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Jubak’s Picks portfolio returned 19.7% for all of 2013

posted on January 28, 2014 at 6:30 pm
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For all of 2013 my 12-18 month Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ returned—that’s appreciation plus dividends—19.66%. In 2013 the Standard & Poor’s 500 stock index returned 32.39%. By quarter the returns on the portfolio were 4.22% for the first quarter, a loss of 1.06% in the second quarter, a positive 8.98% in the third quarter, and 6.48% in the fourth quarter.

With the 19.66% return in 2013, the total return on Jubak’s Picks since inception in May 1997 through the end of 2013 is 420%. The total return on the S&P 500 index for the same period is 192%.

Studying these results—and trying to understand how the year could have been better—during the current scary rout in emerging and other global markets reminds me of the important difference between conclusions and lessons.

Looking at my numbers, I can conclude that my returns would have been higher if I hadn’t carried so much cash all year long. My cash position at the end of each quarter in this portfolio averaged 30% with a high of 34.59% at the end of the June quarter and a low of 23.51% at the end of the December quarter. My coulda, woulda, shoulda calculation shows that if I had invested all of the portfolio at the same return that I earned on the 70% of the portfolio that was invested, the total return for the year would have been 29.62%.  Of course, I can’t take that 29.62% to the bank—but this calculation is nonetheless important: It tells me that the major “mistake” I made in 2013 wasn’t in the stocks I picked but in the cash I held.

Other conclusions?

In 2013 the portfolio would have shown a higher return if I never sold anything (or at least almost nothing) on valuation or on fundamentals. For example, I sold Johnson Controls (JCI) on June 27 at $37.19 for a 47.23% gain since my purchase. But then the stock, which I called fully valued given the softness in its environmental controls unit, climbed another 37.94% through December 31, 2013.

And it certainly didn’t pay to sell battered stocks after an initial rally. For example I sold Yingli Green Energy (YGE) on July 31, 2013 at $3.24 and I was glad to get out of the battered Chinese solar stock 90.59% above the April 3 low of $1.70 a share even if I had bought the shares at $10.76 back in November 2010. The solar sector wasn’t seeing a significant increase in prices because so little capacity was being taken out of production by bankruptcy or consolidation. And then, of course, shares of Yingli Green Energy proceeded to gain another 55.86% through December 31, 2013

So looking backward at 2013, I’d have to conclude that the best thing to have done was to go all in—no cash on the sideline—to forget about valuation and fundamentals, and to never sell.

Are those conclusions useful lessons for 2014?

In most ways not.

Oh, if we hit another monster rising-tides-lift-all-boats rally based on something so powerful as a tsunami of central bank cash, then I think you’ll be well advised to remember my conclusions about 2013 and apply them as lessons to the market of 20XX. If you think you’ve absolutely identified a new market that is close to identical with the market of 2013, then yes, you should go all in, play the momentum of cash flows, and to the devil with fundamentals and valuations.

 

If you’ve been in the markets for a while, you’ll recognize how profitable that strategy can be if you correctly characterize the market, and how difficult and potentially dangerous getting the timing wrong can be. I remember very vividly throwing valuation to the winds in 1999, a year when the NASDAQ Composite Index returned 85.6%. Jubak’s Picks actually beat the index that year. And next year, when the NASDAQ Composite lost 39.3%, my portfolio beat the index again—to the downside.

Getting this kind of big picture market call is hard—and to make it pay you have to get it right on the upside and on the downside—and there’s definitely a price to pay on the downside for deciding that you can ignore valuations and fundamentals because the momentum is strong enough.

Going into 2014, it’s hard for me to argue that the momentum that drove the market up in 2013 will be as strong as it was last year. The Federal Reserve is reducing the new cash that it throws at financial assets—and that’s a big deal since the Fed’s monetary stimulus was a key to asset performance in 2013.

Looking back at 2013, I do remember gradually relaxing my valuation and fundamental standards as the year rolled on. In retrospect, I wish I’d relaxed them sooner and that the performance of the portfolio came closer to the S&P 500 index. But while I relaxed those standards—stretching for a target price, for example, because I didn’t want to too early sell into last year’s momentum—I didn’t abandon them. That certainly cost me some return in the short run.

Going forward, though, I don’t see any reason to pay less attention to fundamentals and valuations in 2014 than I did in 2013. I think it’s still likely that we’ll have a decent year in 2014, but, as the first weeks of the year demonstrate, performance in 2014 is likely to come with more downside risk than in 2013.  If only because 2013 moved stock prices up to historic highs. And when the risk is higher and the potential gains likely to be more modest, I think it’s a good time to remember proven lessons rather than to get fixated on the conclusions from the immediately prior year.

On January 14 I announced that I would rebalance the portfolio—I decided that in order to keep the portfolio down to a manageable number of stocks, I would increase the size of each position from $12,000 at the initial buy to $14,000. To accomplish that I added $2,000 in shares to each position at the January 14 closing price. That reduced the cash position in the portfolio to 12.73% from 23.51% at the end of December.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of December. For a full list of the stocks in the fund see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

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16 comments

  • sammyboy on 28 January 2014

    I just don’t get it.

    i put $250 in JUBAX every 2 weeks of 2013… and the HIGHEST return on any of those purchases is from 6/24/13 and is only 8.21%.

    14 of the 25 purchases are negative now.

    So, how on earth does a number like 19.7% enter into the reality I describe above?

  • astonished on 29 January 2014

    It would seem the JUBAX fund is not the same as the “Jubak Picks Portfolio”. Do be careful how you invest.

  • bilbo777 on 29 January 2014

    In review following the picks here, made similar independent decision to hold more cash. Yes, my return is less also so time to re balance. 8+)

  • dxia on 29 January 2014

    Managing real money is so different from managing a virtual portfolio because of the emotion attached to it. However, one should never use one or two years performance to judge a fund manager. You should always look for 5 ~10 years.

  • dxia on 29 January 2014

    I mean at least 5~10 years. 20 years period should be used to judge a fund manager’s performance, to my opinion.

  • Altec on 29 January 2014

    Nice revisionism there, Jim.

    How about actually stating the performance of your real Mutual Fund, JUBAX.

    The starting price on the close of Jan 1 2013 was $10.06 per share. The closing price on Dec 31 was $10.03.

    The price today is $9.62

    Morningstar rates it one out of 5 stars.

    It’s been an incredibly poorly performing fund, yet your fees for managing it are extremely high.

    I don’t think it was an accident you’re not revealing your performance numbers for the mutual fund you run.

  • greedibanks on 29 January 2014

    From what I can tell, some of the PIcks are also holdings of the Jubax Fund. I’d assume that eventually Jim will post an update on the Jubax Fund which as people have pointed out, did not return 19% in 2013. I’d guess many readers found it was easiest to participate by simply owning the Jubax Fund (rather than buying each and every Jubaks Pick stock, but maybe the latter course would have turned out better).

    I don’t agree with dxia that one needs to wait 5-10 yrs before passing any judgement on a fund. Jubax has been in existence well over 3 years and is struggling. To me, it’s not really clear just how one can determine that a fund or a fund manager might be a consistent winner. It’s known from research that past returns of funds, good or bad, don’t provide predictive value for the future. I suppose the safest thing to do is diversify and own maybe 4 or 5 different funds whose past returns are not strongly correlated with each other.

    For myself I cashed out of Jubax fund early last year, when NAV was about $10.

  • sammyboy on 29 January 2014

    [cricket chirp]

  • Jim Jubak on 29 January 2014

    I don’t see that I’m hiding the performance of the mutual fund. It’s tracked everywhere, including the fund’s site itself. I haven’t done an update on the Jubak’s Picks portfolio in quite a while. Readers were asking for it. Here is is. The two portfolio’s are very different–especially in their weighting toward emerging market and other non-U.S. stocks.

  • pc18k on 30 January 2014

    Somehow I feel I know Jim Jubak very well, although I only met him once, for all of a few seconds. On that occasion I kicked him and his colleagues out of a meeting room in Microsoft Red-West campus because their meeting had overrun into my reservation for the room. That was in the mid 90s’. I remember staying up late every Thursday and Monday night to catch his articles coming out on msn. While some may incline to dismiss the performance numbers of Jubak’s Picks during those years as purely theoretical, the fact is that his calls were right more often than they were wrong. Readers that followed his recommendations made out handsomely. Remissly I cannot count myself 1 of them because my bent is more value oriented. Still I found his writings simulating, a breath of fresh air, overall very enjoyable, and I tend to believe, helpful in an indirect way for my own investment decisions. Naturally, I became an early investor in JUBAX, in part to get his newsletters.

    I held the fund for less than 1 year, selling out in July 2011 with a minimal gain. There is no denying that the performance of the fund has been nothing but terrible. You can’t sugarcoat it, there have been just too many lousy stock selections. If Jim had been still close by and I could have asked, better yet, yelled, “What are you thinking?”, then perhaps he would have had 2nd thoughts (or 3rd & 4th thoughts since he seems like someone who rarely thinks only once) before certain trades.

    It will be pointless for me to critique the fund’s particular trades. Instead I want to bring up a couple of points that may not be obvious to everyone, especially those who have invested in the fund and felt let down. I am not here to make excuses for Jim. And I don’t profess to be even remotely insightful, just speaking from what I have observed.

    Being responsible takes toll. A great part of Jim’s misery these 3 or 4 years was the result of him playing the responsible, sober manager. We all know that he deployed his cash too slowly right out of the gate, and had the bad timing of running up against a strong bull market. Yes, we can say that he made a bad call in market momentum. But as a responsible manager, you have no choice: better safe than sorry. From an operational point of view, running a small start-up, he had to keep plenty of cash on hand to guard against any potential large redemption, which invariably coincides with the worst time to liquidate to raise cash.

    A responsible manager must diversify. Diversification is not overrated. It is what lets you get away with losing just your shirt instead of your house when you bet wrong. Few fund managers are as brilliant as Ken Heebner, famous for making concentrated bets. Take a look at what happened when he lost his midas touch. But here I have to think that Jim is spreading himself too thin. JUBAX has many times the names in Jubak’s Picks. It is easier to come up with 5 good ideas than 50. To make matters worse, JUBAX has a truly high-maintenance portfolio. Just count the countries and industries. There is simply not enough resource for him to kick every tire. Frankly there were cases in which I believed he was less than well-informed about the wanton political climate in some emerging economy countries. Diversification is not the same as indiscrimination.

    I watch with some poignancy the total asset of JUBAX dwindling dangerously towards critical mass. In perspective, its investors missed the boat in one of the best bull markets ever, but even the extremely unfortunate ones have lost no more than 15%, hardly a disaster considering the investment category. A turnaround is certainly achievable. It would take a few bold moves and some luck. I do believe that luck has a lot to do with gains and losses in playing stocks. I wish Jim good luck and will be rooting for him.

  • greedibanks on 31 January 2014

    Yes Heebner was one of those high-flyers who could do no wrong and it didn’t help that the press glorified him during 2008 (another was Bill Miller). I did put some money into his CGM Focus fund. Wow looking at the chart from 2008 it’s startling how much value it lost and how quickly — but I recall what really irked me was that CGM did not recover as quickly as the overall market and still is not back to its highs of 2008. An object lesson.

  • dxia on 31 January 2014

    pc18k,

    Great comment. Totally agreed. From my observation, if Jim could focus on US companies, he would do way better. Playing globalization doesn’t need to invest directly in emerging market. I’m holding 3M, GE, MCD as long term play of globalization. There are so many companies that would benefit from the development of emerging market. Another point is that, if there’s a recession coming, Jim’s time will come. It seems he’s good at finding undervalued companies during the market down time. Patience is the true virtue of a real investor.

  • greedibanks on 1 February 2014

    One more item that is relevant to this post — Money Magazine just came out with its list of recommended funds. Most of those are Vanguard index funds. In the opinion of the editors, the debate is over and the index approach has emerged the clear winner over active funds.
    There is one argument I’ve heard against the passive or index approach that makes sense to me: that is, if “everyone” invests this way doesn’t it start to skew the indexes so that eventually there are no investors left willing to take a chance on individual stocks? If managers increasingly become closet indexers because they are afraid of lagging the averages, what does that do to the market?… it does make some sense but for myself I believe there are still enough big money investors who pick stocks (and don’t publish what they are doing ahead of time), to make it a market. However it’s food for thought.

  • dxia on 1 February 2014

    greedibanks,

    I wouldn’t worry about that. There are enough value investors and market wizard like traders that will push the market around. There are also computers and robots trading every day. My friend and his fund achieved close to 50%/year growth in the past 10 years. If you compound it up, the performance is stunning.

  • johnresearch on 4 February 2014

    I have always been a bit puzzled by Jim’s enthusiasm for Maxwell Technologies (MXWL). It always seemed to me that the market for supercapacitors would be quite limited. Wind turbines are no longer being built extensively, and the use for regenerative vehicles in cars without batteries and fuelled by gasoline, would be limited to the luxury market.
    BUT, I found a very nice article comparing batteries with supercapacitors, at
    http://berc.berkeley.edu/storage-wars-batteries-vs-supercapacitors/
    Apparently the Japanese have a trolley-bus powered by supercomputers (so it does not need extensive overhead wiring) which is re-charged only at bus stops, by the cantilever rising to take current from a few yards of overhead wiring. It does 6 down to 4 miles on a charge, at 15 mph., or its maximum speed respectively. A battery could not be charged so quickly. Don’t know about the timing on roll-out, though. The UK (and Belgium) have trams in several city centres, that still use overhead wiring. Its a big cost.

  • johnresearch on 4 February 2014

    Two corrections on my last post.
    Its the Chinese not the Japanese and of course
    “powered by supercapacitors”.

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