I am not too concerned with relative performance, but rather absolute performance. In either case, 2013 was an excellent year.
The portfolio was able to produce these results with minimal volatility and far less downside risk than the market itself. Throughout the year, the portfolio averaged around 40-60% cash, thereby reducing volatility. Cash also provided ample opportunity to start an new position or increase weighting of present positions as opportunities presented themselves.
From an opportunity cost perspective, if the portfolio was fully invested into positions from a year ago, the portfolio would have produced returns of close to 60%.
Hindsight is always 20-20.
As mentioned in the post at the beginning of 2013, I started selling out of positions as they approached my estimates of intrinsic value. It turns out that these stocks (Canam and Cisco, specifically) not only approached my estimate, but also surpassed it.
I knowingly "left money at the table". Evidently, I left a lot of money on the table!
I have no regrets. That would be the wrong lesson to draw.
Outlook
I remain concerned about the fundamentals of the economy and consequently the businesses. The top line numbers have practically stagnated, and the profit margins are at all time highs. Furthermore, the EPS keeps on going up thanks to large stock buyback programs. Market loves rising EPS numbers, and bids up the price of the stock. And since many companies needs to beat EPS estimates, they buy more of this ever expensive stock instead of investing into their own businesses.This is a value destroying cycle that will end someday.
As for 2014, as usual, I have no idea what the market would do. And neither does anyone else. All we can do is prepare for the opportunities that arise and be nimble if and when the seas get rough.
