2014: Growth Portfolio gallops ahead

The consequences have included falling interest rates and a lower Aussie dollar, and the casualties include a multitude of businesses. Those linked directly to the resources industry include miners like BHP Billiton and Rio Tinto and mining services companies like WorleyParsons and Monadelphous, but cyclical companies such as retailers and property groups also face tough times. Avoiding these companies has served the portfolios well so far.

Turning from the cyclical to the structural, or from the temporary to the permanent (though slowing growth in China will be permanent), we've been careful not to get caught out on the wrong side of technology. We're in the age of disruption thanks to smart phones and the internet, so we've generally avoided stocks such as Cabcharge, which faces a flood of new competition, old media, such as Fairfax and Ten Network, and discretionary retailers susceptible to the invasion of foreign and online retailers.

In summary, we've got a value investing framework or set of principles to guide our decisions, mitigate risk and compound our money as quickly as possible, and we've identified several trends to help steer us away from potential trouble spots. This keeps things as simple as possible. Or as Warren Buffett put it, 'I don't try to jump over 7-foot hurdles: I look for 1-foot hurdles that I can step over.'

Stock picks

So how has all this manifested itself in individual stock selection?

The portfolio has owned plenty of stocks that we deemed cheap but are also benefiting from the falling Aussie dollar vis-à-vis the US dollar. In 2014 this group included ResMed, with a total return of 33%, Nanosonics (75%), Acrux (108%), Cochlear (33%), Aristocrat Leisure (23%), Servcorp (46%), Hansen Technologies (20%), Platinum Asset Management (11%) and Computershare (8%).

It's notable that the poorest performers aside from Ainsworth Game Technology (down 15%) were those linked to the resources sector and the Australian economy: Silver Lake (down 64%), Antares Energy (down 59%), The Reject Shop (down 37%), Fleetwood (down 20%), Origin Energy (down 14%) and Transpacific Industries (down 13%). The worst performers were only held in small amounts though, due to their speculative nature, so they had little impact on the portfolio.

So what should you expect from here? We don't know what opportunities will come our way in 2015, and that's the beauty of value investing. You don't need to know when the bargains will appear, you just need to be prepared.

There's cash in the portfolio with a stream of dividends to come, and it owns a bunch of high-quality businesses that collectively will do just fine over the coming decade.

The best advice we can offer is to stay flexible, keep things simple, do your homework, avoid getting caught up in fads, avoid getting emotional about your stocks, have a bear market action plan (look out for ours in due course) and, if you're going to panic, panic early!