If we had to reduce 17 years of toil, including 531 Buy recommendations, a great deal of sweat and a few tears into one solitary number, that number would be 14.3%.
Independently audited by Ernst & Young, this number represents the average annual return* of all our recommendations over the last 17 years.
|Recommendation Types||Number||Returns (per year) ^|
|Total Recommendations (excl. Subscribe)||531||-|
|Total Annual Return (per year)
S&P/ASX 200 Total Returns Index (per year) *
|* Total recommendations between June 2001 and June 2018, not dynamic
^Between 1 June 2001 and 30 June 2018
How does that compare with the overall market? Pretty well. Between 1 June 2001 and 30 June 2018, the S&P/ASX 200 Accumulation Index (adjusted for franking) returned 9.1% pa*, meaning Intelligent Investor's return was more than 5% higher.
That outperformance has huge implications. A $100,000 investment in the S&P/ASX 200 Accumulation Index (adjusted for franking) on 1 June 2001 would have produced $442,765 by 30 June 2018. If you'd invested in our average recommendation over that period, you'd have ended up with $980,896, more than twice as much.
Now here's the caveat: replicating the recommendations in this and previous reports is impossible. Members simply cannot follow every buy and sell recommendation. Apart from their sheer number, the comparison assumes you don't have to sell any stocks to buy the ones we recommend.
So whilst this report is a transparent, audited tool for evaluating every recommendation we've ever made, as a proxy for our overall stock-picking skills it falls a little short.
The following table shows the performance of our Equity Growth and Equity Income portfolios, is a more realistic guide. Our portfolios began life as models back in 2001 but have been accepting real money since 2015.
|Growth Portfolio* (%)||ASX 200 T. R. Index (%)||Outperf. (%)||Income Portfolio* (%)||ASX 200 T. R. Index (%)||Outperf. (%)|
|Since Inception (Per Year)^||9.4||8.3||1.1||12.3||8.3||4.0|
|* Adjusted for 0.97% p.a. in fees as charged on the SMAs from 1 Jul 15
^ Growth Portfolio inception date: 7 Aug 2001, Income Portfolio inception date: 10 Jul 2001
They operate under the same constraints as your own investments and we've added theoretical costs up to 2015 in line with the real 0.97% a year the typical portfolio has incurred since. Hence they offer a more reliable and accurate real-life comparison. Happily, they also show a respectable outperformance.
The internal rate of return methodology used in this report is unchanged from last year. The report covers a financial rather than calendar year-end and returns include franking credits, a valuable component of returns. Our benchmark, the S&P/ASX 200 Accumulation Index, has been similarly adjusted to make a like-for-like comparison.
Lastly, Strong Buy, Long Term Buy and Buy recommendations are rolled into one 'Buy' category, which while slightly reducing our historic performance and the number of recommendations reported, makes the report easier to digest (see What we mean by Buy, Hold and Sell).
I hope you find this year's Recommendations Report interesting. Please let us know any thoughts you might have via our Ask the Experts forum or by calling on 1300 880 160.
Reporting performance is a vexed issue. We all know that past performance alone is not a reliable indicator of future returns but, over the long term, what else can one use?
That's one part of the equation. The other concerns transparency. We want to clearly communicate why we make the decisions we do and present our record for all to see. Through the 500-plus articles we publish each year, the website is a vast and accurate historical record of our activity. With this detailed, independently verified account of all our recommendations, there really is nowhere for us to hide.
Analyse the business
Our approach to analysing stocks is well documented. We review the business model behind each company to assess the stock's underlying value. If the current market price is substantially below our valuation, we'll recommend it. If not, we won't.
Our Buy recommendations, which form the bulk of our reviews and represent the type of stocks in most members' portfolios, have trounced the market, returning 15.4% a year between June 2001 and June 2018. That compares favourably with the S&P/ASX 200 Total Return Index's 9.1% return over the same period.
Our performance over the past 17 years speaks foritself. The annual return from our two positive types of recommendations (excluding 16 IPO 'subscribe' recommendations, which provided an average annual return of 7.7%) was 14.3%. With a backdrop that includes events like The Global Financial Crisis (GFC), the Sovereign Debt Crisis and Brexit, that's more than respectable.
That said, it's unrealistic to think any member would act on every single recommendation, which is why our Equity Income and Equity Growth portfolios (returning 12.3% and 9.4% a year respectively since inception) offer a better insight into how a 'real world' portfolio would have performed.
This is our eleventh independently verified performance report and it's worth quickly repeating why we changed how returns are calculated in the 2011 report (for a full explanation please see the 2013 Recommendations Report).
The previous method was quite simple. Dividends received during the life of a recommendation were added to the price at which the stock was sold. This figure was then divided by the purchase price to establish the total return, from which the compound annual return was calculated. This was done for each change in positive recommendation. The overall performance figure was the arithmetic average of all those individual returns.