Through this week, we’ll look at each portfolio to derive final lessons.
All the portfolios continued their free fall since last month and are even further down as impossible as it would seem.
Portfolio 11 and 12 month Performance
Green Portfolio Oct 2008 -56.08% Nov 2008 – 208.91%
Emerging Market Oct 2008 -73.79% Nov 2008 -131.78%
Dollar Short Oct 2008 -35.21% Nov 2008 – 58.50%
Danish Health Oct 2008 -92.18% Nov 2008 -146.81%
Infrastructure Oct 2008 -112.00% Nov 2008 -224.73%
Blue Chip Oct 2008 – 79.21% Nov 2008 -146.47%
We can derive several really valuable lessons.
First the key lesson we have seen all year is …what goes up…can come down. If it goes up faster with leverage…it can come down faster with leverage.
So we see the Green Portfolio which rose 266% last year dropped almost as much this year.
The investment however would still have been good over two years…but investors who departed this twelve months ago would be much happier. Let’s put this in perspective because this portfolio appears to offer terrific opportunity now.
Had an investor put $100,000 in the green portfolio Nov. 2006 and left on an extended vacation, the portfolio with the $200,000 loan earned $366,300 of profit by Nov. 2007 in that first year.
However, the investor was on his trip of a lifetime! He was not concerned with his investments. He continued to party, did not turn on TV or read the papers so he missed the bad news. He left the portfolio alone, with the $200,000 loan remaining. Finally he returned home yesterday, looked at his bank statements and saw that his $100,000 had grown to $111,600.
“Hmpf! 5.5% growth a year” he might think. “Not very good.”
Of course his bankers would have liquidated the shares and paid off the loan quite some time earlier. This investor would have earned considerably more. If the bankers had not acted and the investor’s holiday had been enjoyable enough the worst that would have happened was a shrug.
Had the investor kept the $366,300 in the portfolio, but paid off the loan after a year, yesterday he would have about $164,000. That is a $64,000 profit on a $100,000 investment over two years or 32% per annum. Still very good!
This teaches us a lesson about loan losses. The $200,000 yen loan, had it not been repaid earlier would now require $243,049.29 to pay it off. The forex loss…yen versus dollar alone…would equal a 43% loss on the original $100,000 investment.
Pause and think about this. After the worst year of equity investment performance in 75 years, even with leverage and with forex loss, this portfolio over two years is still in positive territory.
Without the forex loss, this portfolio at 32% per annum growth still has a “better than Warren Buffet performance” rise.
This is a huge lesson! Invest in big wave of the future ideas.
There is more in this lesson because though the portfolio is down, there is a huge value build up. The market crash did not eliminate the need for the environmental services these companies provide. The market shift did not create new competitors. Unless there was a fundamental shift, in environmental concerns and or technology and or competition, this portfolio is likely to have an explosive recovery.
Green is still the world’s greatest concern!
In addition, the Japanese have announced that they do not like the yen in the 90 per dollar range. Efforts to reduce the yen’s strength are likely to to reduce the loan loss in this portfolio quickly.
Half the portfolio is in European currencies. A bit of retraction in the dollar to the euro parity will also push the loan loss down as well.
Here is the big lesson.
A typical investor will look at this portfolio and say. ‘Wow, what a load of crap..down 208% in a year!
A smart value investor looks at the stored upwards potential in this portfolio and thinks…”hmmm. This may be an incredible deal.”
If I were a big share investor, this portfolio would make great sense to me now…even with leverage…if an investor has the liquidity to ride the down trough through.
More on liquidity and the other portfolios tomorrow.
Until then, good global investing!
This is the end of our semester and it is question time. We’ll examine each portfolio and its annual performance. ASK QUESTIONS! Put BL in the subject line and email to me at email@example.com so I can spot and answer your question in these lessons.