I recently got a comment which raised the following points
–        You seem to have done badly when the market went down and well when the market went up. I don’t see any special skill in that.
–        The picks you have shared have not convinced me that these picks will do better than what I can achieve via indexing
–        A lot of people seem to agree with your analysis. However if the stocks you have analysed do badly then the market is right and not you or the entire group, which agrees with you.
I have responded to the comment, but wanted to discuss these points via a post.
Special skills or not ?
The first and most important point for the readers of this blog is this – This blog is about ‘learning and applying value investing principles’. This blog is not about my performance or how good or bad an investor I am. Value investing is a commonly used approach to investing and my attempt has been to learn and share my learnings with everyone. My own performance (good or bad) do not change the principles.
My personal focus always has been to take publicly available data, analyse it and present the conclusions. It is not a sermon I am preaching from mount olympus. I am providing my viewpoint and analysis and opening it up for discussion – for and against it. If you are expecting stock tips or some kind of portfolio management, then you will be dissapointed.
I have never disclosed my performance on this blog and will not be doing it via this blog. My personal objective is to beat the index by 3-5% on a rolling 3 year basis. I have done that by a decent margin with low risk. I try to lose less than the index during bear markets and match the index during the uptrend. Till date, I have been able to achieve that.
 You may have a different risk reward objective and may find this level of outperformance poor. Well, to each his own. Remember the following fact – A 3-5% outperformance is an annual return of 16-18% which is not easy to achieve. Over long term, this kind of annual return can add up to a decent amount. However over the last 3-4 years (till 2007), a lot of investors came to expect a return of 40% as a minimum.
How will the picks do?
How do you react when the price drops, but the company continues to perform well ? Do you think that you are doing badly?
If yes, then your approach is different from mine. My yardstick for performance is business performance. If the company does well, it is only a matter of time when the stock price will catch up with the underlying value. Sometimes it takes a few months and sometimes a few years.
A valid counterpoint can be – how are you sure that the price will converge to value ? It is based on my personal experience and based on what I have read about the experience of other value investors.
The other way of analysing performance is to compare the returns of your portfolio with the index on a long term basis ( I use rolling 3 years as 1 year is too short and more than 3 years is a bit too long). If you cannot beat the index, then you should look at passive indexing and not pick stocks. I have always maintained a mutual fund and index portfolio as benchmark to see how I am doing. Till date the results are good.
Finally, I am not trying to convince anyone with my analysis. I am presenting my analysis and opinions. It is upto to the reader to agree or dis-agree with the analysis.
Group think
I have never derieved satisfaction with how many people agree with me or not. The success of my picks will depend on the quality of my analysis and not how many people agree or disagree with me. I personally prefer counterpoints to my thesis as it helps me in improving the quality of the analysis.
I evaluate the success based on a single criteria :  Is the business performing as expected or better ? If the business is performing well, I will hold the stock even if the price has not followed the business performance in tandem as price eventually follows value. I don’t judge my ideas based on short term swings in price. However if my assumptions or analysis are wrong, I have exited the position irrespective of the price in the past

Leave a Reply