The Jubak’s Picks, my 12-18 month portfolio, lost 2.3% for 2011.
That trailed the 2.1% return for the Standard & Poor’s 500 Index during the year.
The problem for the portfolio was my inability to stay nimble enough to navigate the market’s volatility in 2011. Or actually through the market’s multiple bouts of volatility in 2011.
I actually handled the market’s first episode of volatility fairly well for Jubak’s Picks. I finished the first quarter of 2011 up 5.5% and with just 8% cash in the portfolio. I thought stock prices were looking extended as we moved into April and I did some selling. I sold irrigation equipment maker Lindsay (LNN) on April 8, Chinese search engine company Baidu (BIDU) on April 11, Cisco Systems (CSCO) on April 13, Brazilian beer giant AmBev (ABV) on April 29, Thompson Creek Metals (TC) on May 4, and Citigroup (C) on May 18. Decent timing given that the S&P 500 peaked for 2011 on April 29 at 1364.
By June 15 the index had tumbled almost 100 points to 1265 for a drop of 7.3%.
But by July 6 it had made back almost all that it had lost and I concluded that the correction was over and the market was headed to a new high.
Wrong.
From July 6 to August 10 the S&P 500 fell 16.3%. That was enough to kill Titan International (TWI), which I bought on July 11. And also to make the industrials I added in the first quarter–but hadn’t sold near the April high–bleed red ink. My purchases of TRW Automotive (TRW) on February 23 and BorgWarner (BWA) on January 13 were two of my more boneheaded picks of the year. I do remember the logic vividly–with the U.S. economy picking up steam and the auto industry in particular showing signs of a recovery in the United States and Europe, auto parts makers should do well.
But the market volatility wasn’t done with me. From August 10 to August 15 the S&P 500 climbed 7.4%. And I just didn’t move fast enough to sell before the market turned down again. From August 15 to August 19, the S&P 500 dropped 7.1%.
And then it climbed again by 7.9% from August 19 through August 30. And then went into its final big swoon for 2011, falling 9.4% to the October low for 2011.
It’s one thing to say buy low and sell high. In theory. It’s quite another to execute that advice when the market is gyrating like this. I’m not even sure that experience wasn’t a handicap, at least to me, this year. Having been through the bear market collapses of 2000 and 2008, I could remember all too vividly the pain that resulted when I missed exit points or didn’t sell to take a minor loss and instead held on to turn it into a major loss. My goal throughout this volatility was to buy and sell on longer-term fundamentals but I clearly didn’t always manage to hold to that principle. For example, while I think that getting rid of financials JPMorgan Chase (JPM) on June 7, 2011 and HSBC (HBC) on July 13 was the right thing to do given the rising risk that the euro debt crisis would come to a bad end, I’m not sure that I held onto fundamentals in my sells in September. I would up selling Brazilian sugar crusher Cosan (CZZ) on September 13, semiconductor equipment maker Aixtron (AIXG) on September 19, and BorgWarner on September 28. Those sells were very close, in retrospect, to the October 3 bottom.
I think I sold those stocks for the right reason–a conviction that if I raised cash by selling those shares I’d be able to find new picks that would do better whenever the stock market rallied.
I don’t think that’s just retroactive self-justification. I did make five buys starting on September 28 (the day of my sell of BorgWarner) with F5 Networks (FFIV) and then continuing with DuPont (DD) on November 2, CVS Caremark (CVS) on November 11, Western Gas Partners (WES) on November 16, and Meade Johnson Nutrition (MJN) on November 28. Three of those five picks finished the year in the black with the biggest gains coming in F5 Networks (39.8%) and Western Gas Partners (12.9%).
A final word on dividends in 2011. Jubak’s Picks isn’t a dividend portfolio–I run a separate portfolio for dividend stocks–but in 2011 I consciously used dividends as a defensive strategy, picking dividend stocks both because they would pay me something while I waited for a market turn and because a dividend often puts a floor under a stock’s price. Using the portfolio’s final value on December 30, 2011 as a base, the portfolio showed a 1.4% dividend yield in 2011. (Just for reference, I don’t credit the portfolio with any yield on cash balances held by the fund.)
The big challenge for 2012 should be obvious. Can I put the portfolio’s 37% yearend cash position to work without getting killed by what I expect to be another year of volatility? (I wish I’d rebalanced the portfolio back in December by increasing the amount that I invest in each position. That would have reduced the amount of cash I have on hand now, reduced the number of stocks I need in the portfolio in order to be fully invested, and, given what I know now about the market’s performance in the first part of 2012, resulted in some very nice gains for the first part of 2012. But as tempting as it would be to announce a rebalancing now retroactively effective December 30, 2011, that strikes me as, well, cheating. (Sort of like inserting retroactive collective action clauses in your country’s bonds.) My rule has been to announce rebalancings before I know how the market will behave and not after. So the next chance I have to rebalance Jubak’s Picks will be December 2012.)
Here are the traditional Jubak’s Picks long-term performance numbers.
For the 12 months that ended on December 30, 2010 Jubak’s Picks was down 2.3%% to a 2.1% return for the S&P 500. The Dow Jones Industrial Average returned 8.4% for the year. The NASDAQ Composite was down 1.8% in 2011.
For the three years that ended on December 31, 2008 the portfolio was up 28.3%. The gain for the S&P 500 was 41.2%, for the Dow Industrials 39.2%, and for the NASDAQ Composite 65.2%
The five-year return for the period that ended on December 29, 2006 for Jubak’s Picks is 6.4%%. During that time the S&P showed a loss of 11.3%. The Dow Jones Industrials dropped 2.7%. And the NASDAQ Composite climbed 7.9%.
Since the inception of Jubak’s Picks on May 7, 1997 the portfolio has returned 305%. That compares to a 54.2% gain for the S&P 500, a 72.4% gain for the Dow Industrials, and a 96.9% gain for the NASDAQ Composite.
All returns for Jubak’s Picks deduct costs of commissions on each buy and sell.
You can follow all my portfolios in detail—including every buy and sell and those oh-so-meaningless but oh-so-captivating short-term returns for individual stocks—by clicking on the appropriate portfolio tab on the top of this page.
Below you’ll find the performance of the Jubak’s Picks in comparison to the three major stock indexes.
| 2011 Performance and YTD | ||
|---|---|---|
| Index | 2011 | YTD |
| Jubak’s Picks | -2.3% | -2.3% |
| Nasdaq Composite Index | -1.8% | -1.8% |
| S&P 500 Index | 2.1% | 2.1% |
| Dow Jones Industrials | 8.4% | 8.4% |
| Longer-term Performance | |||
|---|---|---|---|
| Index | 3-year Return* | 5-year Return** | From Inception*** |
| Jubak’s Picks | 28.3% | 6.4% | 305% |
| Nasdaq Composite Index | 65.2% | 7.9% | 96.9% |
| S&P 500 Index | 41.2% | -11.3% | 54.2% |
| Dow Jones Industrials | 39.2% | -2.7% | 72.4% |
* From the market’s close on December 31, 2008, through the close on December 30, 2011. ** December 29, 2006, through December 30, 2011. *** May 7, 1997, through December 30, 2011.
