Saturday, July 12, 2014

Kenny's Track Record of Value Investing (3-Years)

I began an investment account to practice my stock picking skills in August 2011. It has been an amazing experience and I learned a lot on the way. I fully understand why most successful investor say that experience is the most important asset to a money manager.

I have followed the markets since 2005 and picked stocks through the investopedia simulation. I also traded on my parent's account since 2006 but decided a long term investment approach is needed to build wealth. While trading can be profitable in the short-run (mostly due to good luck), it is not the right approach to consistently build long term wealth. That is why I decided to focus on value investing and to prove it is the best approach using my own hard earned money.

The reason I'm posting my track record is I want prove a point: value investing works if practiced correctly. What I mean correctly is that the investor should follow all principles stated in Graham's books, The Intelligent Investor and Security Analysis, very closely. Don't try fancy formulas, leverage or chase a quick return. Therefore, if you haven't read those books, I highly recommend them as summer reading! Lots of investor claim they read them but I doubt those claims. Several re-reads are needed to fully comprehend the knowledge presented in those books. For the record, I read The Intelligent Investor 5 times (1973 edition 3 times and 1949 edition 2 times) and Security Analysis (1940 and 1951 editions) twice. I plan to re-read them again.

Kenny's 3-year Return (Time Weighted Total Returns, the method advocated by GIPS) 


Some Items To Note:

  • Three year annualized return of 17.1% vs. 7.1% for TSX on a total return basis. Total 3 year return of 60.6% vs. 23% delivered by the TSX.
  • I used no fancy strategies, just plain old value investing (Graham/Buffett style).
  • No leverage to juice returns, no options or shorting. No micro-caps or small-caps because I wanted to operated in the mid/large cap universe (my circle of competence) 
  • Unlike most managers, I'm extremely concentrated. On average, I owned only 3 stocks most of the time (currently hold 3 as well). This is not ideal for a professional manager but I'll still own a very small number of stocks, say 10-30 stocks, if I manage other people's money. 
  • My monthly returns are sometimes volatile especially when I build a position (i.e. BBRY) on the way down. This is a problem facing all value investors but eventually patience will pay off. 
  • I'm extremely patient, especially for a 22 year old investor! I held one stock since I bought it in September 2011. My shortest holding period, among the 8 stocks I held, is 6 months. 
One message I want to deliver, value investing works! 

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