I learned a long time ago that investing is a humbling endeavor. Anyone who believes otherwise won't last long. Humbling, because if you don't accept that mistakes can and will be made, then you will never learn from them. If you are unwilling to learn, Mr. Market will eat you up.
This year has been such an experience for the Winning Value Portfolio. To those unaware of it, the Winning Value Portfolio is a basket of 10 stocks chosen each year and held for the entire year, with only one exception: if a company commits a fraudulent act our any sort of corporate malfeasance, it is sold.
Year to date, as of Nov. 30, 2015, the "Winning" Value Portfolio is down 35%. It is safe to say that 2015 will be a terrible year in term of performance. Perhaps December may lighten the pain some, but regardless, the year will terrible.
I have written about all, if not most of the securities above individually on Real Money, so I won't take up space rehashing information. In summary, however, I would still say that there remains a very strong chance that the majority of these businesses will do quite well over a multi-year holding period.
In fact, although each group of stocks is held for one year, we often carry positions over into the following year. Bank of America (BAC) has been in the last four annual portfolios and has done quite well during that time.
That being said, a mistake was made with four of 10 positions being energy or commodity-related companies. I've always believed that a 10-15 security portfolio provides all the diversification one needs, if correlation is minimal. In 2015, 40% of the portfolio essentially moved in tandem.
That being said, value is agnostic to industry, size, or any other category. And there is tremendous value in the energy patch, but it is far from widespread. And commodities are a different animal. In 2009, when financial stocks were hammered, you saw many top investors load up on numerous names like Wells Fargo (WFC), American Express (AXP), Bank of America, Citigroup (C), Goldman Sachs (GS), and AIG (AIG). But bank profits were not reliant on a commodity price. More so, the banks' largest liabilities -- deposits -- were costing them nothing to hold. So it made sense to load up on all the quality financial players. Not so for commodities.
I do expect that some of these names will make it to the class of 2016, which will be unveiled in the coming weeks. More so, while any losing year is unacceptable, the Winning Value's performance numbers in aggregate continue to do their part against Mr. Market. Once the 2015 numbers are in the bag, we will report on the annualized numbers once again and expect the ultimate lesson to continue to play out: an investment philosophy that consists of buying undervalued securities, combined with patience and minimal market friction, is likely to do very well in the long run.