Every now and then I think about turning my investments over to an advisory firm, mutual fund or ETF. But at no time in the past 50 years have I done so. Why not?
A review of fund performance in 2022 is illustrative. The best performing mutual funds in Q1 2022 are listed by TD Waterhouse and the best returned 55.21%. Not bad for six months.
The worst performers lost their clients a lot of money.
One difficulty I have is knowing which fund managers will do well and which will lose me money. What I know for certain is the fund managers will get paid regardless.
So I manage my own money. So far that is working out just fine. My 6 month return of 106.14% is about double the best performing fund (Eric Nuttall’s Ninepoint Energy Funds which rank first and second) and infinitely better than the worst performing funds. I am a bit old fashioned about investing - I prefer making money to losses and don’t like to pay someone else to do a worse job than I can do for myself.
I had a note from a subscriber whose strategy was simple - he invests in the same companies that Nuttall lists as his largest holdings. That is an effective strategy since it avoids the fees Nuttall is paid to manage the Ninepoint funds yet tracks the most important holdings of Nuttall’s funds.
I choose my own investments but not by copying anyone. Instead, I do detailed valuations of each company that interests me using modern valuation techniques and select those that I assess to be grossly undervalued. I then write about those companies and from time to time publish my thoughts on Substack. Readers are welcome to copy my choices but cautioned that I am frequently wrong.
As well as formally performing a valuation of the companies that interest me, I also build a simplified financial model of their business. The model I created for Spartan Delta is an example - it shows that SDE.TO stock is undervalued. Based on an assumption that oil & condensate will return CAD$100 per Boe and natural gas CAD$8.00 per Gigajoule, I get a price of ~CAD$38 per share for Spartan Delta next year.
Every model has its limitations and is victim to its assumptions and there is no certainty in the outcome. But the results are robust enough for me to hold 86,000 shares of Spartan Delta as a long term investment. My average cost is ~CAD$5.00 so today’s price of ~CAD$15.00 might tempt others to sell, but I think the current price continues to deeply undervalue the stock so I will keep mine, and possibly add. Commodity prices are volatile and a deep recession (which I see as likely sooner or later) will damage demand and potentially cause prices to plummet, but the cushion of valuation is large enough that I sleep soundly with this holding.
The real cost of “managed money” is not the fees paid to the advisor or advisory firm, it is the opportunity cost of risking my money in the hands of someone less able to invest it than I am. Had I chosen the best performing fund manager for the past 6 months, I would have an opportunity cost equal to my invested capital. No thanks.
I am transparent about how I appoach investing. Readers can do what they wish with these articles. TipRanks now puts me as the top ranked individual investor in their community. I have no idea how they arrived at that ranking but it is good enough for me.
Thank you Michael. Always a treat to hear you at #COM twitter space...
Hello Michael,
Have you looked at PNE.TO? They've been stuck on that price and they are around 88% gas