the know-nothing investor

…money doesn't grow on trees, you know?

Tag: Rate of return

8.SIDEWAYS

Last two years have been hard, my portfolio has been flat. Sideways it seems, like in the movie this could be my history of a disillusioned man in his forties, going bald and still dreaming of moving into the investment industry or simply getting rich. At least I shall not drink my best wine in a Mcdonald’s cup. Sad that was, Mr. Giamatti.

Nevertheless, I agree that being middle class sucks, sometimes you do not have time to meet your obligation even more to read, write or think. When you mix middle class and investments your thoughts become blur and that is a sweet spot for mistakes. It is where you make dumb decisions like sell a bottom or buy a top. Or even sell everything and start all over again, thinking “this time I will make it perfect”.

Perfection is something that does not exist, even in upper classes, after all nobody is really normal and we all live with a odd self inside, which made me realize that I should embrace my imperfect portfolio and accepted that will be ruffled times. But guess what? Fewer returns today means greater returns in the future, providing that society and economics continue very similar to last century, which I think it will because people are people, even if today it seems the world will implode at any second.

So if in the future the probability of having higher returns is great, there is only one thing to do that is to putt more money to work. That was exactly what I have done in last market correction. When some of my equities ETFs went under the 30 RSI weekly chart, I bought some more. Although I did not have the courage to go the full monty because I think it is pretty clear that we are relatively advanced in the economic cycle and we should proceed with caution.

So far so good. It seems like my portfolio is giving back some of the return that I did not get in last two years.

In 2017, assets had a good run but EUR appreciation against USD took almost all off my returns. Remember that my assets are USD ETFs and I live in a Eurozone country, so I ended 2017 with a mere return of 0.98%.

In 2018, although last trimester was a value killer, because of my USD based currency portfolio it was not so bad and I closed the year with negative return of 3.97%.

I guess this is what happens when you own all the market and all the global assets, sometimes you get dragged others you get lifted.

Since inception these have been my after-tax rate of return:

Returns

 This portfolio was design to have an annual return of 10% and last two years it has been lagging.  I am confident that in the future it will pick up the pace.

 

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5.NOTHING MORE TO LEARN

It has been a while since I wrote in the KnowNothingInvestor blog. More than seven months have passed and if I didn’t write it’s because there’s nothing out there worthy to learn. Nahhh, that’s not true, there’s always room for improvement. So why am I not looking for improvement? But I am. Nevertheless I now have a system that have been guaranteeing me a fair share of profit and thus I’ve become more cautious. There is no need to rush or spoil what i have been working on, now I can take time and decide later what will be the next step.

Since I begun back in 2013, I’ve had returns in line with what I have expected. These are the returns after taxes and fees:

  • 2013 – -3.53%
  • 2014 – + 16.81%
  • 2015 – + 4.98 %
  • YTD – + 0.35%

But why should I bother to improve my returns if I’m doing good? I guess we humans want always more and I, not being an alien, I’m not different. One of major faults appointed to a multi-asset portfolio is that we’re aiming for average instead of grandiosity. I can live with the fact of being average, specially if in the long run I’ll beat the majority of those aiming for grandiosity. Living to be average is hard because since childhood we are taught to achieve greatness, so when we assume that we’re investing in markets to get average returns our brains start to question us if shouldn’t we be looking for greatness!?  When I started trading I was aiming for grandiosity and that didn’t go well and I learnt a lesson “I prefer to be average than broke”.

In the end, a diversified portfolio will beat the majority of hedge funds and day-traders returns, so how can this be an average strategy? I think it’s because it takes time. A lot of time and pacient, 30 or 40 years of hard saving and investing. It will be when we are too old to “live deep and suck out all the marrow of life”, as taught by the great Henry David Thoreau. But If I didn’t put my savings in a couch potato strategy I wouldn’t also spend it until my last penny “living la vida loca”. Probably, I would look for a bank deposit and then after 40 years neither “vida loca” memoires or nice retirement account. Once again I turn to Thoreau, trying to appreciate small thing in life over material stuff and realise how much I’ve already own. The plain reality is I wouldn’t spend all my money in the material world, because that isn’t who I am. It would be nice to buy more goodies, but I can perfectly live a comfort life without them.

But if I save I need to invest properly, which I am. So why do I need more? Because I’m still curious and I want to keep tuning my system to improve it. I’ll do this using a very small portion of my total capital, maximum of 4 or 5%, as taught by John C. Boogle. The way I’ll do it is yet to be decided, but value investing or hedging the portfolio assets when their going down could be the answer. I’ll take my time, there is no need to rush. After all I’m already winning the fool’s game. If I fail, I’ll rapidly quit and I’ll look elsewhere for that extra return of my portfolio.

Now it’s time to do some studying.

1.FOOLED BY NUMBERS

When you start to understand the game you become more sceptical about people constantly bragging about their methods and rate of returns. Sometimes they don’t even need to show their return numbers to have a lot of followers that don’t question those figures or their incongruencies and if there are better ways to participate in the markets.

This year I decided to honour those “two digit figures” braggers by becoming one of them and saying to you, few fellow followers, that through my magnificient method and outstanding capabilities in 2014 I achieved 48.58% rate of returns.

Wait…wait…that number was achieved because I’m counting with new add money for buying assets purpose. Although it is a true number, because my portfolio value grew that much, it was due to add money from my savings.

This is a fair observation. I’m really bragging, but those number are unrealistic.

So looking for the NAV in my broker account, in 2014, my returns were still impressive with an increase of 17.16% .

Wait…wait…that number is only achieved because my main currency is in EUR and my assets are in USD. This pair’s valuation was great for dollar assets and only because of that I achieved so great returns. For me, that use euros in my daily life it was a great value increase. Nevertheless, I’m a naturally bragging again.

Well I only have two more number left for my 2014’s rate of returns, but those are just ok and they are not to great to brag about. The first one was the total return of my portfolio in USD, which was 4.92% and if I consider new entries over the year I’ll end up with a rate of return of 4.36%, which is still better than the average of active investors.

So don’t let you fool by numbers and braggers. All that rate of returns are true in someway, you can pick your favorite or just ignore my returns and focus on yours.

What I can say is, I’m glad with my 2014‘s results, after all my portfolio’s value more than recovered the losses of short-term madness.