Firstly, I hope you all enjoyed much mirth and merriment over Christmas. I have to confess to a touch of intemperance when it came to the vast amount of festive victuals foisted upon me. Abstinence is far easier than moderation, but Christmas is no time for the former, and so I fear I must now do penance for such gluttony and expiate my sins with a lot of sweaty exertion in the coming weeks.
But at least I have now emerged from the slough of festive chores and can once again brandish my quill, the cloaca of my mind, through which I must occasionally disburden myself of a few words in order to avert mental constipation.
The day of reckoning is upon us! Not in the sense of The Last Judgement, but a day on which investors are held to account in far more serious way. It is the day on which we are forced to call time, draw a line under our portfolios, and freeze our year to date returns for posterity.
As ever, Twitter throws up a confection of investor habits when it comes to the year end review. For some it is the highlight of the year and they can barely wait for the closing bell to ring before swaddling themselves in spreadsheets. Singing the Auld Lang Syne can jolly well wait until they have finished calculating their twenty year compounded annual growth rate.
Some will procrastinate, some will not bother at all, and some will do it incorrectly. Others will wonder how the hell they do the maths.
And there will always be the purveyors of artifice. The punters who against all odds eked out a mere 500% return for the year through a combination of unrelenting hard work, sheer determination and fictitious trades. All so that when we see their tweets promoting stocks of dubious quality with little more than rocket and explosion emojis, we can only assume it belies an acute perspicacity on their part.
By now you might be thinking that this blog is more about entertainment than edification; a mere stage for old Miserly to indulge himself in satirising the follies of the market. I’ll forgive you for that. But in an attempt to redress the balance in a small way, I will herein sprinkle a soupçon of utility by providing a link to an informative thread which I posted on Twitter this time last year. Quite a few people found it to be helpful in calculating their portfolio returns, particularly when having to take account of funds added or withdrawn during the year.
I always recommend that investors keep proper records, calculate their returns and judge them against some suitable benchmark. Like many endeavours in life, keeping score has a tendency to motivate one to do better, so at least try to keep score accurately. Personally I also keep an ‘attribution analysis’ which breaks down the overall portfolio performance to show how individual shareholdings have contributed to it, helping to paint an overall picture, although the maths gets much more detailed and is beyond the scope of this post. Phew.
Do also remember that single year returns in themselves mean very little other than being a link in the chain of your long-term performance, which is the thing that matters most.
But it isn't just about calculating returns. The end of the year is a time to meditate and reflect on the decisions we have made; to review our buys, sells, holds, and what went well and what didn't go so well. In fact I usually feel the latter has more value to it. As a wise man once said, never lose money, and for investors success is often what is left behind when we learn to eliminate errors. Our first objective is to avoid the most egregious ones, and each time we make one it should be like a niggling little bead strung upon one's memory.
And so it is time to dig up all of those mistakes that were inhumed deep in the recesses of one's mind and proceed to torture oneself with them all over again. It is time to stretch oneself on a rack of lament, turn the thumbscrews of regret, and go sit in the dunking chair of shame. Or even worse, write about it.
Anything to ensure you don't repeat those unfortunate little dalliances which seemed like a good idea at the time. Such as buying that business with an illusory moat, which if only you’d bothered to poke a stick in would have revealed it to be but a puddle. Or that stock you held on to for far too long and your irrepressible sanguineness kept you hanging on and on and on until the third profit warning convinced you otherwise. Or that Russian junior mining company on AIM whose only asset was an exclusive licence to mine kryptonite in the Antarctica but you were possessed by fear-of-missing-out when a herd of punters started to tweet fervently about their impending riches.
Review all of your current holdings and ask yourself why you are holding them. Try to write it down in a sentence or two. Very often it is amongst all of those smaller holdings where your indifference and indecision lies: that long, quiescent tail of the portfolio which is asking to be docked. There’s a reason why you haven’t been topping them up, namely that subconscious acknowledgement that you have lost conviction in them. They probably have little effect on the portfolio other than giving you a warm inner feeling of diversification.
And don’t forget to research and refresh the watchlist of course.
Come to think of it, here I am dispensing a dose of investing nostrum, a spoonful of which I must now go and administer to myself. And so to the annual review.
Happy new year! I wish you all a healthy, joyous and successful 2022.
Wonderful prose again. Especially when one calculates ones success over the year. Reality always wins over the imagination and as we check the family vaults before we complete the Rapid Antigen Tests prior to exiting the office to take the rest of the year off, we will bare the wise words of Miserly in mind when we indicate upon twitter our returns for our financial year. Have a misanthropic new year and see you in the next.......... year that is.