With 2021 behind us the blog hit a big milestone: the 10 year track record. Since I started the blog the portfolio has managed to grow annually at a >30% rate while beating the benchmark every single year. Truly amazing results, especially since I think it was achieved without taking excessive risks. The portfolio is usually pretty diversified with more than 50 positions at a time, has a low beta compared to the market and has more often than not a net cash position.
Sadly, I don’t think these results will continue. Some reversion to the mean is inevitable, and with a growing portfolio it is increasingly harder to allocate money to high alpha ideas. It is probably already telling that the returns of the first five years were higher than those of the last five years. If I would be smart I would now finish the blog and forever market myself als the “10 years of 30% guy” or something like that (maybe it would need something a bit more catchy), but I won’t. I want to continue to chronicle my journey as an investor on this blog, and when (not if) the inevitable bad year(s) arrive you will be able to read all the ugly details. But hopefully those are still far away!
* Return in euro’s after transaction costs, net dividend withholding taxes and other expenses
** Benchmark is the MSCI ACWI (All Country World Index) gross total return index in euro’s
In the past 10 years I have made several small changes in how I track my performance. One that I made several years ago is to take into account the tax credits that I receive when dividend withholding taxes are deducted from my brokerage accounts. Given that I can use most of the dividend withholding taxes as a tax credit I think the gross return index is a better benchmark than the net return index that I was using until this point in time. Obviously, this makes beating the benchmark a bit tougher since the gross return index is consistently a half percentage point higher than the net return index.
As usual, I made a performance attribution graph that shows how various positions contributed to the overal result of the year. Interesting for the curious readers, but also a helpful exercise for myself. With assets scattered around multiple brokerage accounts you never know how things exactly went until you put it all together in a spreadsheet. As you can see, the basket of special situations was, once again, a driving force behind the performance of the portfolio. Foreign currency exposure provided a big tailwind this year as well, as did my position in United Development Funding IV. The stock is being market at $1.40 by Interactive Brokers, but on cttauctions.com the last traded price is $6.26/share and I’m using that for my internal valuation.
If we would look inside the special situations bucket we would find a couple of big winners, a lot of small winners, but also some losers. My position in the Luby’s liquidation has gone better than expected, and is responsible for 339bps of performance in 2021. I bought the stock in 2020 for $1.70/share, they paid a $2.00/share liquidation distribution in 2021, and the remaining net asset value stands at $2.89 (and is presumably still a bit understated).
The second biggest winner in the basket with a 317bps contribution are the Garrett Motion preferred shares that got issued in the chapter 11 reorganization. The “easy” money in this stock has been made, but I think the preferred shares are still undervalued compared to the common shares. With a mandatory conversion very probable in less than two years time I’m happy to hold on to see how the story plays out. The biggest losers in the special situations basket are two liquidations that are not yet playing out as planned, SandRidge Mississippian Trust I (SDTTU) and SHL Holdings (SYCRF). I have had good results with liquidations in the past years, but as illustrated by this pair, they are certainly not sure bets. But for one performer like Luby’s you can have many duds and still come out comfortably ahead.
Author is long most of the stuff in the performance attribution graph