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Performances of Portfolios - part 1

We are taking a look at performances of portfolios and will have some lead in first.
If you are just interested only in the table for this first part of the series, here: https://s3-ap-southeast-1.amazonaws.com/in...

Know thyself

In a previous post (https://www.investingnote.com/posts/235955), I asked people about the kind of investing performance they would like to have.
Because generally, people are not willing to change their beliefs, habits, and/or lifestyle, it is necessary to know oneself what one wants.
Else there could be mismatched expectations or worse, periods of pain in which one gives up and takes losses, before the light at the end of the tunnel. After which, denial and bitterness almost inevitably follows.

'Reverse Engineer'

If one were to have to some target they want to reach for a number of years, they would need to 'reverse engineer' that result and look for processes, tools and instruments to reach that.

If I want to sound more chim, it is akin to solving a problem by locking via reasoning from first principles.

But really it is like, if one were to want to bake a strawberry short cake, you would need, on top of a process:
1 1/2 pounds strawberries, stemmed and quartered
5 tablespoons sugar
2 cups all-purpose flour
2 teaspoons baking powder
1/4 teaspoon baking soda
2 tablespoons sugar
3/4 teaspoon salt
1 1/2 cups heavy cream
Whipped Cream, recipe follows
Whipped Cream:
1 1/2 cups heavy cream, chilled
3 tablespoons sugar
1 1/2 teaspoons vanilla extract
1 teaspoon freshly grated lemon zest

since the nature of the performance of a portfolio is also very much dependent on the underlying assets of the portfolio.

After all, buying today's bonds (with a fixed coupon) is hardly going to give anyone a chance of reaching 29% a year over 14 years (if one's goal is that.)

But of course, not everyone is aiming for higher than market's average returns. There will be some of us going for less volatile, more income yielding investments, of which, leveraged income yielding stocks/trusts/property/bonds are a stable component. Interestingly, many of these people could likely be earning an income of above $x00K p.a. and some could also be running businesses which colour their personal risk and portfolio management slightly, resulting in them choosing to invest their earned savings in a more passive manner. Unfortunately, should you be a more passive investor, the rest of this post may not find your favour and you could do yourself good by closing this window when you find yourself flustered or defensive.

There are, though, some DIY enthusiast investors amongst them (and everyone else) who may enjoy the challenge of managing their own portfolios and going for higher returns with everyone else and we would find them amongst IN-ers.

So, we would like to look at some reported performances of professionals for our learning.

SuperInvestors of Graham and Doddville

- https://en.wikipedia.org/wiki/The_Superinv...

"The Superinvestors of Graham-and-Doddsville" is an article by Warren Buffett promoting value investing, published in the Fall, 1984 issue of Hermes, Columbia Business School magazine. It was based on a speech given on May 17, 1984, at the Columbia University School of Business in honor of the 50th anniversary of the publication of Benjamin Graham and David Dodd's book Security Analysis. The speech and article challenged the idea that equity markets are efficient through a study of nine successful investment funds generating long-term returns above the market index. All these funds were managed by Benjamin Graham's alumni, pursuing different investment tactics but following the same "Graham-and-Doddsville" value investing strategy.

Here's their annualized returns (from wiki):

These returns are picked from the time period 1956 to 1985.

His observations:
Buffett made three side notes concerning value investment theory. First, he underscored Graham–Dodd's postulate: the higher the margin between price of undervalued stock and its value, the lower is investors' risk. On the opposite, as margin gets thinner, risks increase. Second, potential returns diminish with increasing size of the fund, as the number of available undervalued stocks decreases.[5] Finally, analyzing the backgrounds of seven successful managers, he makes a conclusion that an individual either accepts value investing strategy at first sight, or never accepts it, regardless of training and other people's examples

Edge for such personalities, as I understand, is patience, deep understanding, discipline and even more patience. Your understanding could be different.

as cited above.
and thanks to bgting for the pdf again.

Disclaimer: This post is meant for informational and recreational purpose only, not meant to induce buying, selling or quarreling. If you find yourself in a highly excited state, a few deep breaths and a cold shower is highly recommended. Reader should dyodd and all advice, given of implied, can be only taken at reader's own discretion and risk.

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11 people like this.
marginofsafety :

I think you guys might find this interesting.


It's taken from a book called "Excess returns". The link shows the highest recorded CAGR achieved by lots of the world's most famous investors. Book was published pre-2015 so the CAGR should be updated to as of 2010-2015.

Evilcrownofthorns :

Reply to @marginofsafety : Wow cool list. Really The Who's who in the market.

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bgting :

Attached is a letter from Buffett showing Walter Schloss' record over 40 years from 1955 to 1995 on page 3.

Schloss took 25% of profit while managing funds for others. If there were any losses , the losses were made good in the following years before he shared in any profit.

The difference between the Ltd Partners Overall Gains and Associates Overall Gains is due to this fee arrangement. So over the 40 years, the Ltd Parters Overall Return was at the compounded rate of 15.7% and the Associates Overall Return was at the compounded rate of 20.4%. In comparison, S&P return was at the compounded rate of 10.4%.

Out of the 40 years, he had 6 years of losses compared to 10 for index. If we key in the numbers from the 2 columns in a spreadsheet, for those positive years, the Ltd Partners' return is about 75% of the Overall. For negative years, they are the same. For positive years following negative ones, the Ltd Partners received higher percentage to make up for the losses.

His largest drawdown over 40 years was -12.8% in 1990. Largest for the index was -26.6% in 1974 while he was down -6.2%

An old post ... :-)

marginofsafety :

I don't think you can put enough emphasis on patience. There's a story being told by Greenblatt about the guy who wrote "What Works on Wall Street".

In "What Works on Wall Street", the author backtested about 40 formulas and found out which formulas worked out best in the long run. He went on to start a fund and decided to put the money into the formulas which produced the best long term results.

However, things didn't went his way and he ended up terribly under performing the market for 3 years. He couldn't take it and sold his fund mgt biz to someone else.

That guy who bought over the fund mgt biz decided to continue using the same methods and what ended up happening was that he found tremendous success using the same strategies afterwards.

So this is a story about the guy who wrote the book, who did all the studies and who knew what strategies worked over long periods of time, quit and sold his fund mgt biz to someone else. Morale of the story is that sometimes being smart is not enough. Having the patience, temperament, is just as, if not more important.

wellhandy :

Reply to @marginofsafety : nothing works all the time. I'm keeping value investing in my pocket for the period when it will shock people in its outperformance again. :)

edited: and having said that, i realized how silly and smug I sound. lol. shakes head.

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bgting :

A good source for Graham and Doddsville stuff is here. :-)
Walter Schloss Archives

wellhandy :

@LauShiErn since you did value investing, perhaps you can update from your previous work.

LauShiErn :

Maybe time for an update. What are the recent performances such strategies?

theintelligentinvestor :

I think 20% return will put you in the super investors club!

My target has been 11% or doubling every 7 years.

kc2024 :

Reply to @theintelligentinvestor : Agree on time frame. The longer the better. Minimal at least 5 year bah.

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