2016: A Year of Outperformance and Some Avoidable Mistakes

Another year has gone by and I can announce that for the first time in this blog´s short two-year history I have squarely beaten the S&P500 by 4.9%. The value of funds invested is up 18%  from the beginning of the year and the S&P500 closed 13.1% higher (in EUR). I am especially happy about the results since they were achieved by employing a very rational approach that I am confident to be able to replicate in the years ahead.

For each company that I bought shares in I could determine with high certainty its intrinsic value and document most of the analysis here on this blog. As a consequence I achieved healthy returns with Clydesdale Bank, Baidu, IBM, RCI Hospitality and Davita. Many of these fine companies are still far away from my target prices and will hopefully serve as foundation for next year´s outperformance.

But not everything has played out as expected. I sold RCI Hospitality days before it shot up and reached my initially stated target, plus I wasn´t able to purchase shares in WEBCO Industries, due to Onvista not offering trading in pink-sheets. I estimate that these two errors have cost about 7% to 8% in return. In the consequence I established a guideline on how to make better, more rational selling-decisions and also I am in the process of opening a new brokerage account with wider market access including OTC.

While in last year´s reflections I have tried to shed some light on macro-economical topics such as fx and oil I will this year refrain to do so. Brexit and US citizens electing an individual, who refers to himself in the third person as “the Donald”, to first man in the state, has shamelessly revealed my and also the so-called experts´ inability to correctly predict macro events. Hence, I will stick today and in future with what works, which is analysing listed corporations to find a hidden gem that whisper “bargain” when only one listens properly.

Not only have I learned not to take part in the forecasting game but also I believe that I have learned a lesson when it comes to trusting ones own abilities. To realise full potential in investing it is necessary to literally put your head against the storm. Cause in its purest form this is what value investing is all about. You against everyone. Or a tiny Gallic village against the Roman Empire. With often over hundreds of quoted prices a second Mr. Markets is constantly reminding us that everyone else seems to disagree with our thesis. Sometimes this can be highly unrewarding, dissatisfying and lonely.
Nevertheless, Mr. Market usually comes to his senses eventually and changes his mind (In case we have done a good job), sometimes only to exaggerate on the exact opposite site. I don´t want to claim any of these mispricings to the upside. It is enough to simply hold on long enough to the investment to give the storm a chance to ease and Mr. Market some clarity. This however, can take longer as we would like. Patience and a good portion of stubbornness is key to avoid getting taken by the wind.
While the storm must be resisted at the same time one should leave the beautiful, hot and almost stinging sun that lets a company´s price shine so bright for others to enjoy. Because since Icarus we know that flying too close to the sun won´t bode well.

I wish everyone a happy and healthy year 2017. May the returns be plentiful.

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