Update No. 101 – 22/02/13

The ASX200 last Friday closed at 40244.46.  On January 1^st 2008 it was 40291.21 – I always use the ‘total return’ index, in my view the ‘price’ indices are a waste of time, we must always factor for dividends.

It had been 5 years, 1 month and 15 days at that point and the return for anyone who invested in the ASX200 index January 1 2008 has been, basically, zero.

The Australian market in late 2007 was pretty much priced for perfection, combine this with what in hindsight were far too highly leveraged balance sheets and to 5 lost years don’t seem as shocking now as they were painful to investors as they happened.

These are the sort of things financial media will often remind us of.  As a defence against that, one must remember virtually no one will ever, load up and drop everything they’ve got into the market on a given day.  It is more likely to the average saver, that they save a relatively constant amount & buy at regular intervals. Sticking with the January 1^st dates, imagine instead that an investor bought $10k each on January 1^st 2008/09/10/11/12 & 13.  Their $60,000 invested would have at last Friday’s (15^th Feb) closing price been worth $73,585.88.  On average, the money had been tied up for 2.62423 years.  If we annualise the 22.64% gain (for the average investment duration of 2.62 years), the return up until then had been 8.088% per annum.  This is achieved despite the market having delivered nothing in the way of gains in the period.  I would consider 8% annually to be quite an acceptable return to the average investor, over the longer term; in-fact you would be unwise to expect the market to compound at a rate substantially better than that.

The January 1 2008 value cited above wasn’t quite the top of the market, but it was pretty close, the exercise simply serves to remind us that the average investor needn’t spend hours poring over whether the market is over or undervalued, commitment to your savings plan and consistency will see that you should do OK based on history.

People will caution against using history as a guide.  It could very well be that we are now in a ‘Lower Return World’, but if you keep your savings out of the market for 20 or 30 years waiting to see if such predictions are correct, then you have probably found the most certain way of ensuring you get a low return…

In February and August I get to stand on my soapbox about shabby results reporting in the financial press, this article (by staff writers I note, obviously no one wanted to attach their name to such rubbish reporting), for example touts a “73.5% profit surge” at Super Retail (SUL). Nowhere in the article does it mention that due to the effects of the substantial capital raising to absorb the acquisition of Rebel Sports, the change in earnings per share (EPS) was actually 35% (22c to 29.7c).  Now, a 35% growth in EPS it should be noted is outstanding EPS growth in a challenging retail environment, but in the ‘business’ part of a paper, I expect enough knowledge in the writers to pick out such pertinent details (i.e., the result was LESS THAN HALF as good as it seems)

As to EGP, we had only our second down week this year, despite two of the three holdings we had report this week announcing results that exceeded our expectations.  Our last eight holdings report next week, I look forward to discussing how they went, I may break with tradition and profile a couple of our holdings over the next few weeks, to better outline our investment thinking – Tony Hansen 22/02/13

EGP Fund No. 1 Pty Ltd. Up by 14.08%, leading the benchmark by 5.52% since January 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 38.87%, leading the benchmark by 25.74% all-time (April 1^st 2011).