My Real Money Portfolio Returns
If I'm going to ask you to follow me into a net net stock strategy, it only makes sense for you to ask what my investment record is.
In 2014 I published an account of my own real money portfolio returns up until the start of 2014. You can read that article here. But, the broker I was using at the time didn't have good reporting tools and it's only now, after having shifted my portfolio over to Interactive Brokers, that I can give you a detailed, official, look at my portfolio returns.
The returns that you see below are net of fees but not taxes. Your taxes will change depending on the jurisdiction that you're investing in and how long you hold onto your net net stocks for.
This image is taken straight from Interactive Broker's reporting tool. Note that I changed the name of my account to hide the account number for security reasons. I also added the names of the benchmark indices in brackets to make the graph easier to read.
Since inception on February 7th, 2014, my portfolio has recorded a 85.6% gain versus the NASDAQ's 45.3% return. That's a 40.3% excess return over the market. On a compound basis, I've been able to nail down a CAGR of 22.9% versus 13.3% for the NASDAQ. That's an excess CAGR of 9.6%.
Over the same period, the RUSSELL 2000, arguably a more accurate benchmark since it only tracks small cap firms or smaller, returned 28.6%. That's a compound average return of 8.8%.
The outperformance that the fund has shown over the previous two years is little less than the performance I expect from my portfolio over the long term. The difference is to to variance in return. It's a mistake to think that any strategy punches out a cookie cutter return each year.
As of September, American net nets lost -37%, for a compound annualized loss of -15.92%. These are adequately discounted net nets with average daily volume of $1,000. As you can see, it pays to pick the best net nets possible.
Questions and Answers
Q: Your statement says "Hunter Fund". Do you run a hedge fund?
A: Hunter Fund is my own real money portfolio. It's not open to outside investment but that may change in the future.
Q: You said before that professionals couldn't use this strategy. How big is your portfolio?
A: Assets under investment is under $1 000 000 USD. I don't expect to be able to buy net nets easily if assets rise to over $10 or 20 million.
Q: Can you invest my money for me?
A: I am not currently accepting clients but you may be interested in www.brokenleginvesting.com, our full service investment letter.
Q: Why are your returns lower than the stated 25%+ CAGR you suggested investors could earn with net net stocks?
A: While investors can earn a 25%+ CAGR over the long term by investing in net net stocks, returns will vary from year to year. Some years will be good, some years will be bad, some years you will beat the market, some years you won't, and some years you'll even lose money. All of these years combine to form your CAGR over the long term. That means that over shorter periods of time, your CAGR can deviate significantly.
I am very happy with the returns of my portfolio over this two year period, especially considering that the market was essentially flat.
One issue that dragged down my returns over the two year period was the significant cash position I maintained during 2015. Read the explanation below.
Q: Have your returns only been this high due to excessive risk?
First of all, I don't look at "risk" the same way that academics and professionals look at risk. To me, risk is the chance of permanent loss of capital (probability of loss multiplied by the amount that could be lost), not volatility.
If you're sticky about academic risk, according to Interactive Brokers, my portfolio has been much less risky than the market on a number of different metrics. I'll post that here so you can take your pick.
Q: How much cash do you hold?
A: I try not to hold any cash at any point in time. Doing so will only reduce returns over the course of your life. This past year, due to focusing on implementing a major website upgrade for members, as much as 20% of my portfolio was in cash which cause returns to drag. At this point, all of that cash has been invested and I aim to keep my portfolio as cash free as possible going forward.
Q: Where do you find your net net stocks?
A: I find all of my net nets using our Net Net Hunter Shortlists. I exclude resource exploration firms, pharmaceutical companies, real estate companies, financial firms, and companies that have major operations in China. During 2016, most of the stocks in my portfolio were bought below 50% of NCAV, had no debt, had stable NCAV, had tiny market caps, and some even had PEs below 4x earnings.
Q: Do you invest in any other types of stocks?
A: My portfolio is 90% invested in international net net stocks. Investing in anything else would be a drag on my returns. Graham's net net stock strategy is the most proven high performance value strategy available for small investors.
Q: How can I get those same returns?
A: The first step would be signing up for Net Net Hunter membership. You can do so below.