The Jubak’s Picks, my 12-18 month portfolio, returned 8.4% in the third quarter of 2009.
Is that good or bad?
It certainly badly lagged the Standard & Poor’s 500 stock index, which returned 15.6% in the third quarter. It’s pretty easy to explain most of the lag in the Jubak’s Picks: the portfolio was 40% in cash for much of the period because I didn’t trust the rally that began on March 9. Another hunk of the portfolio was in safe stocks such as PepsiCo (PEP) and ExxonMobil (XOM) that trailed the commodities, industrial and financial stocks that led the rally. Oh, and I had almost nothing in financials during the quarter.
In retrospect, during the quarter I played it too safe and left substantial profits on the table as a consequence.
Of course, that’s what happens when you decide to play it safe and the stock market delivers one of the biggest rallies off a bottom in the history of the U.S. stock market.
If you look at the full year to date, which includes the nose-dive into that March 9 bottom, my play it safe strategy wasn’t nearly as expensive. As of the close on September 30, the return on Jubak’s Picks for 2009 was 16.7%. That’s a decent performance compared to the 19.3% return on the S&P 500.
Play it safe strategies are usually rooted in some really traumatic period of stock market performance—they’re often a reaction to fear rather than a forward-looking maneuver to avoid disaster.
So my play it safe strategy in 2009 was a reaction to getting killed at the end of 2008 when commodities stocks, which had been the star performers of the first half of the year crashed while my portfolio was still stuffed with them. You can see that reflected in the portfolio’s 8.1% loss for the 12 months that include the fourth quarter of 2008. For comparison, the total return on the S&P 500 during that period was a -6.9%.
Longer term the Jubak’s Picks is up 3% for the three years from September 30, 2006 through September 30, 2009. That’s not an annual return, mind you. That’s the total return for the portfolio over that entire period. Think that’s grim? The S&P 500 shows a 21% loss for that three year period. 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 69% versus a 5% loss for the S&P 500. Since inception on May 7, 1997, Jubak’s Picks is up a cumulative 268% (versus a 25% return for the S&P 500.)
You can find the performance of Jubak’s Picks in comparison to the Dow Jones Industrial Average and the NASDAQ Composite in the table below.
A final but very preliminary word on the performance of The Jubak Picks 50 portfolio I started tracking on December 30, 2008. The return on that portfolio based on my 2008 book, The Jubak Picks: 50 Stocks That Will Rebuild Your Wealth and Safeguard Your Future, was 28% for the six months ended on June 30, 2009. And now, with this rally, it’s climbed to 50.5%. Now, short term returns don’t mean much. Especially when they start, as these do from a depressed level in a bear market and have the good luck to catch a huge market rally. Still, I’m encouraged to see that in an up market, this portfolio has outperformed the 19.3% return on the S&P 500 for the first three quarters of the year. The chances that this long term portfolio could beat the S&P in the long haul would be very slim if it lagged badly during a market like this.
It remains to be seen how this portfolio does, comparatively, in a sell off.
It takes a good 10 years for a portfolio to really prove itself. Still, I’d rather start out 50.5% ahead than 50.5% behind. As they say, It’s better than a poke in the eye with a sharp stick.
You can follow both these 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.
I would propose that a better way to measure your performance is to compute two numbers. The first would be the performance of your equity picks versus benchmarks, such as the S&P 500. The second would be the performance of your entire porfolio versus benchmarks. The first indicates how well you did as a stock picker. The second (which you typically compute for us) combines that with how well you did as a market timer, or asset allocator. Each of us may have a different equity allocation based on our circumstances (age, years to retirement, nest egg size, etc.) so it’s difficult to compare performance when you only have the 2nd metric. Maybe you were light on stocks earlier this year because you felt there was more bad news to come, but you could also have been 40% in cash because that was the appropriate allocation given your age, risk tolerance, etc. But with whatever allocation you had for equities, we can learn a lot about your stock picking skill just based on how well that subset of your portfolio performs. Just a suggestion.
I’ve followed your columns & posts for a while now, and you seem like a pretty good stock picker to me. I’ve taken advantage of some of your stock picks, after doing some of my own due diligence, but I don’t expect much help from you regarding my appropriate asset allocation since you don’t know my specific circumstances.
Thanks for all you do Jim. I am sure the next quarter, you will surely beat major indices handily.
….Good job Chief !!! May be when the stimulus
money runs out and the tax credit begins to
thin..more folks will appreciate your insight.
Keep going and please post the
” DIVIDEND INCOME PORTFOLIO”.
Thanks a lot
Grindy hit it on the head: “depending on where you are at you can balance your strategies.” Jim’s advice on stocks/sectors/trends has always been excellent. But asset allocation (stocks vs fixed income/cash vs whatever) is not something he can generalize for readers. It depends on your circumstances: how soon you will need the money, % of net worth in equities, etc.
I have a long time horizon and am looking to maximize returns (over preserving capital) so I loaded up on equities in March-May when things seemed to have bottomed. People with a shorter time frame would not want that much risk.
Jim’s picks are very helpful in terms of deciding where to allocate my equity capital. But how much of ones assets should be equity capital is something Jim can’t help with. As long as the bulk of Jim’s picks keep panning out, I’m a happy camper. How much he has in cash is his personal risk decision.
Jim,
I think there is something to be said for the strategy you took. In a downright scary period for stocks you sold early (and told us why) and focused on the preservation of capital. Even if it wasn’t the most profitable strategy I think it was the smartest. We could have easily went the other way and would have been in great shape with cash on the sidelines. In my opinion it was an excellent hedge for the strategy.
I think you should also be commended for the focus on the next rally and what trends will run (batteries, efficiency, rare metals). Just at the point managers are trying to pile back on you are looking ahead.
Something else that should be noted for readers is that returns 50 picks and 12-18 month portfolios should be balanced together. I am 27 so I tend to buy more 50 picks and look long term. Throughout the rally I have noticed that agriculture has lagged severely in this quarter so I have been buying. I would say short term out of favor but medium has some of the best rally potential.
Point is depending on where you are at you can balance your strategies. Jim’s biggest strength is knowing which sectors are coming in and out of favor. If you use that to your advantage you make a lot of money in the market
I appreciate that you can make realistic self reflections on your performance. sometimes its better safe than sorry.
you shouldn’t compare you portfolio with the s&P when you have so much cash. you need to do some form of risk adjustment.