How To Outperform The Market
The market is at a record high if you use the all ords accumulation index. It is also 42.6% higher than it was before the GFC.
Despite that the All Ordinaries index without accumulating dividends is still 9.6% below the record high hit ahead of the GFC.
Two-thirds of Australia’s large-cap funds failed to meet their ASX 200 Accumulation index benchmark in the last five years. Hardly surprising, the index doesn’t charge fees, has no staff, watercoolers, offices, pays no commission and ‘perfectly’ compounds dividends into the share prices at no cost. It's actually rather a ridiculous benchmark because it doesn’t reflect real life issues when managing money. But still the bulk of funds allow themselves to be compared to it. Over five years with fees at 2% the average fund would naturally underperform by ~10% as a starting point. It turns out that the index we benchmark ourselves to (the ASX 300 accumulation index in our case) is a fantasy and beating the index is in fact a really rather admirable feat for any major fund.
After a journey full of lows before the highs, this year at least we are managing to significantly outperform in the Marcus Today SMA. This is about a $25m fund at the moment and is growing. It mostly contains Members money and financial planning client's money. Below is a chart of the performance of the Marcus Today SMA this financial year (since July 1, 2017). I am happy to say that the SMA is up 21.46% after expenses compared to the ASX 300 accumulation index up 10.9%. That’s an outperformance of 10.56%, not quite double the market. Considering the benchmark is a fantasy I’m very happy with that.
A few things have contributed to performance this year:
- Stock picking and timing – It is the be all and end all of adding value in this industry. Fail to do that and why are you here? A lot of the big funds add so little value these days that they have become little more than administrators. We have a process for stock picking that is now proving itself using both fundamental and technical factors.
- Managing cash – We have a two-part process, managing exposure to the market through the cash weighting, and managing which stocks we are in and when. When running up cash we tend to sell a bit of everything rather than sell one or two stocks to raise cash. When we run the cash down we do the same, add to everything.
- Good ideas – The Marcus Today newsletter is now a focused ideas generator. Ideas come from a lot of places. It is our job to find them.
- Less risk – We have held as much as 60% cash at the peak this year, because of that the SMA is less risky than the market.
- Excluding stocks – You can outperform just by excluding stocks that don’t perform.
- Vigilance – We turn our screens on every morning and keep them on all day. It is a full-time job managing money. It requires engagement.
- Managing liquidity – We are acutely aware of the risk in buying stocks that are illiquid. We manage that by pyramiding in and out. Mid and small caps are also the first to be sold should a ‘market’ event occur.
- Learning all the time – Investing is an endless learning journey. The more the lights come on the more you realise how many lights are off. We are looking to constantly improve, we have had to (!)
It has taken a while coming but our performance is our best recommendation. So let me ask, do you want me do it for you? If so I can - to get going CLICK HERE.