Tay Fund End of Year Annual Review

The Tay Fund Portfolio returned 10.69% for the Financial Year 2011, trailing the S&P 500 Total Return Index which returned 22.63%.

The disparity in performance thus far is a result of our concentration on businesses that have most recently fallen out of favor and have yet to return to what we believe are their intrinsic values. The underlying motivation for our investments remains intact and we believe that in time, they will provide for a greater return than the market averages in the coming years.

The current economic climate has improved significantly since the inception of the fund. Although the Eurozone Crisis is yet resolved, it appears that for now, with the backing of the European Central Bank and with Germany on board, that the appropriate steps are being taken to resolve it. Still, the eventual outcome remains uncertain and the situation is still far from settled. The Eurozone will most likely survive, but the form and matter in which it re-emerges will be very different from what its founding members envisaged.

I thought it appropriate to review the lessons learnt from the previous year.

While it is always good to learn from your mistakes, it is far better to learn from the mistakes of others. With that in mind, I believe that constant learning is the key to success. A multitude of materials available both in print and electronically are in existence, most of which are accessible for a small fee. A single good idea or concept can repay itself multifold as I have personally witnessed time and time again.

Secondly, the key to success lies in recognizing mistakes and taking the necessary steps to correct them. Anthony Bolton, one of Fidelity’s best asset managers, once said that in his career he was right about 55% of the time. Investing is far more an art than science and it is important to recognize the impreciseness and inaccuracies of the business.

Following on from that very last point, there are no absolutes in investing. I may have specific probabilities and certainties of different issues, but what I am sure of is that nothing is set in stone. It is always important to evaluate different investment opportunities and to pick the ones that coincide with the “sweet spot” of what you are most intimately familiar.

Finally, conviction to your reasoning and research are paramount. Contrarian investing may be simple in theory but it is far harder to carry out in practice, especially when you are swimming against the tide. My most profitable investments have often been amongst the most downbeat stocks. It is hard to know when your theories will play out, and it can often taken months if not years for them to do so. The time spent waiting can be lonely indeed, but my humble opinion is that it is well worth it. The illusion of the safety of the herd is often revealed at the most testing of times and without conviction of your beliefs, it is easy to give in to the madness of the crowds.

To conclude, the fund will stay on its charted course. I believe that the current portfolio of businesses we own are significantly undervalued and that they will outperform the market averages in the years to come.

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One thought on “Tay Fund End of Year Annual Review

  1. Thanks for keeping us up to date on your progress. It will be interesting to watch the future performance of the fund versus S&P 500 in coming months and years. In order to make the comparison more complete have you thought of comparing not only the raw stock price movements but also how your fund with trading fees but also dividends stacks up versus S&P with a generic management fee for a tracker fund? Dividend yield is often part of your writing yet doesn’t seem to feature in your published analysis of fund performance.

    I’d also be interested to know why you believe that the hypothesis for RIM is still sound.

    Thanks again.

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