April – June 2010

July 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 is very 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.  

  7. Whilst the returns for the quarter (April 1st - June 30th 2010) are for the "representative" account (which is our oldest account), it was not exactly "representative" for the quarter. The older accounts retuned on an average about 250 basis points less. We are maintaining the "representative" account methodology to be 1) consistent and 2) because we expect that returns will average out over time to similar numbers for the older accounts. Should this anomaly continue, we will have to review our methodology. The newer accounts (six months and less) are still not anywhere close to the investment levels of the older accounts. 

 

Since Inception    
PeriodPortfolio Return (%)Sensex Return (%)% in cash 
June 07, 2003 to June 07, 200480.80%48.00%Almost fully investedAudited
July 05, 2004 to  June 30, 200531.45%42.10%Around 65%Audited
July 01, 2005 to  March 31, 200630.32%56.80%Around 40%Audited
April 01, 2006 to March 31, 200733.73%15.62%Around 20%Audited
April 01, 2007 to March 31, 20087.41%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, 200929.72%49.28%Around 37%Audited
July 01, 2009 to September 30, 200920.29%18.17%Around 34%Audited
October 01, 2009 to December 31, 200913.50%1.97%Around 24%Audited
January 01, 2010 to March 31, 20104.55%0.36%Around 24%Audited
April 01, 2010 to June 30, 201014.5%0.99%Around 29%Audited
Cumulative Return630.25%411.62%  

  
Since 2006    
PeriodPortfolio Return (%)Sensex Return (%)% in cash 
April 01, 2006 to March 31, 200733.73%15.62%Around 20%Audited
April 01, 2007 to March 31, 20087.41%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, 200929.72%49.28%Around 37%Audited
July 01, 2009 to September 30, 200920.29%18.17%Around 34%Audited
October 01, 2009 to December 31, 200913.50%1.97%Around 24%Audited
January 01, 2010 to March 31, 20104.55%0.36%Around 24%Audited
April 01, 2010 to June 30, 201014.5%0.99%Around 29%Audited
Cumulative Return136.74%55.15%  

    
Since 2009    
PeriodPortfolio Return (%)Sensex Return (%)% in cash 
*April 01, 2009 to June 30, 200929.72%49.28%Around 37%Audited
July 01, 2009 to September 30, 200920.29%18.17%Around 34%Audited
October 01, 2009 to December 31, 200913.50%1.97%Around 24%Audited
January 01, 2010 to March 31, 20104.55%0.36%Around 24%Audited
April 01, 2010 to June 30, 201014.5%0.99%Around 29%Audited
Cumulative Return112%82.31%  
 

*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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Ben Graham wrote about keeping the "speculative" component (of intrinsic value) in common stocks to the minimum:

"There may no longer be such a thing as a simon-pure investment policy comprising representative common stocks - in the sense that one can always wait to buy them at a price that involves no risk of a market or "quotational" loss large enough to be disquieting. In most periods, the investor must recognize the existence of a speculative factor in his common-stock holdings. It is his task to keep this component within minor limits, and to be prepared financially and psychologically for adverse results that may be of short or long duration."  

- Benjamin Graham

"The Intelligent Investor" 

At current market levels there is a clear danger of paying a bit too much for this "speculative" component. We are therefore cautious and continue to hold large cash levels.

We are on to look out for good ideas and will invest where a large "margin of safety" is available. Till then, we will hold fire.