The 22nd of February marked 2 years since I made
my first investment which was in Aveo Group (AOG) which unfortunately, I sold
out of too soon. Since then, I’ve added and detracted from various positions.
From 22-2-15 to 22-2-16, my portfolio increased by 10.6% post fees (12.3% pre-fees). This takes my annualised return since inception to 14.2% p.a. post fees
(16.1% p.a. pre-fees).
My portfolio would be in a much worse off position if I
didn’t make the large purchase Enero Group (EGG) that I made a few weeks ago
which is up 22% (572% annualised). The portfolio was also aided by a late stage
rally in Mineral Resources (MIN) which posted a strong result on the back of
robust crushing volumes despite the slump in the iron ore price.
Unfortunately, the market had a tumultuous CY15 and this has
continued into CY16. We are at a time where global growth and inflation
forecasts are below trend in most regions, commodity prices have collapsed,
global trade has slowed and margins are peaking. On top of all of this,
corporate and government debts are at heightened levels and riskier assets have
been bolstered by credit pumping Central Bank’s around the globe.
Interestingly, returns in the ASX have been flat but
volatility has surged. This begs the question: are we getting paid to move to
riskier assets such as shares? Maybe, but maybe not. It appears we are
operating in an environment where value investing isn’t working and momentum
investing is. Investors who prioritise the mitigation of downside risk over
upside return aren’t being rewarded in the current market environment.
If we look at stock specifics of the market, some performed
tremendously most notably: Ballamy’s, Blackmores and A2 Milk – the Chinese
story was a hit with investors. However, some performed terribly - essentially
anything tied to commodity prices took a hit except in some rare occasions. Bellamy’s stock value grew from about $1.65 at the beginning
of 2015 to about $13.61 by the end of 2015 – a rise of about 725%. At (almost)
the same time between FY14-15, Ballamy’s book value per share changed from
$0.22 to $0.51, representing a respectable 132% increase but when compared to
its share price appreciation, something just doesn’t add up. The recent Stock
price performance of these “hot stocks” have increased risk and diminished
prospective returns. Contrastingly, returns on book have risen in companies
such as BHP and at the same time, their risk has reduced and their prospective
returns have strengthened.
This is by no means a distraction from the fact that I didn’t
reach my performance target of 15%, but just some commentary around the current
market environment. There will come a point in time when valuations will again
be prioritised.
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