In terms of returns not much happened in the second quarter of 2015 if you compare it to the first quarter.
Europe up 7.1%
In the first half of 2015 the European portfolio returned 7.1% (+7.5% in the first quarter) compared to the 11.3% (+16.0% in the first quarter) return of the European STOXX 600 index.
This was mainly because large companies, most likely because of index fund investments, increased the most over the period. And as you know, this newsletter recommends ignored, undervalued, smaller companies.
Up 114% over 5 years, index only 50% (2.3 times better)
Despite this underperformance, if you followed all the European portfolio’s recommendations from when they were started in July 2010, your portfolio would have grown 114%.
Compare this to if you had invested in the index, in which case your return would have been only 50%. This is just less than 2.3 times better than the index.
Another way of looking at it is that if you invested €1,000 in the European portfolio, your investment would have grown to €2,138, compared to only €1,502 if you invested in the index.
North America down 1.2%
In the first half of the year, the North American portfolio declined slightly, decreasing 1.2% (+1.7% in the first quarter), slightly worse than the 0.2% increase in the S&P 500 index (+0.4% in the first quarter).
How we calculate performance
Before I show you more performance numbers, first a short reminder of how we calculate the newsletter’s performance.
Exclude dividends and include 2% fees
I calculate the performance without dividends and include a 1% buying and selling fee (2% in total) for all investments bought and sold.
Dividends are not included (although this would make performance look better) in order to make the performance figures comparable with the indices (which also exclude dividends).
A 1% buying and selling fee is conservative; you can get away with lower fees if you use an online broker (my broker charges 0.25%).
Equal to the results you can get
The aim is to make the newsletter’s performance equal to what you can make if you follow its recommendations.
First quarter 2015 performance
The table below shows the performance of the indices in the first quarter of 2015.
Source: Yahoo Finance
This is the performance of the newsletter over the same period.
The charts below show the performance of the two portfolios in 2015.
Performance since inception
The following charts show the overall performance of the newsletter since the service was launched.
European recommendations (Started July 2010)
North America recommendations (Started October 2011)
As you can see the European recommendations have substantially outperformed the index and the North American ideas are still lagging behind the index.
Why North American ideas are lagging behind the index
Long-time subscribers will remember that this was mainly because North American recommendations did not include Apple, or some of the other large companies, which were the major drivers of the good performance of the S&P 500 in 2012 and 2013.
2014’s weak performance was mainly because small companies (the ones I mainly recommend in the newsletter) did not do as well as the large companies that make up a big part of the S&P 500 index.
Oil & Gas underperforming
And, of course, towards the end of 2014 North American US Oil and Gas companies (five recommendations in the newsletter) were the worst performing sector in the S&P 500, falling 10% in 2014 because of the unusually cool US summer and the falling oil price.
Change the strategy?
Although the North American investment ideas have lagged behind the S&P 500 index, I am not planning to change the model I use to select investment recommendations.
As you know, regardless of how well they have performed in the past, even the best investment strategies can underperform the market, as Joel Greenblatt mentioned in his excellent book The Little Book that Still Beats the Market, before they catch up and start to outperform again.
Why bad performance is good
In his book, Joel also says that periods of underperformance are good thing for a good investment strategy, because without such periods the strategy would be used by so many investors that it would stop working.
We have to be patient
I am repeating what I have said so many times before (I am embarrassed but I am saying it again), we just have to be patient; it is simply a question of time before the North American strategy starts outperforming the market.
Wishing you profitable investing