So another year over and a new one just begun...as the Christmas music fades for another year it is now time I got around to writing up a year end review, so here goes.
Compound Income Scores Portfolio (CISP)
This is the portfolio I have been running to test / demonstrate the effectiveness of the Scores in identifying promising income shares with which to grow and compound my income and net worth. The chart above (which is also available on the portfolio in the site menu) shows how this has done over the 4.75 years since inception against the main UK Indices.
It demonstrates over that period that my use of the Scores has been quite effective in helping me to pick some decent shares. This has led to the portfolio doubling over the period with a total return of 102.4% or 16.03% per annum which has far outpaced the FTSE All Share which I use as a benchmark, which has provided total returns of 36.15% or 6.72% per annum.
Since I like to tilt towards better performing Mid & Smaller stocks and the Scores & the use of a broadly equally weighted portfolio help me to do this, I include the Mid and Smaller Indices for a broader comparison. It is worth noting that the Scores also help me to assess some attractive income and growth stocks which are listed on AIM (yes there are some). I haven't managed to find a source for total returns on AIM although the FTSE AIM 100 for example is up by about 55% in capital terms over this period so being able to fish from that broader pool of stocks has probably helped too, assuming I catch some good ones. So don't forget if you would like to access the Scores and see what is in the CISP then you can find out how you can do so in the Scores tab in the site navigation panel.
As for 2019, in common with many other investors I've seen out there it was a pretty good year for the CISP with a total return of +31.12% versus the +19.16% from the FTSE All Share. This is a great outcome in a year which seemed quite difficult and dangerous in the main for investors, but by keeping calm and carrying on it was able to deliver some great returns in a year quite frankly when nearly everything went up in the end, probably against prior fears.
So I won't be getting too carried away or letting that short term success go to my head as this is a long term game and I'm using a fairly "mechanical" monthly screening process, with a common sense overlay, to select the portfolio. I have to say with the outcome of the election in the UK and the expected signing of a US / China stage one trade deal this month the background seems to be a lot more helpful than seemed likely when we went through the second half of last year.
That being said though I'm sure as it is an election year in the US we will no doubt get some more surprising tweets from Donald Trump and as I write the Middle East has just flared up again. So no doubt we will have plenty of "events" to look forward to and keep us on our toes. I think the jury is still out on whether we will see a recession or if we have just passed though a mid cycle slowdown in an extended cycle thanks to low rates & QE etc. and soon to come government spending. Markets certainly seemed to be discounting this and celebrating it toward the end of last year so if that doesn't come to pass then we could be in for a rough ride again.
Market Timing Indicators.
Which brings me nicely onto a quick update on these which I keep for the UK market along side other economic indicators which might indicate an approaching turn in the cycle / recession. One of these, the yield curve, inverted last year ( remember that?) and this has usually preceded a US recession by around a year to 18 months. Nevertheless the timing indicators remained in and pushed further into positive territory in December. Thus these are again suggesting that we should remain calm and carry on investing, although as ever with an eye on news flow and "events" but without getting to panicked. As one wise old stock broker always used to say to me "Nothing is ever as good or as bad as it seems."
So with that in mind I'm going to carry on compounding for now as market timing is generally difficult to do effectively. I'm sure many found that last year when they ran to cash against the worrying background, only for markets to confound those fears making it difficult and expensive to get back in again. Which I guess begs the question why bother with the timing indicators and certainly if you are just starting out or are at the younger end of the spectrum it may not be.
In my case having been Compounding for 30 years now and being in the middle of the Spectrum I can still (just about) take a longer term view, but also might like to protect some of my gains if things should obviously cut up rough as this is what 30 years of Compounding at 16%+ per annum looks like from an indexed base of 100.