The Jubak’s Picks, my 12-18 month portfolio, returned 3.9% in the fourth quarter of 2009.
That trailed the major indexes. For the quarter the Dow Jones Industrial average climbed 7.4%, the Standard & Poor’s 500 was up 5.5%, and the NASDAQ Composite was up 6.9%.
For the year the Jubak’s Picks portfolio was up 21.3%.
That was slightly ahead of one major index, but behind the other two. For 2009 the Dow Jones Industrials were up 18.8%, the Standard & Poor’s 500 was up 23.5%, and the NASDAQ Composite rose 43.9%
The portfolio’s total return since inception on May 7, 1997 is 1997 is now 282%.
My problem all year was that I never quite trusted this rally. In retrospect I was dead wrong. The rally that began in March 2009 was (or maybe that should be “is”) one of the great recovery rallies in market history.
How great?
Well, it’s taken the sell-off of early 2010 to take the performance of this recovery rally down enough so that as of February 12 it merely matched the 1982 recovery rally. That rally ushered in what turned out to be an 18-year bull market.
So after the recent correction this recovery rally is only tied for the greatest recovery rally in market history.
It’s hard to match the performance of that kind of market rally when you don’t trust the rally and continue to hold a big chunk of cash out of the market. Jubak’s Picks ended the third quarter of 2009, for example, with 27% of the portfolio in cash. I put some more in work in the fourth quarter but still finished that period with 20% of the portfolio in cash.
If you’re holding 20% cash and want to match the 7.4% of the Dow Jones Industrials for the fourth quarter, your stock picks need to return about 9.3% for the period. Mine clocked in with a 4.25% return if you eliminate the drag of cash.
For the year my large cash position didn’t cause nearly as much underperformance (unless, groan, you compare it to the NASDAQ Composite.) That’s because by being 40% or so in cash in the first quarter of 2009, I didn’t take nearly as big a hit as the major indexes did when the market continued its swoon in that quarter. For that period the Dow Industrial Average was down 13.3% and the S&P 500 was down 11.1%. The NASDAQ Composite dropped just 3.1%
The lesson here is pretty obvious, I think. When you’re in the midst of the greatest recovery rally of all time (or the one that’s tied for greatest, at least), nothing beats putting all your cash on the table and riding the hot hand.
That’s not to say that I couldn’t have done better even with this cash position if I’d done a better job of stock picking.
If you doubt the rally, of course, you sell some winners too soon.
For example, in the third quarter I sold Joy Global (JOYG) on September 22 at $49.54 after roughly a 33% gain in a month. I closed the year just $2 a share higher. But then proceeded to tack on another $8 a share by February 12. That’s a 20% gain I could have picked up with perfect hindsight.
And sometimes I definitely sold a winner because the gains made me nervous and switched into a seemingly safer stock that then went ahead and dropped faster than the winner I’d sold. So far my buy in the fourth quarter of Ritchie Bros. Auctioneers has definitely worked out that way.
I mention all these mistakes not so much to beat up on myself—I by and large haven’t found self-flagellation a useful investment technique—as to illustrate an important investment lesson.
The past does influence the way we invest in the present. And it’s awfully hard to put money into stocks just after a bear market has kicked the stuffing out of your portfolio and delivered a stiff kick to your self-confidence.
In reality, although I wish I’d matched the indexes this year, I’m pretty proud that I managed to stay invested to the degree that I did. Yes, 20% or 30% cash was a lot of carry this year, but it sure beats being 100% on the sidelines. And looking back at 2008, the sidelines looked very tempting this year.
I didn’t stay on the sidelines not because I’m an especially courageous investor. I don’t think I am, in general.
But I do know my market history. I do know that one of the reasons that bear markets are so devastating to investors’ portfolios is because investors stay on the sidelines nursing their wounds during the most powerful stages of any recovery rally. I was determined not to miss out on all the goodies if this rally turned out to be the real thing.
And I know that the other reason that bear markets are so devastating is that investors who miss the bulk of a big recovery rally are then driven by regret into plunging whole hog into the recovery rally just as it peaks. They then get killed in any subsequent correction. Or absolutely massacred if the recovery rally doesn’t usher in a true bull but instead turns out to be a rally in a long secular bear market.
So I’m relatively happy with my 21.3% in 2009. I’m not scarred by missing out on all the fun and I might even be able to play it appropriately safe in 2010 for what promises to be a very, very tough year to read.
By the way, I don’t think the rally of 2009 has by any means put a definite end to the possibility that we’re in a long term bear market that began in 2000. Remember that the last great bull market ran for almost 20 years. A secular bear could last just as long.
And a three or four year bull market rally inside a secular bear wouldn’t be unheard or either.
I’m going to take a look at what we know about long-term bear markets and long bull market rallies inside long-term bear markets in a post on Friday.
In the meantime, here are the traditional Jubak Picks long-term performance numbers.
For the three years that ended on December 31, 2009 the portfolio is up a whopping 0.5%. That’s not an annualized return. That’s the total return for the period.
Terrible until you compare it to the 21.4% loss for the S&P 500 during that three year period. That’s the loss even after the huge recovery rally in 2009. That’s how tough this huge bear market has been on investors.
Looking back five years—a period which takes in some of the recovery from the bear market that began in 2000 but none of the losses from that bear–Jubak’s Picks is solidly in the black with a return of 52.97% versus a 7.98% loss for the S&P 500. Since inception on May 7, 1997, Jubak’s Picks is up a cumulative 282% (versus a 37% return for the S&P 500.)
I’ll post my usual charts of long and short-term returns in the next day or so when I migrate this post to the left hand performance report link.
I’m sorry that it’s taken so long for me to post fourth quarter and 2009 performance numbers. I’ve had to convert all my records to a new system of performance tracking in the last three months. That’s taken time. (And is not yet complete.) I’ve double and triple-checked these numbers and I don’t think that I’ve missed anything. But if any of you who do track my portfolios on your own (and you’d be surprised how many people do) think you’ve found an error, please e-mail me at jubakspicks@gmail.com and I’ll dig into the discrepancy. Thanks as always for reading and for paying so much attention to the details. It’s actually very comforting to know that so many people watch so closely.
Reading through those comments certainly made my day. I appreciate everyone who took time out to write. And look forward to spending the rest of 2010 (and beyond God willing) with you all.
My friends are reminded frequently about how much I admire and enjoy your enciteful and well-researched comments and advice. There are a few who have taken the dare and who are now investing their own money with help from your columns. It has been ten years now that I have been following you. Thanks for ten years of translating the financial news into ‘street slang’.
Jim:
We don’t know what we’d do without you. Keep up the great work!
Jim:
I agree with the notion that it’s always easy to look back and say I wish I had done this or that. As I always say, none knows exactly when will be the exact bottom or top of the market until it’s over. Thanks for all your great advise!
Another excellent year for/from Mr. Jubak! Great work Jim, as always. Your “under-performance” last quarter should be praised and not balked at. Your cautious approach was highly valuable during the free fall, and it will be highly valuable again. I’ll lose a couple points to gain many later any quarter.
I’d like to offer one correction to the article:
“If you’re holding 20% cash and want to match the 7.4% of the Dow Jones Industrials for the fourth quarter, your stock picks need to return about 13.5% for the period.”
I believe 13.5% should be 9.25% (100 * 1.074 = 107.4. [80 * 1.0925] + 20 = 107.4)
Jim,
Thanks for all your hard work and passion. Due to one of your articles four years ago about fertilizer companies and exposure to China, I bought a stock called MOSS at the time, build up a nice little position and then they got bought by Cargill , turn out to be the first public company owned by them.
They restored some sense into the balance sheet, replaced 7 directors with their people and I cashed in on over a 1000% return three short years later, which my wife and I parlayed into a sizable down payment on our first home after the housing market had cooled down.
You do great work Jim.
News du Jour:
Yara buys Terra for $4.1 billion, bets on U.S. recovery
http://www.reuters.com/article/idUSTRE61E1NE20100216
What do you think about this, Jim?
Jim,
I haven’t seen any profits on my portfolio. It is because I started investing in October 2009 and have to learn much. However, I thank you for all the advice.
I value your opinion. I look for your post.I feel I have been investing from the seat of my pants, but your insights keep me pressing on. I need, as I approach retirement, to bring this old bird in for a landing, and a bit of guidance helps. Thanks
Mr Jubak, I want to thank you for your insight. Just want to share with everyone here something that help me with my investments. I follow IWV when it is below the 50 DMA I sell 25% of my 401k and go into money market. My future contributions go to MM also. When IWV goes below the 125 DMA I sell 50% of my 401k to money market and IWV below its’ 200 DMA I am all cash in my 401k. I reverse this order from money market to stocks when the IWV goes above its’ 200, 125, and 50 DMA. This does not take me out at the top or in at the bottom but help me stay invested during difficult times. My non 401k is made up of divined paying stocks so I don’t sell them unless there is a fundamental to do so.
Thank you for sharing so candidly with us.
I ended up 2009 with a 20% return, although 45% in cash. My cash is now down to 37% and I would like to invest further, but find most shares too expensive.
I look forward to your Friday post and would like to know your gut feeling: bull/bear?
Jim,
You won’t get many complaints from me. When I like your picks, they make me money. Some examples from the previous year included Lynas Corp. and CEDC. I sold both of those at nice profits. Right now, I’m still holding BRF, and it’s performed well.
That said, I like it when you go “out of the box”, with picks like Lynas. That kind of pick shows how much work you are putting into this. Keep up the good work!
WHERE DOES ONE CLICK THAT 5TH STAR?
Jim,
Thanks for all the great advice and stock picks. I used your picks but bought them at slightly different times when i could take advantage of a dip in price and had significantly better returns than what you are reporting. So your advice is very good.
According to technical analysts (at Bloomberg and others) there is still selling pressure on the market (increased volume as market turns down) and having some cash in reserve is still a good idea. Thanks again for all the great information you provide.
Can’t thank you enough for the calming effect you have on this investor trying to go it alone. I do a lot of reading and studying, but never make a trade without checking your posts first. I trust your insight and intelligence and feel certain that you do your absolute best to get it as right as humanly possible for those of us out who follow you.
Jim,
Thank you for your sage investment advice and insight. During very uncertain times, your posts are invaluable.
B.
From my own perspective, the buy and sell recommendations you provided helped me sleep at night. I never worried that things would go sideways and the relatively modest gains I made were due in part to your advice. I likely would have remained on the sidelines if it were not for your insights. Keep up the great work.
Jim – you are the bible for this investor. Would you consider putting a portfolio on MSN.CAPS? Your positions haven’t been updated in months.
Frank
Test
Jim,
I tried to figure out your cash position now. At the end of the 3rd Qrtr you had 21 equity positions and 27% in cash. At the end of the 4th Qrtr you added 7 equity positions and dropped 3 so therefore you had 25 equity positions and 20% in cash. Today, you have 29 equity positions. If my algebra is correct, you are fully invested with about 3% in cash. It’s tough to figure out because one needs to determine the value of each equity at the end of the 3rd qtr and 4th qtr to be exact. Can you tell us where your cash position is today ?
Love the posts. True believer.
Jim,
Based on your MSN article “8 reasons for investors to worry” (2010 addition)
http://articles.moneycentral.msn.com/Investing/JubaksJournal/8-reasons-for-investors-to-worry.aspx
I hope you continue to err on the side of caution
Jim,
It is always easier to look back than to predict the future. Admire that you take the responsibility publishing your performance. Your clear vision of the ling-term trends and great stocks to buy is harder to measure in the number terms. Thanks.
Jim:
You say you are up 21.3% vs S&P500’s 23.5%. Say you were 25% in cash on average.
As an investor, if I invested with S&P500, I would still keep 25% in cash. So, I would say your true performance is 21.3 / (1-.25) = 28.4%, which is obviously better than S&P500. Thanks for being such a good investor.
Well played; play on.
Thanks for another great year Mr. Jubak.
Your insight continues to be absolutely indispensable.
I wish I could do something more than say a simple thank you, That being said, thank you.
DJB
Jim:
It’s easy to look back and see how we could have done better. But without your astute advice and encouragement, I probably would have sat out most of the recovery, as you suggested. So I’m happy with a 15% gain despite keeping 60% (tapering down to 25%) in cash over that period. My wife thanks you, my mortgage comany thanks you….
It is easy –Thanks for the excellant advice.