisted the temptation to deviate from the investing approach I use in real life for the sake of a competition. It's highly unlikely that a long term good-return-with-minimal-risk strategy would win a short term competition. What is interesting is that such a strategy (yours, mine, Armin Stuks as examples) is producing results better than three-quarters or more of the competition participants are achieving.
I too have noticed that blog posts that are of a "make a bundle over night" nature tend to get higher scores than those that have a note of caution about them.
I am trying very hard to avoid personal bias when rating posts. For example, I'm not interested in investing in companies on the verge of bankruptcy that may get a big short term bounce, but if someone writes a good explanation of how to identify those companies and how to know when to get out of them, I give it a high rating.
The only posts I'm giving a rating of less than so-so are those that are derisive or downgrading to someone or something, or one time posts early in the competition with nothing written since.
People who don't care enough to explain anything they are doing, especially those in the top 100, are denying others the opportunity to learn from their success.
I'm hoping that at some point all those who have never posted or haven't posted since August will be dropped.
Posted by Eileen Teska | October 23, 2007 10:47 AM