To a generation of us growing up through the 80s and 90s, Mark Waugh was one of Australia’s great cricketers. Few batsmen have been more enjoyable to watch. To the statisticians, however, he is an also ran. He averaged just 41.8 runs per dismissal, ranking him a lowly 13th among 17 Australian batsmen to score more than 2,000 runs between 1990 and 2010.
Mark Waugh’s problem was that he didn’t rack up enough monster scores. He scored more half centuries than his twin Steve Waugh, who finished his career with averaging 53 runs per dismissal. Upon reaching 50, though, Mark averaged just 47 further runs, versus 95 additional runs for Steve. Having reached a milestone, Mark Waugh threw his wicket away more often than not, and that severely hampered his overall average.
I’ve been putting the performance report together for this year, and I feel we’ve had a bit of a Mark Waugh year in the Forager Australian Shares Fund.
Unless something dramatic happens in the next two weeks, the return for the year will be in excess of 20% net of all fees. In a year the market delivered next to nothing, 20% is the equivalent of a test century. But it could (and should) have been better.
Twice in the past year we have done good research on cheap stocks only for me to spend too much time sucking thumbs and not doing anything about it. The first was insurance comparison website iSelect (ASX:ISU). This business has its problems but at less than $0.70 per share the company’s cash and future guaranteed commissions covered the entire market capitalisation. It only traded there for a few days, but we had already done the work and simply didn’t act quickly enough.
The second opportunity was grocery retailer Metcash (ASX:MTS). Again, as a grocery wholesaler caught in the middle of a war between giants Coles, Woolworths and upstart Aldi, this a business not short of issues. At $1 per share though, you weren’t paying much for it. Metcash had fixed its balance sheet with the sale of its automotive parts business and the group owns a hardware business, Mitre 10, that would go close to justifying the entire market capitalisation at that price.
I don’t even have an excuse for not buying this one. We just dithered.
Metcash has more than doubled since and iSelect is up more than 75%. Hindsight is a wonderful thing, of course, but that’s why 20% wasn’t 30%.
I’m not one to dwell on the past. Stressing about it isn’t going to change anything. But there are things we can do better. As the Forager team grows, we need to keep the ability and willingness to act quickly and decisively. We need to make sure we’re spending time on the most prospective ideas and we need to ensure we don’t get too conservative in our old age.
Because we don’t want to end up with a Mark Waugh like investing record. There will come a day where runs are hard to come by, and we will look back on the 2016 financial year as one where we should have scored more.
18 thoughts on “2016: A Mark Waugh Year for Forager”
Completely understand your disappointment, but I like that Forager management cares about successes and and making improvements for the future.
I think a 20% return is very very good in this environment Steve (glass half full). I wouldn’t get too caught up with seeing it as a ‘Mark Waugh could have done better’ (glass half empty).
The grass is sometimes greener on the other side of the fence but where you are wading in rich clover why look over the fence!
Great article Steve, I really appreciate the commentary and I look forward to being a client for many years. While the commentary is great, I particularly like the managed fund structure and the alignment it provides between yourself and your clients.
Regarding the future changes to the Australian fund, I would like to offer the following.
1) Anyone can redeem units at any time as per the current practice.
Buying new units
1) People can’t buy new units in the Australia Fund, but they can potentially buy units redeemed by other investors
2) To the extent that people have redeemed units in the year, new units can be issued to existing holders based on the following.
a. Steve has first obligation to buy they units being sold. I say obligation because I would like to Steve maintain his personal investments in the Australian and International fund on a 50/50 basis. I worry about the day, 10 years from now, where Steve has 80% of his personal holdings in the international fund and 20% in the Australia. It’s only natural that his attention would drift to the international fund.
b. Once Steve’s holdings are brought back to balance and there are still units that have been redeemed but not bought by Steve, the remaining units are allocated pro rata to those who have elected to have their returns reinvested in the fund at the end of the year.
No complaints from me and I appreciate the honesty. I also like people who are hard on themselves, usually their worst critics. Keep up the good work. I’m happy for you to keep doubling our money every 4 years !
Forager has been pretty fully invested this year and therefore you would have had to sell ‘good value’ investments for ‘better value’ investments.
This is hard to do and takes the team back to a previous discussion of how much cash to hold.
It’s probable that had you had 20-30% cash that you could have actioned your decision, but at 10% cash it became more a two part decision; 1. what can we sell to take advantage of this great value; 2. now buy.
I think you do yourself a disservice, Steve. 20% in a flat market is probably more like a double century anyway. Mark Waugh would have been happy with that.
For those of us old enough to know Mark Waugh, we were more than happy having him as part of the team. Well done for (a) generating excess returns and (b) remaining honest.
I agree 20% is good however there day will come where there is zero or even negative returns, so every percentage point that can be taken must be taken now.
You are not being hard on yourself – just realistic.
You and the rest of the Forager must work harder, think better and act quicker.
Harsh but true.
Steve, you (and I) can be happy with the results this year, but not satisfied. I like your attitude (always looking for improvement no mater what the result) and honesty (with both yourself and with us) – it is a big part of why I have invested with Forager. I also appreciate the commentary – not an easy thing to do I’m sure. Keep up the good work.
Steve this kind of post is one of the reason (the other being the great returns) why I have my money invested with you. Instead of bragging of beating a flat market by 20%, you look at how you could improve your process to do even better.
But you do not mention the International Fund which has done better than its reference index this year but which is still behind since its inception date.
Would the introduction of a performance fee in the International Fund be a better incentive for the team?
Now that the Australian dollar has stabilized, should the fee structure be consistent across both funds?
– oppor-tune time to change the language, from ‘should’ to ‘could’
– cognitive shift in doing it ‘different’ rather than ‘better’
– execution in a timely manner is about developing ‘white line fever’, relevant to most field sports with white chalk-line to define the score line, evident at best in rugby with phase plays…
– so whilst ‘time sucking thumbs’ or ‘not acting quickly’ or ‘being in-decisvive’ ask the question what was the cognitive construct or constraint that was driving Forager…
– ‘diversify and put capital preservation first’ continues dominate Forager investments
I’ve been managing my family’s SMSF for around thirteen years now, and I have complete records going back to March 06. In that decade I’ve averaged a pre-tax CAGR of 14.22% versus 4.36% for the STW, which I use as a benchmark.
Without exception, every single one of those years has been jam-packed with regrets and ‘if onlys’. Indeed, if I didn’t have performance figures for solace, I would have probably given up investing because it feels like a never-ending comedy of errors.
In the current financial year I’ve only achieved 3.03% vs 1.41% for the benchmark, which is a pretty awful result compared with prior years. Opposite to you, I could have added at least ten percentage points to my performance by doing some more thumb-sucking because I acted incisively to load up on some very cheap stocks that subsequently became a whole lot cheaper.
Nevertheless, I cannot say that I did a worse job in the current year than in the years where I’ve had 20%+ outperformance. The quality of my thinking has been much the same, my portfolio is as undervalued as it has ever been, and it has better downside protection than it has ever had.
Just as a good batsman focuses on the quality of his next shot and lets the runs take care of themselves, so too should a good investor focus on improving his process and eliminating cognitive biases and let the returns happen as a byproduct.
Plenty aspire to be selected for Australia. 11 manage it each time they play. M Waugh managed was in that 11 for almost 12 years. I’d take being the 11th best player in the team than being one of the tens of thousands who weren’t.
20% ahead of the index – also sounds a bit like Donald Bradman lamenting that if only he’d scored a handful of extra runs and hadn’t thrown away is final wicket, that he would have ended his test career averaging 100 as well. 99 ain’t bad Bradman – cut yourself some slack.
Mistakes are inevitable when investing – particularly in the full view of 20/20 hindsight. We all work with finite time resources and operate in an environment of constant uncertainty and incomplete information. One has to tread a fine line between not acting too impetuously and not unduly dithering, in much the same way that one has to balance the need to have courage in one’s convictions, while also not being too stubborn and inflexible in one’s view either. There may well have been occasions last year where waiting and doing more research rather than diving in may have proven the correct course of action also.
The goal with investing is not perfection but to make more good decisions than bad decisions. If you’re 20% ahead of the index, it’s pretty clear that has been the case.
That being said, what is indeed a crime is to make the same mistake twice and waste an opportunity to reflect on and learn from past experience. Constant vigilance is the price of continuing strong returns. Being up 20% on the index, it would be easy to pat oneself on the back and wallow in complacency. It’s pretty clear from this post that the former rather than the latter is the course of action being pursued.
Steve, I imagine there were probably also times where sitting on your hands and indecisiveness allowed you to either:
a) buy something for even cheaper
b) avoid buying what you thought was a low price but wasn’t, as further information became available.
If you weighed the missed opportunity gains against the missed opportunity losses you may see things evening out.
I understand how hard it is to decide when to pull the trigger on an out of favour stock that could become even more “out of favour” or may have more bad news to come. I get around that by never buying up to my desired limit the first time. I’m a small player, so I can probably do that easier than Forager can.
Well done guys – great year. Some great calls including S32. Hopefully today’s vote won’t move the needle too much!
Reading all the tweets about Brexit it seems forager is suddenly an expert on what is best for the poor British people. Clearly they need to be told what’s best for them by their betters.
I would prefer it if you worked on the double ton.
They’re mainly Steve’s thoughts. Mine are quite different, I’d tentatively guess it’s largely a non-event long term. That said, hard not to have an opinion when part of the portfolio is getting walloped. We’ve also been buying some interesting cheap stocks today as well as ranting. Thanks for the feedback, I’ll get back to it.