With New Year’s Eve behind us, it is once again time to look back at how I performed this year. While this wasn’t my best year ever performance wise, I think the achieved result is still way above what I can reasonably expect in the long run. What was interesting this year is that 2015 was the first year with some real market volatility. I always said that I expect that my portfolio would do relatively well when the regular indexes are having trouble. And while that makes sense when you usually run with a net exposure of less than 100% while owning cash-rich stocks (among other things) only the market can test whether or not your prediction is correct. So I’m especially pleased that my portfolio dropped just ~5% in the summer while the MSCI World Index went from roughly +20% to almost -10%. I don’t have exact numbers though since I don’t track this daily.
* Return in euro’s after transaction costs, dividend withholding taxes and other expenses
** Benchmark is the MSCI ACWI (All Country World Index) net total return index in euro’s
One accounting issue that I should disclose is how I accounted for the value of the Casa Ley and Synergetics USA CVR’s. I simply valued these at zero even though I spend money to acquire them and I think they are worth more. But my broker values them at zero, and I decided that I don’t want to go through the continued trouble to manually correct my performance calculations. Especially since it can take years before they fully pay out, and I might start owning even more of them. If I would be running a fund I think you should be highly skeptical if I made that decision, since I’m now underreporting my performance which could come in handy on a rainy day. So my real performance this year was probably a few percentage points higher (I sized the Safeway merger that generated the Casa Ley CVRs huge!).
Even while I underreported my performance from “special situations” slightly it is still by far the biggest contributor to my portfolio performance. When I post a (merger) arbitrage idea on my blog I often get comments from people that think it’s not worth the trouble, that it is picking up pennies in front of a steamroller et cetera. If you don’t think it yourself already, you probably recognize the sentiment. But once you start to add up all the little bits of money you make it starts to make a difference. Even though some merger ideas failed this year (for example, the ROIQ warrants: -100%!) it’s making the difference between an excellent year and just an average year. More than 50 different stocks contributed to the special situations total. Without the contribution of those, my performance would be almost equal to the MSCI World Index.
I do think that that is mostly a coincidence. My stocks aren’t very correlated to the index, but my regular stock picks didn’t perform very well because I had a lot of (indirect) exposure to sectors that performed poorly. Oil, and resources in general, had a terrible year while emerging markets also didn’t do well. If you are a bit flexible with your definitions I think my exposure to those two sectors was roughly 50% at the start of the year, and it is still sizable right now at more than 30%. I’m considering Beximco, Retail Holdings, Conduril, Ming Fai, Argo, Pardee, Deswell, Boom and Awilco to be resource and/or emerging market stocks:
This level of concentration has some risks, but I think those are manageable because to a large extent those positions are very uncorrelated. What happens in Bangladesh (Beximco) has almost zero influence on what is going to happen in Angola (Conduril). And besides that, I think those stocks are simply too cheap not to own. But hopefully, I’ll be able to find some interesting bargains in 2016 again. I have been very busy with special situations and my current positions in 2015, but besides buying a basket of Italian REIFs I didn’t buy any other new long-term positions. With an IRR of 18.31% that is an idea that is working out so far, even though (or especially because) I had the feeling that most of my readers weren’t very interested in it.
Long everything that I appear to own based on this article