How did you do in the downturn? What helped performance?

[Packer16]

I got slammed by the downturn in 2008 (down 49.2%) and also through March (down an additional 22%) and have bounced back about 111% from the March low.  I am sure others have done better over this time so I wanted to find out what they did to prevent a large decline in 2008 other staying in cash.  TIA.

 

Packer

[beerbaron]

I did -26% from Dec 31st 2007 to Dec 31st 2008. What helped:

 

-I had 50% of the portfolio in the SP500 index that I bought at par with the CND and sold when the CDN was around 81¢.

-I had lot of cash lying around, so I could average down very often.

 

For the results to be comparable we should all agree on the method of computing returns. For simplicity's sake I use (Value Year 2)/(Value Year 1) - External Cash Inflows.

 

BeerBaron

[ERICOPOLY]

+20% 2008  (short selling ban helped a lot)

+80% 2009

 

The past month (moving into WFC puts) marks the first time I've been less than 100% notional FFH (and it's subs)

 

So, mostly this is due to HWIC being smart.  I think of it like this -- if you had money in the Buffett partnership early on and today you are rich, did YOU make the return or did Buffett?

 

I'm just lucky I didn't get wiped out by an unforeseen event while being 100% concentrated.

 

I leveraged up with extra calls when FFH fell, and sold the extra calls when it rallied.  In Feb/March 2009 I wrote 2010 out-of-the-money puts on a basket of names and used the proceeds to buy at-the-money 2011 $250 strike FFH calls.  Then those underlying stocks rallied and I bought the puts back for practically nothing, and sold the FFH calls for roughly what I paid (and the stock was trading near strike at the time).  Then I bought deep-in-the-money FFH calls.  So I was basically unimpaired (down by 3%) when FFH began to rally from $250.  Then I flipped it into ORH and got another 30%.  A couple of other small gains here and there.

 

 

I learned this year that I should have been buying something like WFC at $8, sold at $27 in May, and then bought FFH -- that's what I should have done, that's what I learned.

 

 

 

[hyten1]

i was down 40% in 2008 and are up 94% YTD 2009

 

what helped was the fact i didn't really sell much stock (all came back) and i pour more money in as the market panic and crashed

 

 

[Guest Broxburnboy]

Here are my stats (in my trading account)

 

Your Portfolio  

         YTD            2 yrs        3 yrs        since inception (1998)

21.19% -4.24% -2.92% 28.05%

 

 

Rather lumpy throughout its existence....

 

I tend to make "macro" bets on megatrends

 

Luckily sold off my position in "value" mutual funds in Summer of '07 (luck, not brains). Made a nice investment in FFH (bought @ 260.00) and benefited by Prem's CDS hedging.

Currently selling off my excess intermediate silver/gold producers and reinvesting down the food change to explorers/near term producers/take out candidates (warning: mega due diligence required)... I believe the emerging long term trends favour precious metals, foreign markets at the expense of US dollar...US delevering continues to the expense of US consumer spending and dollar denominated debt.

My other (family) portfolios have broken even over the last 2 years...primarily Sprott Opportunities Hedge Fund and Vertex Fund (a rather wild ride).

 

Cheers

 

[mpauls]

FY 2008: Up just over 20%, mostly from multi-share class arbs.

2009 YTD: Up 57%, 11% cash 89% long equities. 

[Uccmal]

2008: up 34%

2009 to date: up 8%

 

OF course that doesn't tell a fraction of the story!  By the end of September 2008 I was up about 50% for 08.  That got shaved in November. 

 

Then I went all in with SPY leaps, Megacap leaps, and FFH leaps in the winter.  Then I got crushed like a bug in March.  Down 75% on March 8th.

 

At that point I sold off higher strike spy leaps, shorter duration FFH leaps, and common stock at huge losses, turned around and bought different megacaps and different duration/different strike on the spy and ffh leaps. 

 

So I captured a tax loss that will pay me back for years to come.  That was the smart part.  The lucky part was that the market turned around on March 9th and within days I was up 100% from the low.

 

At this point in my investing career I have made about enough to live frugally without holding a job.  For that reason I need to shift my focus more to capital preservation and margin of safety than I have in the past.  In short I had too much leverage via options and margin going into the downturn. 

 

Something Omagh posted a while back showed Berkshires annual growth stats (book value).  It hit me over the head like a brick.  Somewhere Buffet learned what I consider to be the biggest lesson of investing.  Berkshire has had only 3 or 4 years when it lost book value over Buffett's entire tenure.  If one can avoid losing periods such as 2008/09 then the homeruns are not as necessary.  Intellectually I knew this but experience has made it part of me now.

 

So I learned in my heart and soul about preservation of capital.

[benhacker]

Down 26% in '08 - up through Q3, but then Q4 destroyed all my illiquid stuff.

 

Up ~70% YTD in '09 - Mostly my holdings came back and put a lot of action on Wells and FFH during March and a few other holdings.  The single most important mistake I didn't make was hesitating to buy in late March and April as new money came in.  The fact that some stuff was up 100% made me feel sick, but I just bought anywya based on what was cheap.  I had about 30-40% of AUM added in inflows during this time so this would have been a major bone head move if I would have 'waited for a pullback' for the new accounts.

 

Ben

[Mikenhe]

Rough figures:

 

2008 down 35%

2009 up 65%

 

most of my losses in 2008 came from a couple of investments that were recommended to me by my broker – coupled with my greed in trying to squeeze an extra few dollars out of a share that I knew I should sell and it bouncing to zero. Plus I was in a few funds that I wasn’t happy with.

 

 

This year I took a lot more thought and care in my investments and have actually realigned my holdings into shares that I have faith in and have actually researched. I still need to do more of that in my 401K though but the options in my plan are limited so I’ve settled for a couple of changes and just carried on putting money in there – with the company match and tax shelter status it would be foolish not to.

 

 

What helped me on the upturn was investing (or staying invested) in companies I had faith in and believing my own analysis of companies. Plus actually having the guts to execute on those beliefs instead of passively accepting what was happening.

 

FFH and ORH helped a bit too…..even then it would have been as much help if I hadn’t pulled out of some funds in mid 2008 and invested in those two shares more than I had previously.

 

 

Looking back now and realizing what I didn’t know about what I was investing in is a scary thought.

 

[Smazz]

you people are not going to make me calculate this stuff are you?  :D lol...

 

I dont think ive been below 40% in the last 3 years for sure.

 

Concentration of portfolio and use the realization that the $ you are putting into someones hands maybe the $ you need to eat next year. 

 

Dont feel bad if you are going to take a profit.

 

In this game only one person makes the rules for you, only one person sets the targets to achieve, only one person draws the finish line:

 

YOU!

[mountboney]

Concentrated on "rule #1"

 

* Lucky to have lots of cash in '08 - down 8%

* Put cash to work and diversified big time after the meltdown late '08 (bonds, MLP's, CEF's, equities, gold, cash) - up 40% in '09

* Still diversified but planning to go back to more concentrated portfolio (big cap internationals, maybe BRK at these levels, special situation small caps) after one year long term capital gain period

 

I kinda like rule #1

 

 

[Junto]

I guess it depends on how you calculate. My 401k's got nailed but my personal investments did okay through the slump.

 

Here are the stats for the investment accounts (based on quicken):

 

2008: -17.54%

2009 YTD: 92.48%

 

I made a big push into preferred's in early 2009 which drove a lot of this year's returns. In mid-2008 to the early of 2009, I modified my investment style to momentum/range bound investing in a select number of stocks which limited my downside. I still held a core portfolio of long-term investments through the market drop and rebound. I don't short stocks so I missed out on a lot of opportunities but I do focus on financial and real estate related investments so overall I have been very happy with my returns.

[wabuffo]

2008 -- up +10%

2009 -- up +95% thru Sept q-end.

 

I'm more proud of 2008 than my 2009 returns (see my dart-throwing monkey comment in the Pabrai thread about the avg stock in 2009 being up 80-100% give or take thru Sept).

 

I don't short and generally stay long with maybe 10% or so in cash (this year that 10% is in GLD).   What I do is make sure 25-50% of my portfolio is long in special situations -- (liquidations mostly whose performance is independent of the market).  In 2008 I had maybe 40-50% of my portfolio in FTAR, ECRO, MAIR (all liquidations in some form) plus BUD (which I added to in October when its arb spread blew out).  While the general portion of my portfolio did about as well as the S&P, my special situation portion outperformed and allowed my total portfolio returns to stay positive.

 

wabuffo

[Rabbitisrich]

Luck helped my performance. Pure luck allowed for certain arbitrage and special situations to close around February of this year. When March came around, I held mostly cash--helped of course by the collapse of my equities--so I doubled and tripled down on the companies I held from 2008: KMX, AN, CBS, DIN, MHK, FFH, MCF, ATPG, WFC, NARA, and groups of net-nets and riskier stocks.

 

It's too soon to write the book on my performance, however, since I note that my portfolio improved indiscriminately. On the other hand, I learned the value of targeting viable business models weighed down by fears of debt rollover.

[enoch01]

What I do is make sure 25-50% of my portfolio is long in special situations -- (liquidations mostly whose performance is independent of the market).  In 2008 I had maybe 40-50% of my portfolio in FTAR, ECRO, MAIR (all liquidations in some form) plus BUD (which I added to in October when its arb spread blew out).  While the general portion of my portfolio did about as well as the S&P, my special situation portion outperformed and allowed my total portfolio returns to stay positive.

 

 

wabuffo,

Do you use any particular methods to find liquidations?  Do you just check the SEC for form 25 registrations and go from there, or something else?

Thanks,

E

 

[rranjan]

2008 -- up +10%

2009 -- up +95% thru Sept q-end.

 

I'm more proud of 2008 than my 2009 returns (see my dart-throwing monkey comment in the Pabrai thread about the avg stock in 2009 being up 80-100% give or take thru Sept).

 

I am not quoting in direct response but my point is related.

 

I have little bit different way to look at it, especially for my personal portfolio. I calculate total intrinsic value of portfolio and if it has increased over 1-3-5 year’s period then I feel happy.  Market quotation value of portfolio being down 30% or up 10% doesn’t make me feel  sad or happy (It does some time and I am trying to get rid of that habit so work in progress …). I am realizing that focusing on market quotation value might force me to take some risk which I should avoid at all cost. 

 

I have read many times and understood it but still keep reminding myself that my portfolio returns over years might look very different than market( up as well as in down). What matters is the total return over long term keeping the risk in check. Now I am almost, not completely though, in a frame of mind where it doesn’t matter to me if my portfolio quotation value drops by 30% as long as portfolio intrinsic value has not dropped in same proportion.

 

I do see the logic behind average monkey performing good in 2009 and do agree that we shouldn’t draw any conclusion based on this performance but I fail to understand why we should expect portfolio quotation value always higher than market returns year over year consistently. If portfolio volatility is much higher, which I suspect is true for most of us here, then expectation of volatility only on one direction is not realistic. That’s the reason I feel it’s not fair to criticize Mohnish over 2007-2008 return in isolation. It’s also not fair to just pick 2007-2008 point or middle of 2009 as the final point to judge his performance. We can definitely criticize the selection process of individual picks in his portfolio but being down more than market for 1-2 years in a row shouldn’t be a problem as long as intrinsic value of the portfolio has not gone down in big way. We should definitely criticize if portfolio intrinsic value is going down due to his selections but market quotation value at any given point is irrelevant. I don’t have the problem with criticism due to right reasons. He did pick some businesses which were too dependent on credit market liquidity.

 

Coming back to the main topic of this thread, personally I didn’t try to manage volatility but I was not finding too many fat pitches in early 2008 so I had some cash. Later part of 2008, I found some fat pitches and deployed some cash and then again found fat pitches during Feb/March 2009 and I ran out of cash before absolute bottom. I wasn’t trying to catch the bottom. I was only focused on biggest discount to intrinsic value and swinging at it with best of my ability.

 

In 2008 I was down by roughly 40%. In 2009 I am up by roughly 150%. Portfolio market quotation during this period didn’t change in lockstep with intrinsic value of my portfolio but I have no complains. I am still trying my best to not get impacted due to market quotation rather just take advantage of it if I can. Even after understanding and agreeing, doing so has not been easy for me but I am still trying my best. I also learned the importance of keeping the dry powder to take advantage of fat pitches. There is no point in being able to wait and identify fat pitches if we can’t swing at it due to lack of cash. I feel there is couple of ways to do this. One would be to keep cash always and other to buy cheap hedge, which is generally available when everything is priced for perfection. We can use the combination as well.

 

Wabuffo - You did very well in 2008 and I do agree that you should feel proud.

 

My two cents…… ( bit long though)

 

[Mungerville]

2008: up 80%

2009: up 20%

 

In late 2007, I was pretty sure we would see a collapse of more than one large NY brokers, banks and the stock market at a minimum.  Looking back, I should have made a lot more in 2008 shorting but you do what you can.  I was 150% long and 150% short through 2008 and my longs held up fairly well (mainly ORH).  Usually had been in Berkshire and other investments but did not want to touch those or any financial holding company that was not hedged.  Was generally wary of various investments in stocks and diversified strategies.

 

I was down about 25% earlier this year as my portfolio remained 50% hedged and my longs were not doing well.  Also got screwed on the declining US currency for the first bit of the decline - I was expecting the stock market to continue to go lower after March 2009 and the US currency to continue its artificial rally.

 

I am pessimistic.  None of the problems have been solved and now there is more debt to GDP.  The economy needs pain now in order to avert collapse later if pain continues to be put off.  It is that simple.  Suggest others remain cautious when everything seems rosy on the surface because the under currents are significant and dangerous.  The monkey is still on our backs - total debt to GDP now 400%. 

[SharperDingaan]

 

Given the times we would prefer not to post the actual numbers.

 

2009 YTD we’re > 100%, & we expect the trend to accelerate. 

1) We’ve hedged very well - both defensively, AND offensively.

2) We know our relative strengths/weaknesses, & we haven’t strayed outside of them.

 

We have found that we also have a size constraint, as at best we can only truly understand 3-4 companies in different industries. Not something that we expected.

 

SD

 

[Partner24]

2008: breakeven

The main reason: FFH

 

 

[Viking]

2008 = +17%; 2009 = +29%

 

Lesson 1: importance of capital preservation

Lesson 2: keep things simple (invest in what you know and what works)

Lesson 3: concentration works

Lesson 4: be very, very patient (given time, logical analysis will usually work out)

Lesson 5: keep learning (history does not repeat exactly, but it does usually rhyme)

 

Uccmal, I am in a similar situation as you; my investments are now large enough that I do not need to have a day job (but not large enough that I can officially say that I am retired). In the past, I have gone as high as 80% in FFH (when it fell to $70 years ago and a second time when it fell to $100 a couple of years back). I am doing my best to not be so concentrated as I no longer am comfortable with the risk/return.

 

FFH juiced my returns in 2008; I backed the truck up in Q2 & Q3 when they were sitting on all the CDS and long US Treasury gains. My FFH gains covered over some smaller lossed from earlier in the year like SFK Pulp). In 2009, I loded up on ORH - 50% - this year. The big difference versus 2008 is I have had a number of smaller winners earlier this year.

 

Moving forward I will continue to try and limit my best positions much more (perhaps to 25%)?

 

Bottom line, the last three years have been great years... I look forward to the coming years. I am of the opinion that:

1.) we continue to be in a bear market rally

2.) the economy will get worse before it gets better

3.) deflation will emerge as the primary concern (over inflation)

And this will keep me cautious.... I will need very fat pitches to get me to risk my capital.

[txlaw]

2008: down 45%

2009: up 60%

 

As you can see, I still have a ways to go before I break even. 

 

My 2008 performance was severely damaged by two positions that were holdovers from before I started value investing.  I didn't have a good understanding about these companies' balance sheet issues, and my investments in them became permanently impaired in 2008, as both companies eventually filed for

bankruptcy.  While it is quite possible that these companies would have survived a run of the mill downturn, they could not withstand the great credit crunch, and their managements acted horribly, running the companies into the ground.  Unfortunately, I also ignored a sage piece of advice from Warren Buffett with regard to these two positions: "You don't have to make money back the same way you lost it."

 

I first learned about value investing in late 2007, and I really started to delve deeply into Warren Buffett and value investing in early- to mid-2008.  Prior to that, I really didn't know what I was doing, and investing was more of a thing I was just supposed to do with my disposable income.  I had a very rudimentary understanding of how to go about conducting due diligence, and I didn't really understand many of the other factors involved in investing that many of the greats always keep in mind. 

 

When I read the essays of Warren Buffett in December 2007, compiled by Lawrence Cunningham, a light switch just flipped.  All of a sudden, investing made sense to me, and I couldn't get enough of learning about it.  Not only did I want to learn about investing, but I also wanted to learn about business in general, finance, the financial system, and the reasons why we were in this crisis, so I started to read like a madman.  I consider this board one of the best learning tools I've had during the last two years.

 

I would say that my investment process became quite good just prior to the market meltdown caused by Lehman going under, so I was able to capitalize on the October and March lows.  However, I still have lots to work on.  For example, my 2009 performance would actually be much better -- I would be better than even -- if I had not traded so much.  Here are some of the investments I actually owned and that I sold waaay too early because I got spooked about the market going back down again:

 

DELL at 9

EBAY at 14

WFMI at 10

NRG at 19

 

I sold all of these for about 30% returns, but if I had just held on to these instead of trying to exit and re-enter these positions based on market movement, I would be much happier with my results.  I've learned that I have an itchy trigger finger (exacerbated by the fact that I'm not employed at the moment) when it comes to selling my stocks.  I need to learn more about hedging my portfolio to counteract my inclination to sell too early.

 

Sorry for the long post, guys.  But this thread really got me thinking.  Great question, Packer.

[locutusoftexas]

I retired in 2008, have a very frugal lifestyle and support my wife and two kids attending college and living at home. I have been a rather passive buy-and-hold investor over my career and spend my free time on part-time scientific research.  I have had around 80% of the portfolio in stocks and stock mutual funds. From our peak portfolio value in May, 2008, we are presently down 15%.  I started buying into the market too early last fall, and then in March of this year, I cleaned up the portfolio and used the proceeds to add to the holdings of LUK near its low.  The latter action pulled my performance up a bit, since LUK has doubled since then.  I guess that you could consider my performance to be a proxy for the passive, somewhat knowledgeable investor.

 

I don't plan on doing options or holding the peddle to the metal, as I don't need to do that. However, I am planning on trading the market on a time scale of months, since I have become cynical about the financial markets and also because I now have an intermediate trend indicator that appears to be satisfactory. I am not looking forward to paying taxes on the gains.  If the portfolio reaches a sufficient level (whatever that is), I will probably trade LEAPS, which I find to be very tempting, but that would be just for the challenge of learning a new investment vehicle.

 

To the active traders who reported, congratulations on some very impressive numbers.

 

Best wishes for the future,

Tex

[DynamicPerception]

This is a very interesting thread covering a very unique two year period.

The small population of investors present just shows how many ways there are to approach things.

The range of skill and techniques used seems quite varied.

This board knows the value of learnings from their mistakes and not repeating them.

I consider myself a novice.

I believe in super concentration and big bets.

I no longer use leverage.

"Buy Low, Sell High"  Simple but not easy.

A Viking and others state, PATIENCE works.

 

The following shows that all did very well considering the economic environment

and will still be eating for at least another QTR.

Continued success to a great board.

 

 

                        2008              2009

Packer16            Down  49.2%    Down  22% thru Mar

                                              Up    111% from Mar low

beerbaron            Down  26%

ERICOPOLY          Up      20%      Up      80%

hyten1                Down  40%      Up      94%

Broxburnboy                              Up      21.19%

  (family)                                  Even over last 2 years

mpauls                Up    20%+    Up      57%

Uccmal                Up      34%      Up      8%

benhacker            Down  26%      Up      70%

Mikenhe              Down  35%      Up      65%

Smazz                Up      40%+    Up      40%

mountboney        Down    8%      Up      40%

Junto                  Down  17.54%  Up      92.48%

wabuffo                Up    10%      Up      95% 

Rabbitisrich

rranjan                Down  40%      Up    150%

Mungerville            Up      80%      Up      20%

SharperDingaan                            Up    100%

txlaw                    Down  45%      Up      60%

locutusoftexas                              Down  15%

DynamicPerception  Up      53.35%  Down    8.48%

 

 

 

If everyone started with $100,000 at 2007Dec31

 

                                      2008                        2009

 

Packer16            $100000    -49.20%    $50,800.00  -22.00%  $39,624.00

                                                                          111.00%  $83,606.64

beerbaron          $100,000.00 -26.00%  $74,000.00

ERICOPOLY          $100,000.00  20.00%  $120,000.00  80.00%  $216,000.00

hyten1                $100,000.00 -40.00%  $60,000.00  94.00%  $116,400.00

Broxburnboy        $100,000.00              $100,000.00  21.19%  $121,190.00

  (family)            $100,000.00              $100,000.00              $100,000.00

mpauls                $100,000.00  20.00%  $120,000.00  57.00%  $188,400.00

Uccmal                $100,000.00  34.00%  $134,000.00    8.00%  $144,720.00

benhacker            $100,000.00 -26.00%  $74,000.00  70.00%  $125,800.00

Mikenhe              $100,000.00 -35.00%  $65,000.00  65.00%  $107,250.00

Smazz                $100,000.00  40.00%  $140,000.00  40.00%  $196,000.00

mountboney        $100,000.00  -8.00%  $92,000.00  40.00%  $128,800.00

Junto                  $100,000.00 -17.54%  $82,460.00  92.48%  $158,719.01

wabuffo              $100,000.00  10.00%  $110,000.00  95.00%  $214,500.00

Rabbitisrich          $100,000.00

rranjan                $100,000.00 -40.00%  $60,000.00  150.00%  $150,000.00

Mungerville            $100,000.00  80.00%  $180,000.00  20.00%  $216,000.00

SharperDingaan                                    $100,000.00  100.00%  $200,000.00

txlaw                    $100,000.00 -45.00%  $55,000.00  60.00%  $88,000.00

locutusoftexas                                      $100,000.00  -15.00%  $85,000.00

DynamicPerception  $100,000.00  53.35%  $153,350.00  -8.48%  $140,345.92

 

[claphands22]

How did you do in the downturn?

  0% - broke even

 

What helped performance?

This board, this board and this board.

[abyli]

2008 +36%

2009 YTD +42%

 

Thank Fairfax team with their fantastic performance. This board is the best investing board.