Oh, that's neat.
My defensive portfolio over on Stockopedia has actually made it to a year. The thing that makes me really proud is that it's the top-performing fund over the year. It returned 13.28%, against the FTSE350 of -2.41%. A nice little outperformance. AFAIK, spreads and dealing fees are factored into the performance - although I have no control over how that is calculated. No share has been sold at a loss.
I only wish my real-life portfolio performed that well.
In the portfolio, I recently sold off BATS (Brit Amer Tobacco), which is towards the high end of its valuation. In real-life I still hold it.
Looking at the portfolio, I think the selection of MKS (Marks & Spencers) was a mistake. It has not been a huge mistake performance-wise, but on reflection it doesn't quite fit the criteria I was looking for in the portfolio. It is currently so cheap that I am reluctant to eject it from the portfolio.
One thing I do observe is that there have been no really bad calls (again, unlike in real life). Sure, there are some that are down. AZN (Astrazeneca), the worst performing share, is down 6.4%. I don't call that a disaster, though.
The portfolio has 12 companies in it, although there's about 3 that are quite small. I would like to aim for about 10 companies, of roughly equal weighting. At the moment, nearly 10% of the portfolio is in cash, due to the recent sale of BATS. I haven't figured out a good replacement yet.
Most of the companies fall in the "acceptable valuation" range. None I consider daftly overvalued. Astrazeneca, Reckitt Benckiser, Morrisons and Smith & Nephew are at the low end of their historic valuations (which I define to be less than the 20th percentile of their decade PE) . Marks & Spencer is edging towards its low region of valuation. So actually, I'm encouraged that the portfolio hasn't "run out of puff".
I would like to make some general observations. The first is that the companies weren't selected on a "cheap as chips" basis. AZN does have an amazingly cheap valuation of PER 6.35, but BSY is on a PER of 15.05. Last year, HLMA (Halma) reached a valuation which was too high, and I should have been more alert and sold it. The valuation level has come back down, so I missed a trick there. I hope that I have learned my lesson. Hence my reason for ejecting BATS from the portfolio. Another observation, mentioned above, is that the portfolio has had no disasters. It seems to have followed Buffett's dictum that you don't have to do many things right, just as long as you don't do many things wrong. Just look for good solid companies at reasonable (they don't have to be fantastically cheap) prices, and you'll do OK.
I don't think my method for finding safe companies is fool-proof. I could well imaging that I might have short-listed HSV (Homeserve). It has had over a decade of high ROE and increasing revenues, but it has been under investigation by the FSA (Financial Services Authority). It is on a PER of 8.35. This is a company that I'll keep away from. Too risky. It might, of course, make a strong rebound, and it looks like a Greenblatt Magic Formula company. I've seen enough of these companies where the magic died that I wont be adding it to the portfolio.
In this portfolio, slow and steady is definitely winning the race.
And yet, of course, whilst I'm busy congratulating myself on a job well done, it's much harder to really know how much of it was luck, how much was judgement, and how much of it was market dynamics. Was it luck, for example, that kept me from noticing HSV and including it in the portfolio? And didn't I just benefit from the general "risk off" attitude of the market? My shares in Pace, for example, which wasn't in the portfolio, have had a torrid time last year. No-one could have really predicted the travails that Pace had encountered. Also, some of the shares that I have liked a lot have had a bad performance last year. Shares like AFF (Afferro Mining) - admittedly a riskier mining play (of all things) - but when you look at the cash position, and its resources (which are being counted for nothing), I think it is a good selection. It was taken down by the general market. There's nothing I can do about that. YTD (year to date), it's up 35%. The market has suddenly decided that it likes miners again. Another share that I like - SHG (Shanta Gold) - is up a monster 61% YTD. I still don't think it's anywhere near its true value. Yet in 2011 it was all over the place, by which I mean "mostly down".
Sometimes Mr Market gets it wrong, and sometimes you get it wrong. And it's often difficult to decide which one of you is wrong. The recent suspension of CPP has been another humbling lesson in why I'm not as smart as I like to think. Fortunately, CPP was not a huge part of my portfolio. But it was definitely a drag on performance. Something that I would have preferred to avoid.
I think there is a general kind of lesson here that keeping a steady ship is likely to be the better course of action; with the proviso that you can go against Mr Market if you're pretty sure you're right. I would say that, in general market panics, where everything is being marked down, that is usually the better time to buy. i think you cna get a "sense" that the market is just throwing itself off a cliff. If there are company-specific problems, then that requires special caution. With something like HSV, discussed above, you're doing a high-wire act. It's very impressive if you can pull it off, but there's going to be a lot of mopping up to do if the situation deteriorates. Unless you know for sure, you're taking chances.