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...
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.
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
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
"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.
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. 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.