Seeking Alpha
Long only, fundamental value investing, special situations, stock analysis software
Profile| Send Message|
( followers)

Track Record Since Inception Sept 2007

For the very first time, I’m making public my full performance since inception now that I’ve made the announcement to start managing money (company will be called OSV Capital) by the end of this year. Thus the importance of setting my records straight.

To make sure it is, I went through all my statements from the inception date of September 27, 2007 to December 2010 and included everything to the cent.

Back in my rookie year of 07-08, I was much too busy learning and studying instead of spending some time in calculating my IRR and keeping a record of my returns. It was not top priority. But I know better now and I also know that many people still do not measure their performance properly. If this is you, use the free spreadsheet for calculating IRR. It does it all for you automatically.

Looking back, I should have gotten into the habit of calculating the returns every month.

Nevertheless, here are the official results of my portfolio since inception. The annualized performance includes dividends and net fees.

Click on the graph below to enlarge.

Aiming to Beat the Market

To be honest, I’m surprised my results are this good and I do admit that much of it is associated with the big spike in 2009.

My record so far is 3 out of 4 beating the market, and I do hope this continues, but a question I’ve been asking myself is whether beating the market is that important. Don’t you think it leads to the same short term mentality on Wall Street if everyone is just focused on beating the market each year?

The correct way to think about performance would be to measure performance in 2-3 year intervals against the market. On any given year, there is a possibility of under performance, but as a value investor, there is a good chance that a company I have invested in will not realize its intrinsic value until 2 or 3 years later.

Think of it like chess, or even sports. Not every team is like the Yankees or LA Lakers. There are more teams that have to rebuild and strategically acquire players for the future. The next one or two seasons could be a disappointment, but over the long run, once those players reach their intrinsic value, the return then becomes astronomical.

I see it the same way with managing a portfolio. One example is Gravity Co. (NASDAQ:GRVY).

GRVY has fluctuated between 10-13% of my total portfolio and ended up just 4.91% in 2010. But I still hold, knowing from the beginning that it was going to take at least a good 1-2 years before I could expect any price appreciation.

Now you could settle for a consistent 15% gain every year (which is outstanding by the way) or admit there will be times of underperformance, while you wait patiently for time and Mr Market to be on your side and let your value stocks explode.

That’s what I’ve learned about value investing, especially in small to microcaps. The stock does nothing for a long time and continually tests your patience, and just when you have had enough and are about to sell (or have sold) news breaks and the stock literally erupts. Proof is in my 2009 performance.

My aim is to beat the market of course, but I won’t be focusing on doing it every year. I know I’m not that good. But I do know I can crush the market in the long run.

The Best 3 Mistakes of 2010

I received a very sincere email the other day where the sender described us as students of investing as we are destined to learn until we die.

And that’s true-- because 2010 contained many of my best mistakes. I discovered things that have helped me improve as well as giving me a reality check.

Mistake #1: Trying Too Hard

My performance in 2009 was both good and bad. The good is obvious, but what I felt like I had to do in 2010 was follow up with another successful year. I felt like I had to somehow annihilate the market a second time to prove something.

What happened instead was a complete failure.

Throughout 2010, I ended up trying too hard.

  • Trying too hard to make sure my analysis was correct.
  • Trying too hard to make sure my picks always went up instead of down.
  • Trying too hard to squeeze out as much profit as possible.
  • Trying too many things at the same time.

I was a jack of all trades master of none.

Mistake #2: Emotional Investing

I found myself watching stock prices much too often. I was constantly checking and cheering for my stocks to go up.

Until 2010, I could go for days or even a week without checking prices and not worry about price volatility. That mentality was broken in 2010 and it led to large losses and many missed opportunities.

If price went up, I was happy and convinced myself that it would go up a little more. When prices dropped, I convinced myself that the price would fall a little more and I could buy the stock then.

As you can imagine, neither worked.

Valuevision Media (VVTV) and Radio One (NASDAQ:ROIAK) are prime examples of both. I bought VVTV and ROIAK with solid fundamental reasons and conviction. Both positions went up over 1000% when it reached the $5 mark. Instead of selling leading up to this point, I held on, convinced that it could go higher. Both fell in huge leaps. Once the stock reached a flat steady price towards the bottom, I sold out then.

Impatience and disappointment clouded my judgment.

Then came the opportunity to buy back into both of these stocks at prices below the required margin of safety, but nope, I had hindsight bias and refused to buy.

Mistake #3: Mistake in Selling

Transitioning nicely from mistake #2, you hear all the time about selling stocks when you have made a mistake in your analysis, but you rarely hear the opposite. If your analysis tells you that selling a stock was the wrong choice, you should buy it back.

The fact that the original price you paid is lower than the price now should have no effect on the decision.

Looking Forward

My theme going forward is to remember what it was first like when starting out-- getting back to basics.

There is more than just the 3 mistakes, but the big three is a container for the many other smaller mistakes made throughout the year.

I don’t mind sharing all this because I know you have gone through the same thing. I’m sure even Buffett and the best of them went through all this at one point in their life. How else would they be able to talk and write about such insights on behavioral finance?

The first step to getting better at anything is to admit mistakes. Now that I’ve laid it all out before you, I’m ready to advance and continue learning.

Source: Portfolio Results; Learning From Past Mistakes