Putting 2009 YTD returns of 115% in Proper Perspective
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, progress udpate
TIPGuy
Wonderful explanation once again. Here i would like to request you to put up some methods to calculate the fund performance, with Payments in/Out. How do they manage? What about dividends, how do they get adjusted to the total % returns.
Kind regards
MIP
Hi,
I have one curious question…as i m reading ur blog last 3-4 months…i found that u not providing any kind of tips on stock market..then why ur site’s name “tipblog”?………
Chetan,
hmm… I do not have a good answer
But I can tell you how it evolved. check this blog post when I changed to TIPBlog.in http://www.tipblog.in/admin/introducing-tipblogin/
you gave me an idea for new post, to help explain what TIPBlog means….
2 points
Hi Tip Guy,
This one is probably a bit at a tangent. This 115% is on your *income* portfolio….do you also have a *growth* portfolio?!
Rgds,
Arun
Hello Arun,
For now, I have index portfolio (only one position – planned to revise bcoz not much indexing options), dividend portfolio (most discussion on this blog), and opportunity portfolio (which is mostly private equity in few private companies). Some day when I become a full time investor, I will expand beyond dividend portfolio.
I am struggling with how to define them. Interpreting growth is very subjective, Isn’t it? My existing portfolio i.e. dividend based portfolio, can it be termed as growth? I get dividend income and XIRR for 15%+ for every stocks!
Best Wishes,
chetan, read this post to get your answer: http://www.tipblog.in/commentary/tipster-you-are-fired/
@TIP Guy: you just did not only bring me to ground, but buried me under. I was feeling awesome with 47% return in 2009. but on “holistic returns” for last 7 years, I am only +9% (including new capital). I could have got 8% in savings or fixed deposits….
I did not have any style or process mostly trading or investing i guess… i need to do introspection on what the heck is happening.
very well written and explain. great post.
Thank you.
Hello Rajesh,
Thanks for your good words. Yeah, discipline is very important, otherwise, you start ping pong, and keep shuttling between what Tipsters/brokerage house say…..
It’s never late to start.
Best Wishes,
one quick question, does 115% include dividends and can you share what is the contribution to this returns?
Rajesh,
yes, my YTD and LTD includes dividends. I will need to calculate contribution, don’t have it readily available. Stay tuned!
Best Wishes,
hi,
have u done any research on Camlin company..they have strong brand name..also have unique product range….company is listed in market from long time..also have good dividend history…any idea about company fundamentals..
Hello Chetan,
Yes, I had looked in Camlin some time back. Was not too impressed. But will check again. Stay tuned!
Thanks for the suggestion.
sir..could you update stocks reviewed so far in the stock analysis section..it will be easier to navigate..right now last updated stock was in OCt and since then you have reviewed many more…
thanks
Saif,
yeah, i should, will do it during blog administration schedule. Added to my ‘To Do List’.
Thanks
Hi Tip,
I know that you are not a great fan of MFs. Just wondering if you had tried to compare the XIRR of some good performing fund (over the years) like HDFC Top 200 and tried to compare with your portfolio’s XIRR for the same period and how they look like? I tried to compare the SIP return of HDFC top 200 with my direct investing from Jun 2008(When I started with direct investing) to Feb 2011 – but I see that I didnt outperform the fund even though I out performed the NIFTY (CNX 500). Do you have any observation in similar lines? Just thought I’ll ask this qn before you publish your 2010 portfolio performance… In case if it gives you a chance to highlight something similar in the post. Thanks
Hello Young,
Your question is valid, but I am going to disappoint you on this one. I do not think I will be doing it. I will not be comparing with any Funds. It is not part of my process.
Over the years, I have learnt that my comparison with NIFTY is also just that – a comparison. I have never acted upon it. While it was intended to make sure I am doing better than NIFTY, I am learning that I am inclining towards comparing with “my desired return”. I think this deserves a separate post.
Best Wishes,
Hi Tip,
Sorry for the confusion. I didn’t mean that you do a comparison in your review/performance (Just thought like if you would like to mention something).
Another post would be something great for learning. I Agree that expected/desired appreciation for which we look at equity or do our investment, I was confused if I do not do better than some consistently performing funds.. why shouldn’t I think of some SIPs.. I know it is personal choice, but wanted to know your observations on performance between direct investment returns and MF returns. Thanks.
Hello Young,
Nothing wrong in making comparisons. That’s how you improve over time. But comparisons have to be in proper context and meaningful. In my case, the comparison you suggested does not make sense.
But I do like question you asked, because it is valid and certainly can be used.
Best Wishes,