Posted by Davy on November 12th, 2007 in Gurus, Market Commentary
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The market opens in a few minutes but Asia took another drubbing overnight, Europe seems to be calmer though.

During the last market sell-off in August, I was quite dismayed when my portfolio performance dropped slightly below the leading indices (which at the time was the Dow, if I recall). Now everything I’ve ever learned about investing screams out that I should ignore short-term performance but I simply can’t help it — by nature, I’m a bit obsessive and competitive to boot. If I can’t beat the leading indices, then I should stop wasting my time and buy an ETF and go kick a soccer ball around, no?

So I stated on my website that I would go into deep study to see what I could do about this situation. And while our volatile portfolio quickly shot back up over the Dow (and slightly outpaced the Nasdaq) since then, I realized that master investors like Klarman regularly trounce the averages while holding large sums of cash. I studied the Buffett Partnership letters and there were quite a few nuggets there which I’ve been internalizing the last few months:

1. It takes at least a 3 year track record before any judgment on investing prowess can be made.

2. Portfolio performance should be judged IN A DOWN MARKET. Over the span of 7 years or so, Buffett regularly pounded the table with the idea that he sought to minimize losses in down markets, not outpace the averages in bull runs. In fact, he warned that he would have trouble keeping up with the Dow if the market was strong.

3. Buy-and-hold-forever isn’t the only trick Buffett had up his sleeve. In order to deliver consistent returns, Buffett sought out both short-term and long-term investments and traded quite regularly and with leverage, if the situation was deemed safe.

I’ve moved from updating my portfolio page weekly to a monthly basis so I don’t get to hung up on matching the indices. I’ve also researched some new tactics which hopefully can mimic Buffett’s workouts, which I’ve deemed picking up quarters. It may take a few months or more to fully devise and implement a revised investing game plan but I’m pleased that the portfolio has held up better during the past drop than in August.

At the weekend, the portfolio sits at 13% vs. the 8.5% of the leading NASDAQ. Impossible to say if it’s luck or design but I’m working on it being the latter.