After a rocky start, 2020 turned out to be a pretty great year financially. My portfolio returned 19.31% which is more than the MSCI All Country World Index for the 9th year in a row and it also brings the cumulative return to 1015.82%. I think this is an absolutely amazing result, and I did not expect to achieve it when I started investing and I do not expect that I will be able to repeat it going forward. A more than 30% annualized return is just not realistic in the long-run. It helped of course that the past decade was a good one for investors in general, with the MSCI All Country World Index growing by 11.86% annualized. I am also doubtful that passive investors will be able to replicate that return in the next decade, but who knows? Probably more likely than me achieving more than 30% annualized again over such a long time span.
* Return in euro’s after transaction costs, net dividend withholding taxes and other expenses
** Benchmark is the MSCI ACWI (All Country World Index) net total return index in euro’s
As you can see in the graph below, a driving force behind the performance of the portfolio was my bucket of special situations such as mergers, liquidations and bankruptcies. But it is somewhat arbitrary what I put in the bucket. My disastrous investment in the Bristol-Myers contingent value rights has its own separate spot, but it could easily have hidden away in that category as well. Somehow the rights are actually not the biggest loser of the year, that is my foreign currency exposure. I expect that most of my readers are located in the US, and probably did not notice it much, but because the dollar lost significant value versus the euro my portfolio was facing a strong headwind. In euros the ACWI was up 6.65%, but measured in dollars the index was up 16.25%. The impact on my own portfolio was comparable with a more than 8% currency translation loss. I usually own very few (if any) stocks that are part of the index, but because of its somewhat similar global equity exposure it is a surprisingly decent benchmark.
Besides the special situations bucket, a very strong contributor was my position in Xpel. It is quite amazing how much a single stock can do for your portfolio when it goes up more than 250% in a single year. I sold a few shares in December, but it remains one of my largest positions (it is only being beaten by my PDLI position). I own a lot of classic value stocks, but my performance for the last couple of years would have looked very differently if I would have owned nothing else. In the previous years HemaCare was a true high-flyer, and now Xpel. It just shows that there is quite a bit of luck involved in generating returns. Passing on a single idea, or making one bet that does not turn out as expected, and your results can look totally different.
To conclude this post, I want to wish my readers a happy and healthy 2021. May this year be better in every single aspect than last year!
Author is long most of the stuff in the performance attribution graph
Another great year, well done AV
Congrats H, on this great milestone.
Absolutely inspirational to see you achieve 30% annualized over a period of 9 years now. I hear you on the importance of finding a few companies with multibagger potential and sit on them…its not easy though. There will be periods where the multiple/valuation runs ahead, and personally I find it difficult to stay put at those moments when there is other ‘value stuff’ that can be bought. Sometimes selling to re-enter lower/later works, but you do miss those 5-10 baggers that way.
And my point is not necessarily that you need to find and look for those few companies with multibagger potential. If you can find them, of course, you should, but if you invest long enough you will probably buy something that will go up like that. My point is more that there is a lot of luck involved. An investor with a 90% identical process could end up with a 90% identical portfolio, but still have totally different results.
This is a great point. But, to speak in classic betting parlance, wouldn’t you say that paying a price that implies great relative odds (relative to some estimate of probability of the upside case working out) by definition means you stand to gain more if you do win, and lose less if you dont? Wouldn’t you say this mindset (as it appears to me) contributes significantly to your achievement?
For instance, even if XPEL worked out a bit less fantastically (it’s difficult for me to say it hasn’t gotten a little ahead of itself so soon this year despite underlying performance), it wouldn’t be disaster in compound terms. And this is a result of your specific mindset/process.
Sure, making these kind of bets is a result of the process, and hopefully it is not just all luck! (I don’t think it is). But at the same time it is easy to imagine an alternative universe where I would have missed out on on Xpel for whatever reason.
Congratulations AV on continued great results.
Nice! And congrats.
What would your performance be if you held on the BTC you mined back in 2011 or so? 😉
Thanks for reminding me of that one! 😉
Actually, I just calculated it and it wouldn’t have made that big of an impact. Would increased CAGR to ~37% and total return to ~1600%. Not that it is nothing, but still in the same order of magnitude. Now if I had put all my money in bitcoin in 2011, that would have been a different story.
Congratulations on am amazing performance! As someone new to special situations, where do you suggest one starts learning about them?
You can be a stock market genius is a classic book that I can recommend to start with.
Curious, what do you use to show your positions like this? I run 3 different strategies and I struggle with spreading them out, especially as I might buy/sell multiple times the same stock, which complicates measuring the return.
Just doing it by hand in Google Sheets. Since I’m using multiple brokers I don’t think there is really any other way possible. But it doesn’t take much more than an hour, maybe two, and only do it twice a year.
Very nice, well done! XPEL .. ugh ..
Hey, sent you a message about a new special situations texting alert service I made at marketberries.com. Reach out to me if it interests you, its been super useful for me in order to keep track of tenders, liquidations, merger targets, etc.
Send you a message 🙂
HI Alpha Vulture,
Wishing you & loved ones a Happy + Healthy 2021.
Thanks David, best wishes to you too!
Very solid year given the FX headwinds. Did you ever discuss ECC Capital? I was wondering what the story is on that one? Here’s to another great year!
Never wrote a blog post about it, but David recently did on his blog: https://www.elementaryvalue.com/home/ecc-capital-corp-ecro-patience-is-a-virtue
The story is quite simple though. Right now you can buy the stock at less than net cash value, and they have a bunch of other assets that are roughly worth as much as the cash (so >50% discount to asset value). The company emerged from darkness last year, publishing financials for the first time in more than a decade. I think it is likely that this is a sign that something will happen relatively soon. Maybe a liquidation, maybe a deal to transform this thing and bring it back to life. Whatever it will be, I think it will be good for current shareholders.
As always, great performance. It really is inspiring!
What is threatening are the high valuations. We are probably at a bubbly peak like 1929, 2000, and the Nifty Fifty of 1972. This is mainly in the U.S. but I am quite sure that a crash or even a sideways movement would also affect global stocks. Jeremy Grantham calls it “The Last Dance.”
Any idea what your performance would be if you only did special situations?
Tough to say, because how would I do that? Size all my special situation positions bigger (not always possible, not always desirable)? Try to find more special situations? But suspect my performance would be lower if I would do that. Have had some very big winners in my regular “value” stocks as well throughout the years.
I mean you could calculate the IRR all the special situations that you have done in the past combined, as if it is one big investment. And then compare that with the IRR of all the other investments combined (both without cash positions). Then you have two IRR’s to compare past performance. If you see a big difference, it is worth starting to think about how to increase allocation of the more profitable strategy.
Could you enlighten me a bit more about certain specifics regarding your special situations investment strategy?
What percentage of your portfolio is employed this way? Is it like close to 30%, around 50%, or even more? And do you use any leverage (margin)? Does your allocation to special situations fluctuate according to the easy with which you find longer term holdings (i.e. more special situation investments when the markets are higher)?
How many positions do you have on average at the same time in special situations?
Thank you for any clarification on these questions.
And congrats with your excellent performance over the last decade. This has been well deserved and wish you all the best for future years!