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10-Plus Years In The Making

Our Portfolio

I am in the middle of writing the annual letter to my clients and cannot help but contain my enthusiasm for some of the good news I’m sharing with them that has been over 10 years in the making. And it’s all contained in the attached chart. Each dot on the chart represents the cross-section of returns for our portfolio – the Core Model Portfolio – versus the S&P 500 Total Return Index. For example, the 10 years ending October 31, 2015, the Core had an annualized return of 15.51% represented on the y-axis while the S&P 500 had an annualized return of 7.85% for the same period represented on the x-axis. Any blue dot above the red line indicates the Core outperformed the benchmark. Any dot below the red line indicates the Core underperformed the benchmark. The result? All the dots are above the line. In other words:

Our portfolio has beaten the benchmark S&P 500 (the market) in every 10-year rolling period in the Core’s existence. In fact, our portfolio has beaten the market in every 3 and 5-year rolling period as well.


I realize some reading this may not understand the significance of this because they do not realize how hard it is to beat the markets return. Fact is, it is very hard. Very few funds or investment managers accomplish this and definitely not with the resounding consistency we have. According to a Forbes.com, fully 97% of actively managed funds underperformed their benchmark over the 15-year period from 1998 through 2012 in at least five of those years and two-thirds of them experienced at least three consecutive years of underperformance during that span.

We are in rare company. What’s even more remarkable is the very few funds that beat the market may do so say, in a 3-year period, but will fail to do so in a 10-year period and vice versa. By contrast, we have beaten the market in every commonly measured rolling period (3, 5 and 10 years) we have been running the portfolio. We are undefeated. Here are those numbers in more detail:

  • Out of 122, 3-year rolling periods, the Core portfolio beat the market 122 times.
  • Out of 98, 5-year rolling periods, the Core portfolio beat the market 98 times.
  • Out of 38, 10-year rolling periods, the Core portfolio beat the market 38 times.

I am happy with these results, especially since we espouse a long term approach investing. I believe these results validate our approach and as long as we stick to it, should (although there is no guarantee) yield positive results in the future.

As always please be sure to read our disclosure statement at: http://brickfinancial.com/site_tools/disclosure.html

What are rolling periods or rolling returns?

It is best to illustrate what rolling returns are by comparing them to an annual return. An annual return is usually the return reported by your fund or investment manager at the end of a calendar year. Truth be told, an annual return can be any 12-month period. An annualized return is the total return of a multi-year period, say 3, 5, 10 or even 20 years, converted to a compounded annual average return. For instance, if your investment doubled in say 10 years, that would be a 100% total return. But annualized, that would 100% return would be about 7% per year each of the 10 years.

Again, returns are most often reported on a calendar year. But there isn’t really a need to do that. If you only invest in March, the returns reported every December won’t be as meaningful to you. Furthermore, you as a long term investor, meaning you have time horizon greater than 3 to 5 years, should be less interested in year-to-year calendar returns than you are the returns of the multi-year periods. In steps rolling returns.
Rolling returns measure returns over a period not necessarily ending on the calendar year and over periods more typically experienced by investors. For example, a 5 year rolling return may begin January 1, 2006 and end December 31, 2010 and the next rolling return would be from February 1, 2006 to January 31, 2011 and so on.

Forbes article: http://www.forbes.com/sites/timmaurer/2014/04/17/why-beating-the-market-is-an-uphill-skate/#76c83fb739c0
Vanguard Study: https://pressroom.vanguard.com/content/nonindexed/7.5.2013_The_bumpy_road_to_outperformance.pdf

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