A new beginning for Mispriced Markets.
Changing Focus
I have no new stock buys or sells to report on today. Instead, this is a notice that I am retiring the “mispriced markets portfolio” section of this website. Going forward, I’m going to be sending out a much more informal (and concise) e-mail newsletter to family and friends detailing my movements in the markets. Any hardcore fans out there are welcome to e-mail me if they want to get added to that list, but I won’t be publicly blogging about my stock market activities after today.
Instead, I would like to continue to build this website into a valuable educational resource for anyone new to the art of value investing. The majority of reader questions and commentary that I get relate to the particulars of how I identify the undervalued stocks that make their way into my portfolio, rather than to my specific portfolio holdings themselves. For the most part, readers don’t just want to parrot my own portfolio, they want to figure out what it is about my approach that has provided me with the market beating returns I’ve enjoyed, so that they can apply those ideas to their own investing.
Over the past 6 years I’ve been scrupulously documenting every trade I’ve made. I’ve blogged about each of the stocks I’ve bought and sold and tried to explain my reasoning behind each move. I’ve been as transparent as I can be; highlighting what I’ve gotten wrong as well as what I’ve gotten right. I’ve tried to include any tips, pointers and insights into the process of value investing that occur to me in the moment so that there is some lasting utility to these posts beyond just the simple record of the trades I’ve made. I’ve created a separate Trading Journal section on this website to house all of these posts.
One of my favourite investing books is “Reminiscences of a Stock Operator” written by Jesse Livermore, a famous trader from the early 1900’s. It is a breezy account of his own experiences in the markets during that era. My trading journal posts, I hope, will hit a similar note. Maybe someone 100 years from now will unearth these pages and marvel as I did when I read Mr. Livermore’s book, at how much the world can change even as the core principles of investing and investor behaviour remain the same.
I look forward to using the time I might have otherwise spent on writing my portfolio updates to continue to grow and evolve this website. I’m not completely sure what direction this will take me in, but I hope some people will stick around to find out.
Retrospective
Looking back at my 6 years of journaling, what a wild ride it was. If there was ever better evidence that you can’t time the market or predict the future, surely this was it. The period began with the legalisation of marijuana in Canada and a corresponding boom and then somewhat predictable bust in pot stocks. At the same time, we were seeing a slowing economy and a “retail apocalypse” as consumers moved their shopping online. Just as the economy was showing some signs of life, a worldwide pandemic came out of nowhere and triggered a stunning 40% stock market crash. Against this backdrop, value investing put up its worst relative performance ever. As the pundits were calling for a second Great Depression, the market hit bottom, did an abrupt 180 degree about face and launched into one of the most dramatic bull market runs we’ve ever seen. After lying dormant for years, inflation came roaring back onto the scene. Bond prices collapsed. Cryptocurrencies went bananas. Investors were paying thousands of dollars for digital apes. There was a boom in SPACs (“for carrying on an enterprise of great advantage, but nobody to know what it is”.) 7 magnificent tech stocks took over the market. Two major wars broke out, the price of oil briefly traded in the negatives then went on to soar above $100 a barrel. The US government added trillions of dollars to its national debt while at the same time the US dollar showed remarkable strength when compared against almost every other worldwide currency.
I didn’t foresee any of this. Some of it still doesn’t seem to make much sense to me. Moment to moment, day to day, I had no idea what was going to happen next. Nor did anyone else. So I continued to do what I have been doing for close to 30 years now; I looked for deeply undervalued, overlooked, unloved stocks and I bought them. When they became less undervalued, I sold them. And I blogged about it all in real time.
This was a somewhat stressful endeavour. It’s not easy laying all your cards out on the table for everyone to see. You’ve got to be very sure of your process to be so public about the whole thing. The stocks I buy are not immediately appealing. But they work. With patience and discipline, this strategy of buying unappealing value stocks has paid off very nicely, even during a fairly difficult time for value investing in general.
Victory Lap
In the 6 ½ years since I began blogging about my movements in the market, the Russell 2000 index of small cap stocks has risen by 50%. Over the same time period, my stock portfolio has risen by 200%. That works out to an annual outperformance vis a vis the market of 12% per year. Anyone who was along for the ride would have seen their portfolio triple in value. That is an excellent showing and makes all the hand-wringing, second guessing and blood, sweat and tears worth it.
As is obvious from the graph above, it was not a smooth ride. For the first 3 years of this blog’s life, my portfolio failed to make any progress against the benchmark index. Any readers from that era would have been forgiven for dismissing my musings as outdated ramblings from an investing has-been. But then the economy and the market hit bottom in the summer of 2020 and started to rip higher. As has often been the case, the beaten down stocks I packed my portfolio with ripped even higher.
This has been a common theme in my investing. When the economy is slowing down, my collection of beaten down value stocks simply track the market lower. No one pays attention to these ugly ducklings when market conditions are deteriorating. But if I am patient, and keep accumulating these diamonds in the rough whenever I find them, eventually the market turns and these ignored, overlooked value stocks really start to shine.
If there was one lesson I could take away from these past 6 years, it would be to stay the course. Ignore the chaos and stick to your core, value investing principles. At some point we will have another period of soft economic performance. A recession. Maybe even a stock market crash.
If so, I will use any period of weakness to restock the cupboard with a new set of deeply undervalued situations. Warren Buffett advises investors to “buy when others are fearful”. Good advice to remember although very difficult to put into practice. It takes discipline and patience but if you can pull it off, you’ll be well rewarded in the end.
Shokunin
I was reading recently about the Japanese concept of “shokunin” which, as I understand it, translates roughly into intense mastery of a subject. Usually it relates to fine craftsmanship but I see some elements of shokunin in my lifelong pursuit of value investing, which I often think is as much an art as it is a science. 28 years after buying my very first stock I am still learning and evolving as an investor. The 6 years I spent blogging about my portfolio and the many fruitful conversations I’ve had with readers over that time period have helped me advance my understanding and knowledge of the markets even further.
I hope to still be around and doing this another 28 years down the road. It is my passion, my “shokunin”, my life’s work. Hopefully some of this passion has rubbed off on these pages and will ignite a similar spark in a new generation of value investors coming on stream.
Please check back on this website from time to time. I’m not sure which direction I’m going to take it in next, but this is not the end, it is the start of a new beginning.