A dead donkey can make money in a rising market

I’ve just been doing a periodic grinding of the numbers for the family fortune (ha ha, cries of hysteric laughter). This being the small amount we’ve managed to stash in the share market over the last 15 years or so.

I’m using a marvellous magical software program that tracks shares owned, dividends received, and changes in market value. Based on the calculations done by this thing, the family fortune has delivered some interesting returns:

Total Return (since inception): 50%

1 -Year return: 26.9%

The total return figure is a bit hard to get the head around. It’s the total income received + the total change in market value, calculated for each share since original purchase. It does not include things that have been sold where a capital gain or loss has been made, so its a bit misleading. It is not an annualised compounding rate of return (which is harder to calculate but a much more interesting number).

Of more interest is the 1 year figure, especially seeing as not all this years dividends have been come in yet. The figure of nearly 27% means that the investments + change in market value for the last year have returned… yes, 27%. This includes the results from the investment decisions that bombed badly.

These results are not gained using anything clever. No options, no contracts for difference, no warrants, no short selling. Just buy and hold, based on reading the newspaper and subscribing to one of the market tip-sheets.

On this last point, I often disagree with the tip-sheet, but it does make interesting reading and helps to give some idea of a thought process to use.

Has your managed fund returned 27% in the last year? And if it came close, how much did you pay in fees to keep the fund damagers in their BMWs?

Has your clever trading strategy returned 27% for a typical hands-on amount of work of under an hour a month?

These kind of return figures are both exciting and frightening. They are exciting because it’s nice to see the investments grow, and it vindicates the thought process used in making the investments.

The returns are frightening because it leads to complacency – an expectation that this will happen each and every year (it won’t!).

More generally, the fact that such returns are available leads to the current rash of “investment” touts who push greedy unsuspecting mugs into markets they don’t really understand.

When markets are rising, making a good number is easy. When markets fall, which they inevitably will, many will lose their nerve… and their shirts… or more. There will yet be much wailing and gnashing of teeth!

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