OK let’s get straight to the numbers:
All figures are taken from Yahoo! Finance and are inclusive of dividends.
What I like about these results is how in Q3 the UK Asset Value Portfolio has made it’s way into positive territory and the US Asset Value Portfolio has shot into first place out of al six.
For a complete breakdown of what these strategies are and how to execute them for yourself, take a look at these two posts:
- 3 Benjamin Graham Screeners Put To The Test Part 1
- 3 Benjamin Graham Screeners Put To The Test Part 2
There is enough going on in these portfolios to write a novel but for expediency I’ll mention aspects that stand out the most:
- The UK Relatively Unpopular Large Company Portfolio year to date result is double that of the FTSE 100 with International Consol Air (IAG) the best performing stock since inception at 79% year to date, a company that does not pay a dividend.
- There is a stronger performance from the US portfolios and index (S&P 500) which can be attributed to London being a favoured exchange to list mining/resource companies which have had a terrible time lately.
- The strongest performance from an individual portfolio in the third quarter the US Asset Value Portfolio at 40.32% year to date with Broadwind Energy (BWEN) the strongest stock out of all the portfolios at 241% year to date without paying a dividend.
- Interestingly, the second best performing stock out of all the portfolios at 231% year to date is Skystar Bio-Pharma (SKBI) also from the Asset Value Portfolio.
- Both Broadwind and Skystar are the type of small cap nobody’s ever heard of stocks that most people would not even touch with a bargepole.
- The US and UK Asset Value Portfolios are noticeably volatile when compared to their large cap and ‘Winnowing’ counreparts. This increased volatility would put most investors off using such a strategy.
5 Year Chart of IAG
Blue dot represents when IAG was added to the portfolio
Thank You Mr Bernanke
Look, I know as well as you do that The Fed has been responsible for the equity market surge since the bond buying/money printing program began.
Quite frankly current valuations are so disassociated with reality that central bank intervention has exposed the flaws in the entire economic system that is supposed to be built on the idea of free markets – markets are not free when a private company (The Fed) can print paper currency ad infinitum and devalue the money that citizens earn in exchange for their labour.
It’s no wonder equity markets are rising when paper currency becomes less valuable by the day, may as well shove it into equities to get some return.
And that’s the point of this post and this experimentation with 3 of Benjamin Graham’s strategies.
If investors are forced to seek returns from equity markets, then there may as well be a way of trying to do better than the market or at least have some sort of plan to deploy capital properly when yield is hard to come by.
2 year chart of Broadwind
Broadwind: a 241% return since inception
How You Can Use These Results To Improve Your Own Game
The results of this experiment with old school value investing strategies from Benjamin Graham always surprise me for two reasons:
- I never check the prices of any of these stocks except when it’s time to report them on the blog. I doubt I’d be able to have that amount of discipline if any of these portfolios were backed with cash. I would certainly try to if it were because checking prices every three months would suit the way I’d like to manage a defensive portfolio otherwise what’s the point of managing a defensive portfolio? Improve your own game by working less if you are using a defensive strategy. Awesome 🙂
- No matter what my personal views on valuation are or at least what they should be for any given stock, the market ALWAYS tells me something different. For example, I would have thought Caterpillar (CAT) would have returned a positive number by the end of the third quarter, not -7.09%. Just goes to show you that Mr Market is always right, no matter what my own personal views/opinion might be.
Accepting these simple truths to improves investing skill and are part of what I call the ‘ninja-level’ type of psychology and mindset that true value investors need to either have or develop overtime.
You will recognise whether or not you have these attributes of detachment and Mr Market being right all the time. Which by the way, he is.
If you like gambling then don’t invest in stocks. If you find yourself saying the word ‘hope’ in reference to ANY sort of planned events in your own life, do not invest in stocks. How often do you use the word ‘hope’? What is the general state of your psychology just on a day to day basis – positive or negative? If it’s neutral or negative don’t invest in stocks, the market will chop you up.
Harsh? Maybe. But unless you understand why the preservation of capital should be your #1 objective then you have no business in stocks.
Convinced you have the right mindset at at least develop it? Check out what Ben Graham suggested
Can one really make money in them [bargain issues] without taking a serious risk? Yes indeed, if you can find enough of them to make a diversified group, and if you don’t lose patience if they fail to advance soon after you buy them – Ben Graham
The ‘don’t lose patience soon after you buy them’ part of what Graham states is certainly true, especially when applied to the Asset Value Portfolios (bargain basement stocks).
In the first quarter for example, the UK and US Asset Value Portfolios returned -3.10% and 1.43% respectively, lagging the market by some margin.
What’s your view? Could you handle not looking at the prices of your stocks for three months at a time? Would quarterly results that lag the market make you abandon a strategy? Let me know in the comments section what you think.
All the best
Images: Test Tubes