When I sat down to do the numbers, I had thought it was a really wonderful week for our portfolio. I figured we’d be at a new all-time high and we were, but the market still trounced us this week. The 4.00% gain was the 5th biggest week for the benchmark since the fund started and we are too index unaware to keep pace with such a meteoric rise without something unusual happening to one of our larger holdings.
If you feel like 2015 has been an exceptionally volatile year, I can confirm you are right. This is the 242nd week I’ve penned a blog since EGP began. Looking back through the records, it becomes apparent that 2015 to date has been the wildest of the 5 years we’ve operated.
There have been 23 weeks when the market has either advanced or retreated by more than 3%. They have occurred like this:
- 2011 – 8 occasions
- 2012 – 1 occasion
- 2013 – 4 occasions
- 2014 – 1 occasion
- 2015 – 9 occasions YTD
There have been 63 weeks when the market has either advanced or retreated by more than 2%. They have occurred like this:
- 2011 – 14 occasions
- 2012 – 9 occasions
- 2013 – 8 occasions
- 2014 – 13 occasions
- 2015 – 19 occasions YTD
I have spent some time lately trying to figure out what gives us an advantage over the market. What it is that has allowed us to compile an annual advantage of 8.8% after allowing for all costs over nearly 5 years. It is probably the question that I get asked most often by potential investors, and I’d like to have a slightly better answer than the one I’ve heard Charlie Munger give, which is “Because my guesses are better than yours”. You may be able to get away with that when you’re in your 90’s and your record is 50 years long, but it is ill-advised when you’re not yet 40 and your audited record is not yet 5 years old.
I figured that market volatility was one place where we were probably capturing some gains. The ability to do your buying when everyone else sees nothing but gloom and your selling when blue skies are all folks see must help I had figured. So I commenced the analysis which led to me noticing the volatility listed above.
Our 3 best calendar years for outperforming the market have been 2011 (+9.59%), 2013 (+14.78%) and 2015 (+12.47% YTD). So two of our three best years came in the most volatile years (2011 & 2015), but our very best year (in both relative and absolute terms as it happens) came in the least volatile year we have faced (2013).
The other very strong outperformance correlation is with ‘odd’ years, 2011, 2013 & 2015 were very good, 2012 & 2014 were quite ordinary, but I shall be doing everything I can to break that particular streak in 2016…
After slicing the data several ways, I don’t think there is anything meaningful to derive from it, when you have an idiosyncratic portfolio of undervalued stocks, the outperformance will come when it comes and you will seldom be able to tell in advance what will trigger it.
So if asked how EGP outperform, I will probably revert to my usual explanation, an unusual obsession with downside risk.
I subscribe to the Andrew Carnegie school of wealth creation “Put all your eggs in one basket and watch that basket”, with all my investable assets wrapped up in EGP, this keeps me very focused on one investment principle many investors give too little heed. Downside risk. The more risk you remove from the investment proposition, the better your results will be over time. I am thoroughly convinced of that, and believe it is why we have outperformed. Our portfolio as a weighted group have nearly 20% of their market capitalisations set aside in cash. The flexibility this allows them when business cycles turn down is very valuable. Our portfolio over the five years we have operated has probably averaged almost 20% cash; this likewise allows us flexibility when the market sours.
Focus on the downside and be ready – Tony Hansen 20/11/2015
|
|
Apr 1st 2011 |
Jul 1st 2015 |
Current Price |
Since July 1st 2015 |
Since Inception |
|
EGP Fund No. 1 |
1.00000 |
1.57872 |
1.67439*1 |
6.06% |
96.93%*2 |
|
37333.23 |
50922.68 |
50938.27 |
0.03% |
36.44% |
EGP Fund No. 1 Pty Ltd. Up by 6.06%, leading the benchmark by 6.03% since July 1st 2015. Since inception, EGP Fund No. 1 Pty Ltd is Up by 96.93%, leading the benchmark by 60.49% all-time (April 1st 2011).
*1 after a 31 May 2013 dividend of 2.333 cents per share (cps) plus 1.000 cps Franking Credit, a 31 May 2014 Dividend of 7.000 cps plus 3.000 cps Franking Credit and a 31 May 2015 Dividend of 8.6667 cps plus 3.7143 cps Franking Credit
*2 calculated based on dividends reinvested
