CapitalTime
Articles on investing and capital management, with a quantitative focus.
Growth Portfolio 6 Month Update
2019-12-27
My Growth portfolio slightly outperformed the TSX in this time period. Performance has been strong since inception 3 years ago.
All positions are equal weight. After today's adjustments, the portfolio is:
| Stock Symbol | Company Sector |
|---|---|
| BYD | Consumer |
| CJT | Consumer |
| CP | Industrial |
| CAE | Industrial |
| GIB.A | Technology |
| CSU | Technology |
| QBR.B | Media |
| BAM.A | Financials |
| IIP.UN | Real estate |
| KL | Materials |
Performance
I've reached the 3 year milestone. The lifetime CAGR (compound annual growth rate) since inception is 11.8%, compared to the benchmark XIC at 6.8%.
Performance is calculated for each time period shown. I use actual fill prices if there was a trade, or the bid price otherwise. Trade fees are ignored. The XIC return includes dividends, but the Growth return does not.
| Start | End | Growth | XIC |
|---|---|---|---|
| 2016-12-28 | 2017-06-19 | 15.0% | 0.7% |
| 2017-06-19 | 2017-12-27 | 2.6% | 7.2% |
| 2017-12-27 | 2018-06-18 | 4.9% | 2.5% |
| 2018-06-18 | 2018-12-17 | -11.6% | -10.3% |
| 2018-12-17 | 2019-06-19 | 20.1% | 16.1% |
| 2019-06-19 | 2019-12-27 | 6.3% | 5.5% |
| Lifetime CAGR | 3.0 years | 11.8% | 6.8% |
The results are promising, with significant outperformance versus XIC.
But is this successful stock picking?
Note that the first time period accounts for the entire outperformance of Growth versus XIC. If one excludes the first period, as shown in the following table, Growth performs about the same as XIC (cumulative total returns):
| Start | Growth | XIC | Difference |
|---|---|---|---|
| 2017-06-19 | 21.4% | 20.8% | 0.6% |
These returns are about the same. I would like to see a larger difference versus XIC when starting from 2017-06-19 before declaring success.
At the moment, I would say that the results look promising, but do not yet show consistent outperformance using my method.
Reflections on picking stocks
When people talk about stock picking, they seem to be thinking of cases such as a coworker who bought AAPL and AMZN a few years ago, or a friend who bought one particularly amazing stock like SHOP and saw big gains. But these are cases of highly concentrated, non-diversified portfolios. Outcomes from these kinds of portfolios can be dramatically good or bad, like a visit to the casino.
In my opinion, these kinds of random or highly unpredictable outcomes aren't very useful. The results are just too wild, and probably not repeatable.
I'm discovering that the more carefully I manage the portfolio, the closer the results get to the benchmark index. This isn't very surprising, but it's been educational for me. It's showing me that periods of outperformance (or underperformance) tend to just be volatility, and they average out.
This is demonstrated in the above table which excludes the first time period.
Over time, it appears that my performance is similar to the benchmark index. The question remains: can I really expect any outperformance using my stock picking method? Do I have any systematic advantage over the index, or is this just volatility?
Based on what I see so far, I don't think I have a systematic advantage over the index. I expect performance to continue mirroring the index, as it's done since 2017-06-19.
However, there's still a chance for outperformance so I will keep running the experiment. If my Growth portfolio continues to outperform both from the initial date and from 2017-06-19, that would be interesting.
— Jem Berkes