By now, I am sure most of us would have finished taking stock of Year 2009. I am also sure that many of us would be happy with our portfolio performance with 25%+ returns in single year. Many of us don’t lose an opportunity to say I made such-n-such in 2009. On a personal note, I also discussed the results of my own portfolio and showed 115% increase in market value. It would be very easy for me to brag that I did much better than market, which was 72%. However, that’s not what this is about. I do not know about others, but when I put my 2009 portfolio performance in the context of my long term vision, in the context of overall objectives, in context of my journey to build wealth, then I know getting 100%+ returns is nothing special. Let me discuss what I mean.

One of my objectives is to continue to have yearly returns in the range of 12% to 18%. And I have said on many occasions, for me, consistency and sustainability is very important. For ease of calculation, let us say, I am looking for 15% of consistent return year after year.

Scenario 1

• 2007 Year End: Let us say my portfolio had a market value, which is Rs 100.
• 2008 Year End: It should have a market value of Rs. 115 (this is with 15% return)
• 2009 Year End: It should have a market value of Rs. 132.25 (this is again with 15% return)
• If we look holistically, and on consistent basis, I should have Rs. 132.25 at the end of year 2009 (or beginning of 2010).

Scenario 2 (This is actually what happened)

2008 Year End: Market turmoil dented everybody’s portfolio. I was not immune to it. I got hit too. I lost approximately 32% of my portfolio’s market value. Let us round this up to -35% for ease of calculation.

• So at the end of Year 2008, my portfolio’s market value was down to Rs 65. This is done, its past, and the year has gone by. I cannot do anything about it. Right?
• Now, I would need atleast 55% portfolio returns just to catch up to Rs 100 (i.e. recover my 2007 year end value). Any thing less than 55% and I will continue to run negative on holistic basis.
• Plus, if I still continue to dream of catching up to my original 2009 year end growth projection, then I would need 104% returns (i.e. going from Rs 65 to Rs 132.26).
• Until now, I am not even discussing the inclusion of new capital that I used in 2009. All I am talking about is the capital that has been invested in past. The capital that lost value.

2009 Year End: It is my belief that, so far, I have tailored by portfolio to meet my objectives. I would like to believe the companies in which I remain invested have good fundamentals, and hence, I did not panic and continued to hold these companies.  Markets bounced back with a jump of 72%. As the tide rises, everything else gets raised. At a minimum, you have to remain in the water, and continue to remain afloat. Same way, my portfolio also increased in value. It really did not matter which stock any of us picked, each and every one rose with the tide. There was nothing too special about it. All I did was try to pick ones that I believe will continue to remain strong even when the tide goes back. Let hope it does!

Putting this Altogether….

So the combination of (1) bounce in market; and (2) selling of positions in GE Shipping and Reliance Infra, probably gave me 104% returns in year 2009. Before, you ask questions, I am nothing saying these two position gave me 32% (104% – 72%). I really do not know weighted contributions for each one, because I invested the proceeds back into buying more stocks. It does reflect in LTD and YTD, but do not know how much it contributed.

What about new capital? I bought four stocks viz., Tata Investments, Hawkins, Aegis, and Graphite. Didn’t they contribute to YTD returns? Yes, they did. The total weighted contribution of these new purchases was 13% to my YTD returns. So 104% + 13 = 117% (which is almost equal to 115%, the error is likely because I rounded up some numbers in past for ease of calculation).

If you recall from Scenario 1, if I were to consistently get 15%, the market value of my portfolio should be Rs 132.25. Right?  Now, with year 2009 returns of 115%, my portfolio’s market value is Rs 139.75 (from Rs 65). Isn’t this where I wanted to be?

In Closing…

It is very ease to get carried away in the euphoria and get elated. Small successes are essential, but we need to make sure we do not get carried way with it. It is easy to lose focus on your long term goals. You see, from holistic perspective, there is nothing extra ordinary in my 2009 YTD returns of 115%. All it means is getting back on track after a down turn, plus, continue to move forward. I am satisfied that my portfolio got good returns, but what makes me happier is consistency and sustainability.

2009 NIFTY index retruns, 2009 retruns, personal portfolio management