Category Archives: performance

Amateur Investor trails S&P500 for 2022, beats over longer terms.

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March 24, 2023.

Amateur Investor’s longer term, 5 and 10 year performance is approximately twice that of the broad stock market index. However, the more recent 1 year return is approximately 31.6% worse. Therefore, AI did not escape the bear market of 2022.

Average Annualized Returns for Amateur Investor portfolio, as of 12-31-2022, with comparisons.

1y(%)3y (%)5y(%)10y(%)
Amateur Investor-25.66.916.719.3
S&P 500-19.45.97.510.4
Vanguard Long Term
Treasury Index Fund 		-29.4-7.63-2.40.49

Our longer term, 5 and 10 year performance, is approximately twice that of the broad market index.  However the more recent 1 year return is approximately 31.6% worse. 

The broad market decline which occurred in 2022 is associated with several related changes in the US and global economy. These include: government policies regarding the “energy transition” intended to “renewable” energy sources, intended to “reverse climate change” which increase the price of normally used energy sources (coal, oil gas); disruptions to trade caused by the war in Ukraine.  These changes caused inflation and hindered economic growth. Excess government fiscal stimulus spending exacerbated inflation.  In an effort to reverse this, the Federal Reserve began raising the Federal Reserve Funds Rate in March 2022.  Increasing interest rates are intended to further slow the economy.  This prospect can threaten the growth of companies’ earnings.

The rise of Treasury rates naturally also more directly affected Treasury Bond prices.  I included the performance of a long term treasury bond index in the above table showing portfolio performance. When one is apprehensive because of a market decline, one might be tempted to seek safety in bonds, especially in the perceived stability of U.S. Treasury Bonds.  But bonds do not necessarily provide a safe haven in terms of return on investment in the short run.

How might we have mitigated our losses in the bear market? By being more aware of current macro economic changes, and responding to them by including in the portfolio, companies in sectors which are responsive to diverse macroeconomic factors. Specifically, companies which benefit from the same changes which threaten other companies, as well as companies which are relatively unaffected. Nevertheless, given that growth stock prices will inevitably fluctuate, our companies are still extremely profitable, dominate their markets, and continue to innovate in order to continue their growth and dominance. More on the value and productive method of diversification, in a future post.

Amateur Investor holdings, by percentage, as of 12-31-2022:

Microsoft (MSFT): 52.79%

Visa (V): 28.74%

Adobe (ADBE): 17.75%

Mercado Libre (MELI): 0.44%

Please welcome Mercado Libre https://investor.mercadolibre.com/investor-relations as a new arrival to the portfolio. Mercado Libre is an ecommerce company operating in Latin America. It is by far the dominant market leader in the region. Latin America has an internet penetration rate in the 70s%, and fast growing. MELI provides a suite of ecommerce related solutions: Mercado Libre Marketplace (online retail platform), Mercado Envios (shipping and logistics), Classified Ads services, Advertising services, and Mercado Pago (diverse payment solutions). I began by investing an almost irrationally small amount on August 4, 2022, at $1037.82 per share. This is simply a mark of the anxiety I usually have around a brand new investment.

Amateur Investor underperforms S&P slightly in 2021

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Happy New Year!  Amateur Investor focused long equity portfolio returned 24% in 2021, compared with 26.89% for the S&P 500 Index.  Following usual annual custom, I compare Amateur Investor returns for 1, 3, 5 and 10 year periods, with those of an S&P 500 index fund. This year I chose the Vanguard 500 Index Fund Admiral Shares (VFIAX), a widely held low fee S&P 500 index fund managed by Vanguard.

Amateur Investor returns (as of December 31, 2021) for:

1 year: 24%

3year: 37.3%

5 year: 32%

10 year: 24.4%

VFIAX returns:

1 year: 28.66%

3 year: 26.03%

5 year 18.43%

10 year: 16%

Although Amateur Investor underperformed the S&P 500 index by almost 3% points of return, and VFIAX by almost 5% points, Amateur Investor beat the index handily for 3, 5 and 10 year periods.

For 2021, Visa corporation stock ended the year essentially flat, down 0.92% for 2021. MSFT was  up 50.5%, ADBE up 12.85%

As of December 31, 2021, my holdings were, in the following proportions:

MSFT: 53.0%

V: 24.33%

ADBE: 22.38%

Cash: 0.28%

During 2021, new funds were invested in the portfolio, equally invested in each of MSFT, V and ADBE.

Amateurinvestor beats S&P by 20 percentage points in 2019

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For 2019, Amateurinvestor portfolio performance, average annualized return:

1 year: 51.6%

3 year: 33%

5 year: 25%

10 year: 22.3%

For comparison, the performance of the Vanguard 500 Index Fund Admiral (VFIAX), as proxy for the S&P 500 index, annualized return before taxes:

1 year: 31.46%

3 year: 15.23%

5 year 11.66%

10 year 13.52%

As of 12-31-2019, my holdings were, in the following proportions:

Microsoft (MSFT): 50.7%

Visa (V): 30.7%

Adobe (ADBE) 18.26%

Cash: 0.27%

How was this stellar return achieved?  over time, i have experimented in investing a small amount in other companies in an attempt to diversify in order to reduce risk. Over time, i have realized that there is no rational reason to divert funds away from the very few companies companies which provide the strongest durable competitive advantage, and have the research and development and business expertise and experience to profitably extend their competitive advantage to the evolving market.

my companies all provide services which are central and indispensable in the modern evolving and expanding digital economy.

 

Amateurinvestor beats S & P by 21% in 2018.

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I must first apologize for letting my blog writing lapse earlier this year. I was preoccupied by some personal affairs.  I thank you for your continued support.

My portfolio total return performance beat the broad market index as of 12-31-2018 as follows:

Amateurinvestor 1 yr: 16.7%, 3 yr.: 19.1%, 5 yr: 19.2%, 10 yr: 22.6%

S & P: 1 yr – 4.38%, 3 yr: 9.2%, 5 yr: 8.49%, 10 yr: 13.12%

Amateurinvestor  outperformance relative to S & P:

1 yr: 21.08%, 3 yr: 9.9%, 5 yr: 10.71%, 10 yr: 9.48%

That is, my performance is more than double that of S&P for 1, 3 and 5 years, and handily beat it for 10 years.

As for portfolio holdings, I was compelled  to distribute some of the portfolio during the year.

I reduced holdings of CNI to a token amount. Canadian National Railroad, while a solid business with a sustainable competitive advantage, simply does not have the growth rate comparable to the other stars, MSFT, ADBE and VISA, primarily because its market is not growing at the same rate. I kept a token amount because it is a solid business with inimitable competitive advantage, with the thought that in future I will invest in this only when the stock is truly depressed.  I realize that would not be rational if the growth rate of the others continues to exceed.

The businesses of Visa, Microsoft and Adobe remain strong with bright futures. It is a testimony to the design of my portfolio, which is built exclusively with companies which possess an unassailable competitive advantage, that even while too preoccupied with personal matters to keep completely up to date on company news, and minimal trading, I still outperformed the broad market  index, while thousands of professional money managers and traders labored furiously to achieve a worse outcome.

Briefly, as businesses digitize their marketing information and creative content and related analytics, Adobe will continue to thrive as it has dominance in these areas.  As businesses move their information to the cloud, Microsoft will continue to be essential to business on this planet.  Even if there is a slowdown in spending, the market for visa will grow as the cash economy is progressively digitized.  None of these businesses will be fundamentally hurt by a slowdown in global growth, should this occur.

I look forward to this year with renewed energy and spirits.

Amateurinvestor beats S&P in 2017

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In 2017, Amateurinvestor portfolio soundly beat the S & P 10, 5 3 and 1 year returns, as shown in the table below.

Fund/index Expense ratio (%) 10y (%) 5y (%) 3y (%) 1 (%)
Amateur Investor   17.9 21.4 21.5 35.6
S & P Index   6.9 13.2 9.65 20.16

 

Holdings of each stock at 2017 year end are as follows:

ADBE: 7.7%

CNI: 5.1%

MSFT: 46.1%

SBUX: 12.6%

V: 27%

Performance of my stocks for 10, 5 3 and 1 year in the market, end of 2017, shown in the table below.

    ARR %    
stock 1y 3y 5y 10y
ADBE  74.97 35.77 36.8 15.8
CNI  25.7 8.38 14 14.67
MSFT 40.5 24.7 27.7 10.48
SBUX 7.97 14.6 17.6 21.04
V 46 21 na na

Note Starbucks (SBUX) has slowed its growth as it failed to meet earnings targets predicted by management, although earnings were still adequate for the present, just not fulfilling the past sunny promises. This is a common growth stock story and this is why we pay more attention to past achievement rather than rosy predictions.  It is also why we buy cautiously at high valuations.

Microsoft (MSFT) was range bound from late 2000 until late 2013. In that decade MSFT proceeded to dominate one historical stage of its market, consumer and business server software, with revenue increasing from $23B in 2000  to 77.8B in 2013. However under the non-engineer  Ballmer, MSFT did not reliably expand its dominance to newly emerging markets such as mobile and search.  In late 2013 under new CEO engineer Nadella, MSFT has accelerated its growth into the public/hybrid cloud on which business will depend in the future, returned to its historical focus of making its software available as a standard on all platforms.  The stock has accelerated, with the realization that even with the investment required to establish public cloud infrastructure, margins will remain high, and that the historical dominance in business server software will translate into a preferred competitive position in the hybrid/public cloud  for the business market.

VISA (V) has been a pioneer company with the  steadily strengthening competitive advantage of its global Visanet for multiple decades. It came out of the gate running as a public company March 2008, and has steadily grown into an expanding addressable market, while actively establishing standards which enable the  digital payments market.

Canadian National Railroad (CNI) stock price and to some extent revenue was affected by the fall in oil prices in 2015, but this did not materially affect the strength of its business.  meanwhile, its ports are expanding container volume capacity.

Adobe Inc. (ADBE) has continued to dominate the graphic arts digital content business and become a dominant force in digital marketing of this content.  Its partnership with MSFT gives it a stronger global reach.

It is satisfying to find that an Amateur can achieve these definitely satisfactory returns. Young or old new investors can do likewise, provided they do the adequate reading and think critically. Investment can be fascinating in what it teaches you about human nature in history and today, and what you need to learn about  prospective companies or those you buy.  The investor’s assets work and grow for him or her.