The market has been flying during 2021. The iShares FTSE 100 accumulation ETF (CUKX) is up +17.2% YTD and you would think such buoyant conditions would lead to even greater gains for smart stock-pickers.
I am not quite sure that has been the case.
The Stockopedia 2021 Stock Picking Challenge provides a broad view of private-investor performances through its 3,285 entries.
Only 895 entries (27.2%) have CUKX-beating YTDs of +17.3% or more. Indeed, 1,592 (48.5%) entries have YTDs of less than 0%.
That compares to Stockopedia’s 2020 Challenge, when just 652 of 2,153 entries (30.3%) scored less than 0%.
If you have lagged the FTSE’s +17.2% this year, you are not alone. For example, the funds of superstar investors Nick Train and Keith Ashworth-Lord have not kept up with the index, with Finsbury Growth & Income up +4% YTD and Buffettology up +8% YTD.
Of course, a rising market failing to lift your hand-picked shares during one particular year does not spell total disaster. Your portfolio may have outperformed in the past and may now be just ‘pausing for breath’.
The recent results from Finsbury Growth & Income reassured its shareholders this was the case:
"Despite the recent underperformance, under Nick Train’s management the Company has performed strongly against its benchmark in 16 of the 20 years and has continued to outperform over the last three, five and ten years.
The return over the year under review reflects relative underperformance in a period in which the market has rewarded companies with prospects for rapid recovery from the effects of the pandemic as opposed to those businesses which we own: businesses that offer consistent growth."
Mind you, Nick Train has nonetheless doubled-checked what he owns in the trust:
"After a 12-month period of disappointing NAV performance Shareholders will not be surprised to read that I have engaged in some navel-gazing.
As always in such circumstances I come back to the companies to which we have committed your capital. I ask myself - how are the companies performing as businesses (which is not necessarily the same as how their share prices are performing)?
Because of the paramount importance of individual holdings in a strategy like the Company’s we have chosen to give an account below of the reasons why we own each of those 17 holdings."
He then follows with a quick write-up on each of his 17 major holdings.
So one action to take if you have under-performed could be to make sure your companies are still doing well and your under-performance is likely to be temporary.
But if you have a great long-term track record, do remember that market conditions can change over time and what has worked well in the past may not work so well in the future. Buying quality growth shares on P/Es of 15x five years ago may have since delivered wonderful gains, but buying the same quality growth shares at 30x today may not yield similar returns.
Your 2021 under-performance could of course be due to owning a few hefty fallers. Perhaps looking deeper into the accounts, asking tougher questions about your holdings and no longer relying on the opinions of others might help minimise trouble
Or maybe a new year means a completely new strategy.
Terry Smith’s Fundsmith had a good 2021 (+21% YTD) and a good ten years (+490%). Adopting a high-profile winning style when yours has under-performed can be very tempting:
But do you have Terry Smith-like investment skills? Probably not, and so the obvious way to get Terry Smith-type returns is to just own Fundsmith.
The problem with strict adoption of guru investing styles is they change the way they invest. After dismissing Amazon a few years back, Terry Smith recently bought in:
It’s a bit like Buffett ignoring tech stocks, then buying Apple. His way of thinking evolved. You have to evolve your thinking, too, and not just base your entire stock-picking on what a super-investor said/bought years ago.
Adopting a strict Terry Smith approach (or anybody else’s) is a short-cut that probably will not work for you. By all means use Terry Smith or whoever as a starting point, but eventually devise your own approach from there by working out which shares have done well for you in the past, and why.
Once you know what has worked for you personally, you can then define some guidelines that can help you identify similarly successful shares in the future. That all takes a bit of time and effort, but you will in turn stand a much better chance of viewing under-performing years/shares as buying opportunities rather than a red alert for radical action.
You can always review your 2021 portfolio here
…because you may find the writing process clarifies your investment thinking. Nick Train presumably thought so when when compiling his 17-stock review.
Finally, one absolutely guaranteed way to ensure you never underperform the market in any year… simply hold a tracker