Note: All performance figures quoted are net of fees and transaction costs but before taxes.
I am not going to waste too much of your time and so I'll keep this very brief.
Given that some of the positions within the portfolio have had a rough
ride of late, it would be a good idea to update the actual figures for
the 3 year period (from the 22/2/14 to the 22/2/17).
The 22nd of February 2017 marked 3 years of investing in the stock market. Reflecting on what was, it has been a tumultuous ride marked by both winners but also many, many losers (especially in the beginning). Some of the worst investments were in SGH and WDS (which went broke). On the contrary, some of the better investments included MIN and SRX among others. It is well understood that SRX has recently halved in value, but please keep in mind it has also halved and doubled a few times in the past and I have been fortunate enough to favourably capitalise on the swings. I have doubled down on SRX.
Several months ago I mentioned that the theoretical 3 year annualised return was +25.97% p.a. While this return didn't eventuate, i am not disappointed with the end result. In the end, the actual figure was +17.69% p.a. (or a total return of 60.31%). However, the first month of the 4th year (i.e. from 23/2/17 to 22/3/17) the portfolio was up 6.70% and it's up about 2% this month so far. In other words, it's been a good start and key to this, was good 1H17 results by some positions underpinned by better than expected FY17 outlook statements.
A few months ago, I removed RCG from the portfolio. I learnt a good lesson from this one. Namely, that retail is very, very hard. In particular, I underestimated how quickly the rate of organic growth can change in just one season. I still have faith in the management team there but taking a 2-3 year view on the business, the risk-reward isn't there from my perspective. Earnings growth is under more risk than I initially assumed, more investment will be needed and the threat of Amazon will weigh on the multiple. Fortunately, I broke even on the investment but there was an opportunity cost involved. Going forward, there has been some new additions to the portfolio that I believe offer good risk-adjusted returns over a 3 year view. Unfortunately, I am not in a position yet to be able to name these stocks.
Analysing companies and finding undervalued businesses not yet discovered by the wider market is my passion, and I am very fortunate that my passion coincides with my pay slip. While it is early days and barring unforeseen circumstances, I have made the decision to devote the rest of my life to becoming the best version of myself and hopefully in the process, a very successful capital allocator.
In life, some are more fortunate than others. I hope that if you are on the fortunate side, you use your resources wisely, namely, by giving to those less fortunate in some way. This doesn't necessarily mean you have to hand out money. It could be that, you share your knowledge with others or you lend a hand to others when needed. Either way, I hope the actions are underpinned by good intentions. Intelligence, integrity and energy as Warren Buffett says, are key to a successful life and success in business.
Thank you for reading.
Yours faithfully,
Chadd Knights
