Year ended on a disappointing note as I ended up splitting my time between investing and a new job the last 4 months, which basically meant very little time generating new ideas. Fortunately we still beat the S&P 500, if not by as much as it looked like earlier.
The S&P 500 had a monster year, ending up 28.71% including dividends, finishing 5.5% and 8% ahead of the Nasdaq and Dow.
All nVariant Capital accounts combined finished up 29.3%, beating the market by the slimmest of margins (1/2 of 1%.) But I did have one significant disadvantage. Half of our current capital wasn’t fully available for trading until June. This means the average amount of tradable time for our combined capital was less than 10 months.
Individually our account results looked like this:
Full Year Accounts
#1: 36.4%
#2: 49.5%
Partial Year Accounts
#1: 23.8% in 7 months
#2: 23.0% in 9 months
What I am proud of is how we beat the market. Our aggregate current portfolio trades at under book value (0.92 times), while the S&P 500 is currently trading nearly 5 times (4.91 times) book value. I believe that demonstrates that the risks we took were substantially lower and future risks are also much lower than the markets.
Lastly, we had two workouts that stopped trading and I had to make special adjustments for in the calculations. There seemed to be four choices for valuing them.
Carry them at last trading value, even though both paid large distributions immediately after ceasing trading.
Carry them at zero since they were no longer tradable, even though I expect them to pay future distributions.
Carry them at my estimate of remaining distributions.
Carry them at final trading price minus value of their last distribution after trading stopped.
#1 would clearly be fraudulent, since the last distributions weren’t accounted for in the last trade price, so no discussion needed here.
#2 is most conservative, but it moves gains from their future distributions entirely into future years, increasing their performance, and is frankly misleading. Since I expect both to pay future distributions they clearly retain some value, and I deserve some credit for that value now.
#3 would clearly enable me to manipulate my results. Not even intentionally, I may just be too optimistic about the end result of each situation and it’s easy to bias my estimates when I know my year end results depend on them.
#4 is what I chose. It is the closest approximation of the market price, which is what I should be measured by. Their last trading day the market closed with an estimate of each were worth before the distribution, so if trading were to resume both should trade around the same price minus that distribution. In practical effect this meant that one is carried at zero, and the other at half it’s final closing price.
In both cases I believe future distributions will be in excess of their carrying value so some future performance will be enhanced by the deitrus of these workouts, but probably not to an excessive amount.