In line with a four percentage point advance in the S&P 500 Index, the Gad Winning Value Portfolio climbed by nearly five percentage points during the month of November. Year to date, however, the portfolio stills trails the S&P 500 by a meaningful margin.
As of Nov. 30, 2014, the Winning Value Portfolio was up approximately 7%, compared with an advance of 12.4% for the S&P 500 and 12.6% for the Wilshire 5000. Absent a huge move in a single month -- possible, but unlikely, given the construct of the portfolio's holdings -- it's very likely that the portfolio will underperform the S&P 500 in 2014, the first such occurrence since I launched the portfolio three years ago.
Entering the final 20 or so trading days of the year, The Gad Winning Value Portfolio has only two stocks in a loss position, compared with six last month. It's very likely that Chesapeake Energy (CHK) will end 2014 as our worst performer, especially in light of the recent decline in oil prices. Given the recent decision by OPEC last week to keep production levels unchanged, energy-related stocks are likely to face a tough rest of 2014.
Nonetheless, the key takeaway from the latest performance numbers is affirmation that a simple portfolio, constructed of a few high-quality businesses and on a philosophy of patience, is good enough to beat the vast majority of professionally managed funds. Most high quality hedge funds, which charge 2% of assets and 20% of gains, are significantly outperforming the market in 2014. Yet this humble portfolio finds itself up 7% in 2014 after increasing 16% in 2012 and 57% in 2013.
A simply strategy of picking 10 equally weighted securities and committing to holding them for one year has so far delivered an annualized return in excess of 20%, with virtually no expenses.
So next time you think you need to get in on the next hot IPO or invest in the hottest hedge of the day, remember a simple truth that has remained untarnished in investing: Selecting investments in a business-like manner, with a philosophy of buying below intrinsic value, and sitting still can provide results that many professionals do not achieve.