The V20 Portfolio Week #17: It's Difficult To Be Different

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Includes: EPS, IVV, LLSP, RSP, RWL, RYARX, SDS, SFLA, SH, SPLX, SPUU, SPXL, SPXS, SPXU, SPY, SSO, UPRO, VFINX, VOO
by: General Expert

Summary

The V20 Portfolio declined by 5.2% while the S&P 500 rose by 1.7%.

History seems to be repeating itself.

If you are different from the index, you will eventually underperform in the short-term.

The market can be irrational and stay that way. However, a well-run business will still create value during the downturn.

The V20 portfolio is an actively managed portfolio that seeks to achieve an annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here. Always do your own research before making an investment. Read last week's update here!

Current Allocation

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In the first weekly update of 2015, I stated that history may be repeating itself. Now that a month has gone by, it is evident that the V20 Portfolio is again experiencing the pain it had to endure in January 2015. Over the past week, the V20 Portfolio declined by 5.2% while the S&P 500 appreciated by 1.7%. Year to date, the V20 Portfolio declined by 16.3% and the S&P 500 declined by 5.0%. This compares to a 15.5% loss and 1.3% decline in January 2015 for the V20 Portfolio and the S&P 500, respectively.

Portfolio Commentary

Despite the ongoing volatility in the portfolio and the broader market, our holdings (for the most part) have been incredibly boring. There were no surprise developments or unexpected setbacks (at least on a company level). Last week I talked about how the meltdown in the junk bond market affected Intelsat (NYSE: I), these things are completely out of our hands, but unfortunately, we must live with the short-term consequences.

Despite the lack of excitement, the V20 Portfolio dramatically underperformed in the first month of 2016. While I am not very concerned, I am sure some of the readers may not feel the same way. While investing in the most undervalued companies will deliver the best return over the long-term, investors will inevitably face periods like the one we are experiencing today. Despite their transitory nature, there is no easy way to deal with short-term losses. It may be disheartening to see your holdings decline in value after spending so much effort doing research, but when you come to terms with the fact that the market can be irrational (and stay that way), the "losses" become more digestible.

As I've mentioned in the introduction to the V20 Portfolio, the portfolio seeks to achieve long-term gains. Whether a stock goes up or down in a particular month, day, or even a year, is irrelevant to us. Most of the time, undervalued companies eventually converge to their fair value as temporary negative sentiment fades away. Unfortunately, there is no set timeline for this convergence. Ultimately the valuation of the business is not impacted by the stock price. If a business is well-run, it will continue to create value even when the stock price is declining (cyclicality aside), meaning that the discount will grow larger, making it more attractive.

There is no telling where the market will trend in the coming months. But irrespective of the result, the V20 Portfolio will continue to have an unwavering focus on the fundamentals.

Performance Since Inception

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Disclosure: I am/we are long I.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.