Performance Report – Annual 2014

This is a report of the portfolio performance in 2014.  The rates of return reflect the overall rate of return on all the funds that I have managed since 1981.

Statistics

Details of the overall portfolio are as follows:

Portfolio Return – Actual 0.20%
Portfolio January 1, 2014 $180.50 million
Portfolio January 1, 2015 $180.60 million
Investment earnings 2014 $0.30 million
Investment Earnings 1981-2013 $125.80 million

The annual performance data is shown on page two and it lists the annual returns of the entire portfolio over the last 34 years.

 The main goal in managing your funds is to earn a rate of return that exceeds the annual rate of inflation by 5% p.a. It is equally important that we achieve this goal with a minimum of volatility (i.e avoiding universally bad years like 2008 and 2000-2) because bad years have two important effects:

 

  1. They tend to ruin a record of many years of compounded growth.
  2. They tend to semi-permanently and negatively affect investor behavior.

 

We are very pleased to have met, and exceeded, our targets over both the medium and longer term and throughout the entire period of our management. It is important to note that this will not be true, necessarily, in the shorter term (i.e. 0-5 year time frames).

 

Details of the individual years are as follows:

Year

Rate of Return

Inflation

Rate of Return

1981

15.0%

8.9

6.1%

1982

15.4

3.8

11.6

1983

16.0

3.8

12.2

1984

9.8

3.9

5.9

1985

18.3

3.8

14.5

1986

13.8

1.1

12.7

1987

9.7

4.4

5.3

1988

18.0

4.4

13.6

1989

10.7

4.6

6.1

1990

0.7

6.1

-5.4

1991

14.9

3.1

11.8

1992

10.0

2.9

6.9

1993

13.7

2.6

11.1

1994

0.3

2.7

-2.4

1995

13.2

2.5

10.3

1996

15.5

3.3

12.2

1997

6.9

1.7

5.2

1998

-4.5

1.6

-6.1

1999

-2.3

2.2

-4.5

2000

15.3

3.4

11.9

2001

18.4

2.8

15.6

2002

-0.6

1.6

-2.2

2003

25.2

2.3

22.9

2004

9.9

2.7

7.2

2005

8.7

3.5

5.2

2006

11.7

3.2

8.5

2007

6.2

2.8

3.4

2008

-5.1

3.8

-8.9

2009

14.3

1.7

12.6

2010

10.2

1.1

9.1

2011

2.6

2.2

0.4

2012

1.6

1.8

-0.2

2013

13.6

1.2

12.4

2014

0.2

1.1

-0.9

34 Year Avg.

9.6%

3.0%

6.6%

Discussion

The key facts are:

Our compounded rate of return over the entire period was 9.6%. Inflation over the period was 3.0% and this produced a real rate of return of 6.6%.

           Our financial planning summaries are based on achieving, in the long run, a real rate of return of 5%.

Our target rates of return may have seemed relatively modest but, in fact, the history of the last 100 years suggests that they are really quite difficult to attain over the longer term. It certainly hasn’t helped market participants that the most recent complete decade (2000-2010) in real terms was the worst decade in recorded history (stunningly it was worst than the decade of the 1930’s). 

The period prior to that, from 1981–1999,  was a strong bull market, but even in that period the Dalbar research showed average individual investor returns in the area of 4% p.a. (i.e. barely keeping pace with inflation). This was in the very best of times!!! The reasons were a function of the usual suspects – abysmal professional guidance, investing with a rear view mirror and being susceptible to the hype and excitement generated by Wall Street.

          Our goal of earning inflation plus 5% p.a. has been an integral part of our planning process. We will be thrilled if we can achieve similar results over the next 34 years.

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The hard copy of this report will be included as part of the mailing of your printed annual investment policy statement. The latter document will go into great detail about every aspect of our approach to investing and your individual portfolio. It will be mailed during the next week. Questions are always welcomed.

We look forward to the challenges ahead.

We all wish you a peaceful, happy and healthy 2015.

Mike