Update No. 139 – 24/11/13

We generated good ‘Alpha’ this week. We managed to do it in my favourite way too. With a decent decline in our benchmark defied by our holdings which grew by 0.29% on the week.

I’m sure most of my fellow investors are starting to come around to this idea. If you still prefer to see market prices rise, let me tell you why my way is better (at least if you’re an investor in EGP…). Since inception, there have been 139 updates – the heading above probably gave that away! Despite having put a meaningful gap between our total return and that of the market, our ‘weekly record’ is not as great as you may think. In 139 weekly match-ups with the market, we are 78-60-1, with a winning percentage of 56.1%. However, in weeks when the market declines, our record is 41-16-1 (70.7%) – this does not mean we increased these weeks, often it just meant we declined less than the market. More than twice all of our outperformance has been generated in weeks when the market declines – when the market rises, on average we trail. So you will see why I’m rarely upset to see the market decline.

The object for the prudent/conservative money manager is to try and keep pace with a rising market as best you can, then decline less than the market in negative periods. That’s the theory and so far, the results have been very good.

It’s a marvellous game where you can have such a modest winning record and still post very good results. This is due to the generally positive bias of the markets. Some investment markets are a zero-sum game. Investing in the stock-market is not. There is a positive bias acting in your favour. Over the very long-run, even most below average investors in shares will tend to have positive results. Without having looked into any specific studies on the topic, I would intuit that over the very long run, with markets including dividends returning perhaps 8% or so annually, to lose money, the ‘loser’ investor would need to be at least 1 standard deviation below the mean. If my intuition is correct, this means that something less than 16% of investors should lose money over the very long-run due to the positive bias of markets generally. My ardent hope is that these persons figure out who they are as early as possible and worst case make their way into a low-cost ‘index’ product, or best case, seek out a competent, honest fund-manager, whose interests are laser-aligned with theirs – Tony Hansen 24/11/13

EGP Fund No. 1 Pty Ltd. Up by 19.97%, leading the benchmark by 6.57% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 63.88%, leading the benchmark by 39.24% all-time (April 1^st 2011).

^{*1 after 31May 2013 dividend of 2.333 cents per share plus 1 cent per share Franking Credit}

^{*2 calculated based on dividends reinvested}