January – March 2010

April 29, 2010

Whilst your individual returns are with you, I would like to share how we think about our performance at Jeetay.

  1. We look at a "representative" portfolio. Most of the older portfolios usually have performance numbers clinging around the numbers of the "representative" portfolio. Newer portfolios take time to build up and usually mask true performance and may even distort it. This "representative" portfolio is that of our oldest client.
  2. We benchmark our returns against the Sensex. We are size agnostic but usually find values in the mid-cap space. However we carry fairly large amounts of cash and so a mid-cap index may not be the right benchmark. We have chosen the Sensex to give you a sense of the "opportunity cost" of not being in the market and not as some sort of a competitor with whom we are in a quarterly rat race.
  3. Short-term underperformance does not bother us and short-term outperformance does not excite us. What should count are long-term figures. Our idea of the long-term isvery long. We will be honest - we do not have performance figures for our definition of the long-term. So we have sliced the performance figures into various shorter-term horizons, to suit your perspective of what should be a sensible investment horizon.
  4. We usually measure the cheapness of our portfolio in relation to each security's historical valuations and not against the current market valuation i.e. we would like to have some sort of absolute cheapness and not relative cheapness.
  5. The figures cited are before taxes and fees. This is because the taxes are paid by you and vary depending on whether you have short-term capital losses and the quantum of short term gains. The fee structure varies due to 1) different plans 2) different entry points (high watermarks). These should shrink the magnitude of outperformance, although not eliminate it, except perhaps for the last exhibit.
  6. We do not only look at returns, but at risk-adjusted returns. We do not measure risk by simple volatility, but by downside volatility, drawdowns and portfolio cheapness. On a risk-adjusted basis, our returns, even after taxes and fees, should compare well with the Sensex. Since we believe that markets are unforecastable, we usually hedge our positions by carrying fairly large amounts of cash.

Since Inception

 

 

 

 

Period

Portfolio Return (%)

Sensex Return (%)

% in cash

 

June 07, 2003 to June 07, 2004

80.80%

48.00%

Almost fully invested

Audited

July 05, 2004 to  June 30, 2005

31.45%

42.10%

Around 65%

Audited

July 01, 2005 to  March 31, 2006

30.32%

56.80%

Around 40%

Audited

April 01, 2006 to March 31, 2007

33.73%

15.62%

Around 20%

Audited

April 01, 2007 to March 31, 2008

7.41%

18.60%

Around 30%

Audited

April 01, 2008 to March 31, 2009

-22.26%

-37.94%

Around 35%

Audited

*April 01, 2009 to June 30, 2009

29.72%

49.28%

Around 37%

Audited

July 01, 2009 to September 30, 2009

20.29%

18.17%

Around 34%

Audited

October 01, 2009 to December 31, 2009

13.50%

1.97%

Around 24%

Audited

January 01, 2010 to March 31, 2010

4.55%

0.36%

Around 24%

Audited

Cumulative Return

540.39%

406.61%

 

 

 

Since 2006

 

 

 

 

Period

Portfolio Return (%)

Sensex Return (%)

% in cash

 

April 01, 2006 to March 31, 2007

33.73%

15.62%

Around 20%

Audited

April 01, 2007 to March 31, 2008

7.41%

18.60%

Around 30%

Audited

April 01, 2008 to March 31, 2009

-22.26%

-37.94%

Around 35%

Audited

*April 01, 2009 to June 30, 2009

29.72%

49.28%

Around 37%

Audited

July 01, 2009 to September 30, 2009

20.29%

18.17%

Around 34%

Audited

October 01, 2009 to December 31, 2009

13.50%

1.97%

Around 24%

Audited

January 01, 2010 to March 31, 2010

4.55%

0.36%

Around 24%

Audited

Cumulative Return

106.76%

53.63%

 

 

 

Since 2009

 

 

 

 

Period

Portfolio Return (%)

Sensex Return (%)

% in cash

 

*April 01, 2009 to June 30, 2009

29.72%

49.28%

Around 37%

Audited

July 01, 2009 to September 30, 2009

20.29%

18.17%

Around 34%

Audited

October 01, 2009 to December 31, 2009

13.50%

1.97%

Around 24%

Audited

January 01, 2010 to March 31, 2010

4.55%

0.36%

Around 24%

Audited

Cumulative Return

85.16%

80.53%

 

 

*A mistake we hope never to make again - at low levels of the market, do not wait for even lower prices. Ignore all the negatives, because they usually are already in the prices. Mark-to-market losses should not hurt, only permanent losses of capital.

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The illusion of false prosperity engineered by cheap money from central bankers is just another chapter in the tome of irresponsible behavior witnessed in the decade. Investors should not believe that the financial crisis is over.

As Carmen M. Reinhart and Kenneth S. Rogoff, write in their magisterial ‘This Time Is Different', financial crises are protracted affairs. The aftermath of severe financial crises share these characteristics:

  1. Asset market collapses are deep and prolonged. Declines in real housing prices average 35 percent stretched over six years, whereas equity price collapses average 56 percent over a downturn of about three and a half years.
  2. The aftermath of banking crisis is associated with profound declines in output and employment.
  3. The value of government debt tends to explode - not because of bailing out or recapitalising the banking system, but due to the inevitable collapse in tax revenues.

The next stage of this crises is going to be worse than anything that has been so far seen. The gush of abundant liquidity will soothe nerves as long as it lasts and may cause exuberant behavior in emerging markets, commodities and other asset classes. But it would be delusional to believe that rising stock prices are solely due to superior economic prospects, demographics, consumption, rising incomes or any other such theme.

The central bankers printing presses will ultimately go out of business because what they are indulging in is nothing short of fraudulent behavior - creating massive amounts of money without commensurate real and productive economic activity. Lord Keynes may have got his economics wrong - even though he got his stock market insights right.

We are cautious at these levels, very cautious. We may be wrong on the timing in over quest to start rebuilding cash, but then Mr. Market is a most unpredictable partner - his moods may be entertaining, but they are not amenable to dependable forecasts.