Time to take stock

Simon Brown, founder and director of JustOneLap.com.
Simon Brown, founder and director of JustOneLap.com.

Year-end is finally here, and what a year it’s been.

There has been nowhere to hide, as pretty much everything got sold off.

But, while many of us would rather forget about our investments and hope for a better 2019, we need to still do our annual review.

For me, it firstly involves working out the total returns for 2018, as well as the three-year and five-year returns for my different portfolios.

My portfolios are the following: long-term ’til death do us part; a second-tier portfolio; a trading portfolio; and core electronic traded fund (ETF) portfolio.

The latter I am not so worried about. It has a balance of broad ETFs and they will do what the market does. But if you have got some niche ETFs, you need to make decisions about whether to keep them or whether to switch (this is why I avoid niche ETFs, because timing the switches is hard).

When it comes to my active portfolios, I will compare the returns against my benchmark (I use the Top40 total return).

While I like to beat the benchmark over one year, I am not too stressed if I don’t. But very important is that I am beating the benchmark most times over three and five years.

If I am not winning over the longer time frames, I have to ask the hard question: Should I continue managing my own active portfolios, or should I rather hand it over to a professional? Or even better: Should I just go 100% passive?

The reality is that with a number of “once-darling” stocks selling off aggressively this year, it is unlikely that an active portfolio has escaped all the pain out there.

I have been lucky in 2018 as my painful investments hit in 2017 and 2016, most notably with Famous Brands* and Woolworths*.

My return for 2018 is looking all right and the previous two years I was saved by a few of my stocks actually having a good year.

This is the beauty of being diverse – we may experience some pain, but others will carry us. Some years you may even escape the pain entirely.

After reviewing returns, I look at my individual stocks and overall strategy.

Naturally, I have been following the individual stocks over the year, checking results and company announcements.

I have a fairly good idea of what has been happening.

But, for me, this year-end period is a quiet time, so now I go back to my initial research on the stocks and check that what I liked about them still remains in place.

For example, I have written that Shoprite* needs some scrutiny and I will be doing that over the next few weeks.

I will go back to my notes and the updates I have added over the years that I have held the stock and check in on the three key reasons I bought it.

Are those reasons under threat?

Do I need to exit? In short, I am checking that the company is still on track. It’s not about price, but rather about the core business and its fundamentals.

I also revisit my strategies. Do they still work? Do they need tweaks or maybe complete overhauls?

Have I been consistently buying stocks at elevated prices that then crashed?

How can I adjust in order to get better performance?

I am very cautious to make changes, as I worry about responding to short-term issues, but it is still worth checking our overall strategies, especially in our trading portfolios.

I have a strategy that is many decades old (albeit adjusted over the years), but if you are new to this, larger changes may be required as we get smarter about markets.

*The writer owns shares in Shoprite, Woolworths and Famous Brands.

This article originally appeared in the 20 December edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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