2 years!

The passing of September marks two years since taking control of our family's humble retirement savings. Here is how it is going so far:

A few notes on the chart:

• Returns are pre-fees and costs (i.e. annual audit fees, our life insurance premiums).
• Despite putting this up, I'm actually not interested in returns over anything less than a 3 year period. This is capital invested for the very long term. Just thought it would be worth an interim update to see whether I should sack myself and give the cash back to the pros or whether my wife ought to leave me on account of losing all our money.
• When I can't find anything I am confident in I will hold plenty of cash, maybe up to 50% of the portfolio, but for the most part I plan to be very heavily (almost fully) invested in growth assets. I'd therefore expect some volatility and some periods of negative performance, but as I said I am looking at investments playing out over a much longer period of time than the last week, month or even year.

It's not exactly scintillating to see that I could have lobbed everything in to an at call cash account for two years and achieved the same raw returns. If I was a Markowitz man I'd be shattered... heavens, the excess risk I have taken for no excess return! What a shameful Sharpe ratio, information ratio bla bla bla. (My colleagues are well aware of my thoughts on MPT).

But overall I am actually pleased. It is very much a capital growth portfolio and to have held some cash in reserve while the market took an absolute beatdown has proved a wise move. I have put most of that cash to work now as markets have fallen and hopefully I will find some winners. I am actually very excited about the potential for crystallisation in latent value in two of my old favourites, Brickworks and Soul Patts, now that New Hope Corporation has thrown up the for sale sign. 

Despite huge falls, following the big rally last week I think Australian market valuations are merely OK. In aggregate the market is not a screaming bargain but is not exactly due for a 1987 crash either. I can't categorically state this won't happen - Europe is a mess but as steps are belatedly and reluctantly taken to avoid a systemic banking disaster I am much more sanguine about these risks than I was perhaps a month ago. 

There are of course individual pockets of value and some stocks which I think present excellent opportunities, but on a market wide basis I would not be backing up the truck. It promises to be an interesting 12 months as the E in the widely followed PE comes under plenty of scrutiny amidst significant private sector deleveraging, falling commodity prices and a stagnant property market.