The Thrifty 30 enters its third year

Performance issue needs addressing

Although it’s January, and I feel compelled to review the Thrifty 30’s annual performance, I’ll refrain because I just don’t think it’s productive. There’s another way of looking at performance, though, and I don’t think I did very well in 2011.

But first, conspiracy theorists might look at the chart above and, noting what’s missing, conclude that in the month the portfolio’s value dipped below the value of the benchmark portfolio I’ve hidden the fact by removing the FTSE All-Share index from the chart.

My intentions are more honourable. I have removed the FTSE All-Share index because the Thrifty 30 is still beating it, which gives the wrong impression because the index is not the benchmark. The benchmark portfolio is a FTSE-All Share tracking Exchange Traded Fund with dividends reinvested.

Since Sharescope, the program I use to manage the portfolio, won’t let me plot the Thrifty 30 against the benchmark I have been charting the index instead. But the compounding dividend means the performance of the benchmark is steadily diverging from the performance of the index and the chart is increasingly erroneous.

I chose this un-chartable benchmark because I wanted to test the Thrifty 30 against a cheaper and easier alternative. Since that alternative pays dividends it would be unfair to ignore them.

To find out how much worse, or better, the Thrifty 30 is doing than the benchmark portfolio you won’t get much joy from me until January 2015 unless you read the small print. I include the current values of both portfolios in the notes to the portfolio table below:

The portfolio is a five year work in progress and since it will take five years for the strategy to play out I’ll judge it at the end of its term.

Some of the investments I’ve made have come to the end of their terms though, and so I can judge them now. After all, ejecting a company means one of two things. Either it fulfilled its potential, or I made a mistake including it. The ratio of successful to failed completed trades, shares I have added to the portfolio and subsequently removed, can, I believe, give a useful impression of my performance as a stock picker, which is much more useful than pontificating about palpitating prices.

Unfortunately my completed trades in 2011 are not reassuring.

I won’t go over each in detail*, I do that at the time I make the trade, but, with the exception of Solid State, a successful trade, I can see a disturbing pattern.  I got rid of Armour, Mallett, Quadnetics, RM and T Clarke in 2011 all because I lost confidence in my original analysis.

Not all of these trades turned out badly for the Thrifty 30 (only Armour and T Clarke did) but they were all companies I shouldn’t have added to the portfolio according to its mandate, to put safety first.

I’ve dealt with them now, but I’m more concerned there remain companies in the portfolio I lack confidence in because I have not found time to reappraise them.

Since my expectations are modest, to review each constituent once a year, and I’ve failed to meet them, I’m obviously finding it difficult to keep on top of the companies in the Thrifty 30 and because there are only 22 companies in the 30, I’m obviously finding it difficult to find new ones.

That’s a performance issue I need to address as quickly as possible by improving the way I find companies, analyse them, and keep track of them, and, perhaps, by making more time for stock picking.

I’m starting by writing two minute monologues for each portfolio constituent, and ceasing to compile my regular screens, which have become a time consuming ritual of limited utility**.

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* If you want to see a full confessional in one place, read February’s Money Observer magazine.

** Fellow value investor Lewis seems to have come to a similar conclusion