May 10, 2009

Investing Performance for 2008

As a value investor, I use a benchmark to monitor my investing performance. It is mportant that a measure it in my local currency, the Canadian Dollar to avoid currency bias. My objective is to beat the S&P/TSX on a yearly basis and I think I should elaborate on that point. The Standard & Poor’s TSX Index is composed of the 200 biggest companies in Canada, and is denominated in Canadian dollars (CAD). Since its inception, it has been the best performing benchmark of the Canadian economy and people investing in an Index fund that follows the S&P/TSX tend to have a better performance than almost 80% of all the mutual funds in Canada and North America, and that is before fees! Every year I beat that yardstick means that I beat the average investor by a larger margin. Over a period of 10 years, beating that index by just 2% every year will equal a significant difference in the capital that will have been accumulated.

A year like the one we just had is the perfect opportunity for the long term investor. Some of the most outstanding companies now have their stock trading at a discount to their intrinsic value or even their book value per share; a couple of them are even selling for less than their last year’s earnings per share. Assuming the worst case scenarios for the year, current P/E ratios are really at lows unseen since the great crash of 1929. These are very exciting times for value investors. As I will elaborate further, the companies that make my portfolio are greatly undervalued and we will continue to take advantage of that fact.

2008 will be a year to remember as the exuberance of the market has really been proven. The financial crisis has powerfully hit the market. I remain pleased to announce that I have still been able to showcase a better performance than the index I have to beat and also that the financial crisis has hit me only merely.

My positions for the year 2008 go as follows and they were initiated around September.

Fairfax Financial Holdings Limited (TSE: FFH)
iStar Financial Inc. (NYSE: SFI)
Dryships Inc. (NASDAQ: DRYS)


Taking those positions into account, my performance in 2008 was -2.1%, and the S&P/TSX did -28.9%, so it makes it that I beat it by 26.8%; the Dow Jones and the S&P500 did a little bit better than the S&P/TSX. I am relieved to know that I also beat them both by a significant margin. The downside is that even if I showcased a better performance than those indexes, -2.1% is not a good number to put on the investing scoreboard, but I’ll manage to do better in 2009.

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