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  1. Home
  2. / Investing
  3. / Consumer Discretionary

How to Manage This Portfolio: Don't

Holdings have gone along on market's rocket ride.
By SHAM GAD Dec 05, 2016 | 03:00 PM EST
Stocks quotes in this article: TOWN

November 2016 will go down as one of strongest months for stock market returns in recent times. Since the presidential election on Nov. 8, U.S. equities have been on a strong run.

A few of the 10 carefully selected equities in the Gad Winning Value Portfolio participated in the rally. As a result, our already market-beating performance in 2016 looks very likely to be cemented. My best-guess estimate is that our performance, if it remains relatively unchanged by year end, will outperform 99.5% of all actively managed funds.

Most telling, however, is that such performance did not require day-to-day "active" portfolio management involving regular trading, thus incurring trading fees. I choose 10 securities each year based on my ever-growing knowledge of investing and then do what most active managers don't do: Sit still.

Yet don't think I'm lying idly around. I keep tabs on our investments, the industries, politics, trying to expand a comprehensive knowledge base. Yet I also don't react much to short-term volatility. Unless we uncover some form of corporate malfeasance, we let time do the rest.

At the end of November, our Winning Value Portfolio was besting the indices by over 15 percentage points. The post-election boost led to a strong rally in our sole financial holding, Towne Bank (TOWN) , a bank of the utmost quality. And finally, our holding in General Motors via its Class B warrants (GM-WTB) is showing a positive return after 10 months of being in the red. GM still remains woefully undervalued, in my view.

Beating the market is not easy. But avoiding excess frictional costs and eliminating excess expenses give an edge. More so, we view positive investment results during a down market to be a far superior performance. Without hesitation, I would prefer to be up 5% when the market is down 15% as opposed to being up 27% when the market is up 8%.

I suspect outperformance is going to get a bit tougher in coming years given the continued run up in stock prices. Yet our approach will remain unchanged: choosing assets and operations that are priced attractively to accomplish our ultimate goal, the preservation of capital.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Gad was long GM-WTB, MHGU, LNG, TOWN and KIN, although positions may change at any time.

TAGS: Investing | U.S. Equity | Consumer Discretionary | Financial Services | Stocks

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