Luca and I have been investing together for 3 years. Last year I wrote a post in which I explained how we had adopted for our personal investments the same approach mutual open-ended funds have.
As I explained last year, we had to define a net asset value per share (valor liquidativo de la participación) at the beginning of the period. This net asset value per share rises and decreases as the aggregate share prices of the stocks in the portfolio rise or decrease. When an investment fund informs about its yearly results it is referring to the performance of this net asset value per share.
Each time that there is an addition of capital (new investments, in this case by Luca or me) it is treated as an issue of new shares to ourselves. It doesn’t matter that we are the only “shareholders”. Depending on whether the net asset value has increased or decreased we are acquiring the new shares at a higher or lower price than we acquired the previous ones. Exactly as it works in a fund.
And why do we go through all this hassle? So we can now handily compare how our investments fare in relation to broad market indexes or specific investment funds.
How did the year 2011 go?
Let’s start with the humbling exercise :-). I had taken along the year above 50 samples, so we could get an idea of how the fund evolved. As you may see in the graphic below, the net asset value per share at the beginning of 2011 was 57.19€ while at the end it fell to 47.28€, that is -17.3%. This was the performance of the fund in 2011 (not good enough to sell subscriptions to the fund! :-)).
How does it compare with the main indexes?
- S&P 500 ~ +0.07% (this is the target index)
- Dow Jones ~ +5.5%
- NASDAQ ~ -2.3%
- IBEX 35 ~ -13.1%
- Euro Stoxx 50 ~ -18%
The gains of the fund since its creation in January 2009 have been+57.8%, with a compounded annual gain of +16.6% (remember this always refers to the net asset value per share – I will come back to this point in a future post, as cash gains or losses cannot be directly derived from the net asset value performance).
Last year I introduced the comparison with the leading Spanish value investing fund, Bestinver (*). Let’s do the exercise again:
- Bestinfond ~ -10.3%;
- Bestinver Internacional ~ -10.1%;
- Bestinver Bolsa ~ -12.7%.
All in all, 2011 hasn’t been a good year to present general results (for us, Bestinver or some indexes) however from the value investing perspective it hasn’t been that bad for buying (we performed 18 buy operations, while we only sold shares of 4 companies).
As any investment fund would do, prior to buying shares of a specific company we calculate the range in which we believe the target price shall be for us to sell the stock (and if the margin of safety is wide enough we buy). Taking the conservative values for each of the shares in our portfolio, we believe the target net asset value per share should be around 159€, thus having an estimated potential upside of about x3.3.
The latest factsheet of Bestinfond [PDF, November 2011] informed about a potential upside of x2.3. We may be optimistic; time will tell. And precisely that, time, being long-term value investors, we have plenty of :-).
I’ll keep you informed next year of this year’s results.
(*) Disclaimer: Since sometime in 2011, we have also positions in Bestinver, though I don’t get any fees for promoting it in the blog. (Our positions with Bestinver are excluded from the calculations of “J&L” fund to allow for clean comparisons).
NOTE: “J&L fund” numbers are pre-tax of capital gains realized, include dividends (twice taxed) and are net of transaction costs & brokerage commissions.
3 responses to “Our investment fund in 2011”
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The third common method of estimating the value of a company looks to the assets and liabilities of the business. At a minimum, a solvent company could shut down operations, sell off the assets, and pay the creditors. Any cash that would remain establishes a floor value for the company. This method is known as the net asset value or cost method. Normally, the discounted cash flows of a well-performing company exceed this floor value. However, some companies are “worth more dead than alive”, such as weakly performing companies that own many tangible assets. This method can also be used to value heterogeneous portfolios of investments, as well as non-profit companies for which discounted cash flow analysis is not relevant. The valuation premise normally used is that of an orderly liquidation of the assets, although some valuation scenarios (e.g. purchase price allocation) imply an “in-use” valuation such as depreciated replacement cost new.
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