When I set up my portfolio on 14th November 2014, who could have predicted the three years that were to come? Brexit, the Japanese recessions, Trump’s unprecedented presidency and now the fall of Mugabe, to name a few. Would I have chosen that moment to become a value investor had I known what lay ahead? Maybe not. With the benefit of hindsight I can see what a mistake that would have been.
Little Acorns portfolio retrospective
Started: 14th November 2014
Total invested: $118,000
Portfolio Value Today: $209,087
Total stocks bought: 42
Total sold: 9
Current positions: 33
Three major lessons learned
Lesson 1: Don't panic
In the words of Vinnie Jones in Lock Stock and Two Smoking Barrels, ‘it’s been emotional.’ My first three years as a value investor has taught me as much about staying calm, exercising patience and cutting your own path through a jungle of information as it has about reading a balance sheet.
2014 – 2017 has been a period of massive global change and it’s not over yet. Political, economic and military swagger aside, perhaps the only thing the world can agree on is that we are in uncertain times. I have to wonder, though: are times ever ‘certain’ and what does this mean for investors?
Since 2014, countless stories have run in the press about the fall of this currency or that sector. Many people too have offered me personal advice, that I should buy this or sell that, depending on how worried they are about something they’ve seen on TV.
I had to learn early on not to link media commentary with my own investment decisions. If I see an alarmist story, sure, I’ll check other sources about what the markets are doing. My decision to buy or sell a stock, however, always comes from looking at the stock itself. If a business is sound and well run, why should a single moment in time change that? You could argue that no business is bigger than a financial downturn. However, my portfolio has proved that resilient businesses can not only withstand a recession, they can thrive.
Lesson 2: Select stocks based on their individual merits
Selecting only STRIDE 3D stocks, rather than buying based on trend, personal preference, rumour or anything else, has meant my investments have withstood the turbulence caused by political waves in Europe and America and, perhaps most notably, two recessions in Japan; and this despite $34,000 of my portfolio value being in Yen.
If I’d have panicked during either of those downturns and sold my Japanese stocks (as some people advised me to do), I’d have missed out on holding some great businesses that are still strong and paying me dividends. (See my full portfolio breakdown at the bottom of the page).
Even businesses strong enough to survive a recession or two can still fail later. So, coming back to my original question at the start of this post: are times ever certain? The answer, of course, is ‘no’. The biggest lesson I’ve learned is that, whatever's going on in the world, select strong businesses and pay attention to any changes in their financial management. Selling at the right time is just as important as buying the right businesses in the first place, for effective portfolio management.
Lesson 3: Diversify, diversify, diversify
Always spread your risk. Strong stock selection and well timed sells are only part of the reason my portfolio is 77% up. Another vital reason is diversification. Little Acorns is global, covering eleven currencies, four continents, thirteen countries and nineteen sectors. It contains 33 stocks at the moment, some of which have of course performed better than others. While my stocks weathered the financial storms in Japan and political storms elsewhere, there are no guarantees with investing, only risk management.
The beauty of holding so many positions across so many variables is that I can truly take advantage of negative correlation. This has been a huge factor in my returns to date, because those stocks that perform extremely well act as a buffer, protecting my overall portfolio value from succumbing to any smaller losses.
I would never invest more than a slice size (currently $6,000). I’ve met investors online who invested 40% of their total portfolio value in a single stock, purely because they invested in that stock once before and made a good return. Basing current or future investment on past performance alone is not something I would do. To me, this is not value investing: it’s gambling.
The STRIDE factor
The only reason I’ve been able to run my portfolio in this way is that I’ve used STRIDE to help me. If I had to analyse financials every day, I could probably manage three or four positions by myself. Even this task would take up a large chunk of time, rendering it almost impossible around my work and family.
And what if I’d chosen three or four positions that looked great, that STRIDE would also have recommended, and yet have ended up in my lower performing twelve? Without the buffer of diversification, risks increase exponentially.
It is only by using STRIDE that I’m able to manage this volume of holdings, as I’ve discussed in various, unavoidably male-dominated value investing online communities: with mixed reactions - some, unfortunately, very sexist. Thankfully, the majority of value investors I’ve talked with online have been thoroughly nice, but sadly, for some, anachronistic prejudice prevails.
A fourth lesson has been in learning how to manage my buys and sells and how important it is to act at the right time. I’ve missed out on some great bargains and returns because I didn’t act fast enough when STRIDE told me I should. I am thrilled with my 77% returns so far but it’s frustrating to know that this figure could have been higher.
I check my portfolio every day now; it only takes a few minutes to make sure nothing has become a ‘consider sell’. I may not have to do anything for several months, but it’s vital to be on the ball when something does need attention.
I started off in November 2014 with 16 positions. In total I’ve bought 42 and sold 9, leaving me currently with 33 holdings.
Here’s a graphic breakdown of all my stocks and their current performance levels. This illustrates particularly well how my well-performing stocks more than make up for any losses:
It doesn’t matter that twelve positions are currently down. The other twenty-one positions are up – some of them dramatically so - easily covering the losses of the lower twelve.
In this graph, we can see the dividend yield of all my stocks. I wouldn’t choose a stock based on its dividend payments alone, but if a great 3D target comes up that also pays a handsome dividend, it’s an awesome bonus that boosts my cash pile.
Dividend payments have also helped offset my down positions, with these stocks bringing in $3,200. In fact the income aspect of my portfolio has been one of the biggest surprises, generating $27,000 in cash. To put this in perspective, this equates to 20% of my overall portfolio value in hard profit.
Current Biggest Winners
Micro-Mechanics (Holdings) Ltd: +207%
ATOSS Software: +143%
Current Biggest Losers
Formosan Rubber Group: -58%
FTGroup Co: -58%
Manning & Napier: -53%
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