Tag Archives: investment performance

analyzing your portfolio performance over the past three months

October 7, 2011 By in Analyzing performance, Fixing mistakes, How often to measure, Portfolio management, Strategy, Why measure performance? Tags: , , , , , Leave a comment

measuring performance

I’ve written before about how important it is for us as stock market investors to calculate and analyze the performance of our portfolios on a regular basis.

There are two related reasons for doing this:

1.  We want to identify what ideas/stocks are working for us in the portfolio and which ones aren’t.  Based on this, we decide where to take profits and where to stop the bleeding.

2.  We also want to learn about ourselves, and our strengths and weaknesses in decision-making.  This isn’t like training for the Olympics.  We don’t need to be perfect at everything.  But we want to at least be able to identify situations where we continually shoot ourselves in the foot–and just not do that anymore.

doing it now

On July 7th, the S&P 500 closed at 1353.  On October 3rd, it closed at 1099, for a decline of 18.8%.  On an intraday basis, from 7/7-10/4 the fall was 21%.

The markets appear to be stabilizing now, as politicians in Europe make noises about finally addressing the EU’s Greece/banking crisis.  It’s too soon to say for sure that the worst is over (although I suspect it is).  But whatever the case may be, it’s important to look at your portfolio after a decline of this magnitude and ask yourself how you fared.

how to do it

In all likelihood, you don’t have data from your brokerage account that tells you either what your portfolio as a whole, or any individual security in it, was worth on the beginning and end dates.  So the easiest way to proceed is to use a Google chart to compare the performance of the S&P 500 (or whatever benchmark you measure your portfolio against) with each of the stocks/mutual funds/ETFs you own.  You can find more details toward the end of my post on “method to the madness” a few days ago.

what to look for

1.  One question is whether you’ve outperformed or underperformed the benchmark. But that’s just the start.

2.  Growth investors outperform in up markets and underperform when the market is declining.  Value investors, who have a more defensive bent, do the opposite.  So a second question is whether your portfolio has performed in line with your design.

3.  Is your design really what you wanted?  Is it appropriate for your financial circumstances, or is it too risky–or not risky enough (not the usual problem, but possible)?

4.  What were your strongest and weakest stocks?

5.  Is there a pattern to either the good ideas or the bad ones?  Be careful here.  Over this period, utilities stocks would have been stellar names, capital goods or materials stocks were probably at the bottom of the pile.  That’s not what I mean. You’re looking for behavioral patterns that lead you astray so that you can change them.

Do the weak stock ideas come from names you hear on CNBC?  Are the good names ones where you know the financials backwards and forwards and the bad ones those you know less well?  Are the horrible stocks tips from cousin Fred the broker?  Are the large positions winners and the small positions losers–or the reverse (which would be a more serious issue)?

Some fixes are easy:  turn off the TV; do your homework; don’t act on Fred’s advice; don’t bother with the small positions (or weight each position equally if the small ones are good but the big ones are killing you).

6.  How are your positions doing in the rebound?  Stocks rarely outperform in both up and down markets.  Great if you have one or more of these.  In contrast, in my experience it’s a big red flag if a stock underperforms on the way down and remains an underperformer in a market bounce.  Any like these are ones that need your immediate attention.

7.  Are the reasons you bought each security still valid?

two other thoughts

–Looking at your portfolio decisions with a critical eye is something you need to do regularly.  One time won’t be enough to detect behavior patterns.  But you’ve got to start somewhere.  My experience is that even professionals make mistakes that would be easy to correct–like “don’t listen to Fred”–except that they aren’t aware they’re making them.

–For an analysis like this, don’t use year-to-date numbers.  What you want to see is how your stocks have done in the downturn.  Otherwise, if you have had significant under- or outperformance earlier in the year, that performance difference will just muddy the waters.  An example:

Suppose you have a security/portfolio that was 20 percentage points ahead of the S&P through July 7th.  That would mean you had a gain of 27.7%.  On October 3th, your holdings are down 2.7%, which is ten percentage points better than the market.  How much performance have you lost during the downturn?

The answer isn’t ten percentage points.  It’s five!  During the period we’re considering, the S&P 500 fell by 18.8%.  Your investment went from 127.7 to 97.3.  That’s a fall of 23.8%.  The difference between the fall in the index and in the investment is five percentage points.  The rest of the year-to-date loss comes from the fact that the investment has lost its 18.8% from a starting point that already incorporates a large year-to-date gain.  The gain portion also suffers a loss.

S&P 500: method to the madness?

September 22, 2011 By in Analyzing performance, Constructing a Portfolio, Current Market Thoughts, Portfolio management, Recent Market Action, Strategy Tags: , , , , , , , , , Leave a comment

recent S&P 500 performance

The S&P 500 hit a near-term low of 1101, intraday, on August 8th.  It has bounced between 1140, the close on that day, and 1230 since.

what’s going on?

I think(see my dipping a toe in the water posts from early August) that investors are adjusting to the (strong) possibility that economic growth in the developed world will be little changed in 2012 from what it was in 2011.  This contrasts with the prior belief of the consensus (and me, too) that the economic acceleration we saw in 2009 and 2010 wouldn’t peter out completely but would continue to some degree into next year.

The market has alternated between bouts of euphoria and despair–sometimes, like yesterday, both emotions in the same trading session.  On the one hand, corporate profits remain very good; on the other, Greece may default on its debts, messing up the EU, and the Fed has just begun another round of unconventional action to try to restore a stronger pulse to the US.  What the market is taking from the Fed move is that the US needs the stimulation, not that the Fed is riding to the rescue.

testing the lows today?  …probably

Given the sharp selloff in Asia and Europe as I’m writing this on the morning of the 22nd, we appear to be about to see in the US whether the closing low of 1140 will hold.

below the surface, …

Look a bit deeper into the market action, however, and a more complex pattern emerges.  You can look for others yourself, as I’ll explain below.

…big differences among individual stocks,

which means to me that most investors are not as panicky as the index movements might suggest.  This is what I see  (percentage stock price changes since August 9th through Tuesday, with the index up 4.2%):

retail is mixed, with the high end doing well

Tiffany     +15.9%

Dicks Sporting Goods     +13%

Macy     +8.3%

Wal-Mart     +4.9%

JC Penney     +2.7%

Ford     +.4%.

tech–e-commerce, Apple and takeovers

Yahoo     +25.9%

Amazon     +19.7%

E-Bay     +19.6%

AAPL (which it an all-time high two days ago)     +16.7%

Oracle     +13.5%

Intel     +9.0%

Adobe     +4.1%

IBM     +4.0%

Microsfot     +2.5%

Netflix     -43.3%

financials- -ugh!!

GE     +.3%

Bank of America     -2%

Citi     -8.7%

JP Morgan Chase     -10.9%

staples–so-so

P&G     +6.3%

Coca Cola     +1.8%

Pepsi     -3.5%

casinos–high-quality/debt under control

Las Vegas Sands     +29.2%

Wynn     +16%

MGM     -6.3%

no joy in Macau, despite blowout revenue growth

China Sands     -2.8%

Wynn Macau     -6.2%

SJM     -14.7%

MGM China    -15.1%

other random stocks

Catipillar     -3.9%

Exxon Mobil     +2.5%

Intercontinental Hotels     +1.7%

doing this for you portfolio

It’s a worthwhile procedure to do  regularly.

Go to Google Finance and call up a chart for the S&P 500.  The symbol is .inx.  (I normally prefer Yahoo Finance charts, but this is one instance where Google works better.)

Enter a stock symbol into the Compare box just above the chart and hit the Add button.  The chart parameters will change; you’ll see absolute performance numbers for both the S&P and your stock appear.

For checking performance since August 9th, select a 3mo view from the Zoom choices at the top of the chart..

Move the left-hand side of the bar that’s directly under the chart to the right until the chart shrinks to the time period you want.

Type in more symbols.  You’ll see their absolute performances (on a capital changes basis, not that it matters so much) displayed in different colors.

Good luck.

Good or bad, you’ll at least know how your stocks are doing.

more on top-down investing

August 31, 2011 By in Current Market Thoughts, emerging markets, Portfolio management, Strategy, Trading Tags: , , , , , , , , Leave a comment

the macro turn

Last week I wrote about a phenomenon I’ve been noticing lately–that stock reports published by analysts from first-rank brokerage houses seem to have little company- or industry-specific reasoning in them, but rather rely for their conclusions on general macroeconomic arguments. (Macroeconomics is the study of prospects for the total economy of a country, a region or the whole world; microeconomics looks at the decision-making behavior of individuals and firms.)

The Wall Street Journal’s“Heard on the Street” column from this Monday makes a similar observation, that “traders seek salvation from correlation.”  It reports on research from Credit Suisse showing the prices of stocks have recently been moving together (without regard to individual company differences) to an extent not seen even at the peak of the financial crisis of a few years ago.

possible reasons

As my friend Bob pointed out in a comment to my post, for brokers who regard research as a loss leader, it’s cheaper and easier to try to apply macroeconomic insights–generated either in-house or from third-party economists–to individual companies than it is to hire experienced microeconomic generalists, who know the characteristics of firm vs. firm and product vs. product competition, or veteran industry specialists to create original research.

In addition, my hunch is that many hedge funds are run by traders, whose strengths are in their willingness to take risk and their ability to sense the short-term (meaning from a few hours to a few days) direction of the stock market.  They find microeconomics and accounting much too time-consuming, and maybe too boring, to learn.  And doing so would make them look too much like conventional (read: low-fee) investors, as well.  So they’ve settled on the macro analysis that’s much easier to learn the rudiments of, but which is much more characteristic of bond markets, as a guide to their equity dealings.

The Wall Street Journal suspects that the increasing popularity of ETFs–mostly index products–as trading vehicles for individuals and institutions may be the root cause.

the key question

It’s possible that the current Wall Street fascination with macroeconomic-based investing will prove a short-term fad.  I suspect it will have a longer life than that.  In any event, I think the key question for investors, especially those who want to buy and sell stocks based on their micro analysis of individual firms, is whether this current macro trend is:

–a substitute for microeconomic knowledge the big players don’t have, or

–an alternative, a change in investor ideas of what makes a good stock, away from its individual traits to the way it reflects aspects of the overall economy.

In the first case, having economic or marketing insight into an individual company’s structure and products will be an advantage.  In the second, you risk being in the position of someone trying to use the rules of checkers to play a game that’s morphed into pachisi (Sorry!, to you Parker Brothers fans).

the TIF case

the negative analyst report

The Goldman report on TIF that I mentioned in my original post argued that the jeweler would report a blowout 2Q11, but would say that its worldwide business was going to be negatively affected in the second half by global economic slowdown.  Goldman suggested that the 2Q report would be a last hurrah for TIF before a period of sub-par results.

the quarter

The quarter was a blowout.  In a sense, the company did acknowledge the possibility of future earnings weakness as well, by upping its full-year guidance only by the amount its 2Q results had exceeded consensus expectations.  TIF also remarked that the current period held great uncertainty.

At the same time, TIF management made it clear that the company continues to see very strong results to date.  It’s also apparent from the numbers that business accelerated into 2Q, even though macroeconomic worries were rising (see my TIF post for more details.)

the stock response

The stock reacted to the earnings report by rising almost 10% on Friday.  To me, this suggests that the stock market still wanted to buy the individual profit characteristics of TIF and was using macroeconomic tools as the best (only?) means it had for figuring them out in advance.  If so, what we’re seeing in the overall market may just be imperfections in the research process and not a paradigm shift.  This argues that good individual stock research is still an advantage–perhaps a greater one than usual.

Macau

The other report I cited concerned the Macau gambling stocks, and was negative.  Hong Kong-traded gambling stocks sold off on the report’s publication and haven’t really recovered.  The Macau government will publish gambling industry data for August in the next couple of days.  This will also be an interesting event to observe.