This will be the final blog update of 2013. My next update is likely to be provided on 1 January, to report on the final (unaudited) results for 2013 as at 31 December. The investor letter for the first half of financial 2014 will be linked in that blog I expect.
I’ve been quietly chuffed at what we’ve done for our investors so far, but a recent talk by Warren Buffett to University of Maryland MBA students indicates perhaps a level of performance near this level should be a ‘base’ expectation…:
“If you are managing only $1 million, then you should be able to beat the S&P 500 by 10 percentage points with no risk or leverage.”
We have managed to exceed this standard so far (beating the ASX200 by 11.79% annually), though I maintain we will continue to target 3 – 5% annual outperformance of the ASX200, and will blame any shortfall of this figure on the fact we are managing over $1 million!
I often take shots at the ‘Efficient Market Theory’ concept. The most famous refutation is Buffett’s 1982 speech ‘The Superinvestors of Graham and Doddsville’. An even better refutation however, is this article in 1995 which revisits the same investors named in Buffett’s 1984 speech and revisits their record over the ensuing 11 years. Buffett’s speech can be accused of ‘hindsight bias’, but the 1995 article cannot. Tracking the same investors named in the 1984 speech they find that over the ensuing 11 years (it should be noted in a period where the market rose at 14% annually) the same investors continued to beat the market by between 3% and 17% annually. Better still, the market names 3 investors with similar styles to those featured, who learned at the feet of these value investors, who upon reviewing the ensuing 18 years have gone on to beat the market handily also.
Walter Schloss remains my all-time favourite investor. Everything about his investment style could be replicated by anyone willing to put in the effort. Buffett’s style (and record), I maintain is not easily replicable, but there are certainly elements of it that can be copied.
Whatever results we do achieve in the future, will be with below market risk (in my estimation) and no leverage, so we will be taking the spirit of Buffett’s challenge seriously. Enjoy your Christmas/New Year, talk next year – Tony Hansen 22/12/13
|
|
Apr 1st 2011 |
Jul 1st 2013 |
Current Price |
Current Period |
Since Inception |
|
EGP Fund No. 1 |
1.00000 |
1.33220 |
1.59007*1 |
19.36% |
63.05%*2 |
|
35632.05 |
39163.27 |
43830.59 |
11.92% |
23.01% |
EGP Fund No. 1 Pty Ltd. Up by 19.36%, leading the benchmark by 7.44% since July 1st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 63.05%, leading the benchmark by 40.04% all-time (April 1st 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
hi tony as one whose “slip”
hi tony as one whose "slip" in life has limited my ability a little to do great things mathematically i recon posting valuation metrics at each quarter before new share issue dates would be fantastic and immensely helpful and especially so after such a run as the asx has had over the last few months…your blogs 102 and 128 give a brilliant way of assessing the funds underlying value that i have been trying unsuccessfully to find for many weeks now…do you think i could have a copy of the spreadsheet model you put together to weight the measures out.. it would be a very facinating exercise to model our own holdings and see how they stack up..
jane
Valuation Metrics
Hello Jane,
The valuation metrics really only make a 'step-change' when the 4E's and 4D's are released. This is primarily a February/August thing, though we do have a couple of holdings with different balance date. The simple truth is that most metrics look not quite as good as what they did in Update 128 (due to valuation increase), however, I am expecting a 'step' in the earnings of a couple of our major holdings that could potentially improve most valuations.
The spreadsheet which creates these metrics is not nearly as tricky as you might think. I have a sheet with the 18 companies we hold in it, it automatically weights depending on the current stock-price of each holding to tell me what proportion of the EGP portfolio that stock represents. Assuming it was 10%, then if the P/E for that company was 9.6X, then that stock would add 0.96X to the weighted P/E. If the free cash flow was 11% for that company then that company would add 1.1% to the weighted FCF. If the dividend yield was 5.1% then that company would contribute 0.51% to the weighted dividend yield of the portfolio. If the company had 70c of NTA per $1 of Market Capitalisation, then it would contribute 7c to the weighted NTA and so on.
I would be surprised if the metrics werent broadly similar come March to what they were in Update 128 as I am expecting very good results from 2 of our 3 largest holdings. In any case, I'll take this advice and use the minor adjustment that will happen outside of the major reporting seasons and give an update in December and June to accompany the September and March updates I had intended to give.
For the next valuation metrics update in March, I will give a link to a model spreadsheet where I will replace the names EGP owns with a 'model' portfolio of perhaps the top 10 stocks so you can use it to model your own holdings – Tony