One of my early mentors, a dyed-in-the-wool value investor, said that any experienced investor should have an annual performance goal. He thought a reasonable number would be +20%. By “experienced” he meant someone who could: read and interpret company financial statements, project future earnings and understand both the economics of firm vs.firm competition and general macroeconomics.

This is prettty simplistic stuff. On the other hand, simple models often work significanly better than complex ones.

The world has changed a lot since then, when we were in the early stages of a decades-long decline in interest rates, and had a domestic economy that was growing in real terms at 2%+ (vs. maybe 0.5% now). So maybe +15% is a more reasonable aspiration today.

Why write about this now?

It’s because we’re in early March and are already up by around +7% ytd for the S&P 500 and NASDAQ. The laggard is the Russell 2000, an index of mid-cap, predominantly domestic earning, firms, which is around +2%. So if we take my rule of thumb as a reasonable guide, a lot of work for the year has already been done.

I don’t see any reason to go into a defensive shell–of course, though, I almost never do–but it’s probably time to do a sanity check on holdings. In particular, in a flattish market valuation will likely be at least as important as concept. And rather than a rising tide lifting all boats, the winners in inter-firm competition will likely significantly outpace the rivals they are trouncing.