2018 Performance Review – First Subpar Year – Still Crushing The Market

2018 Performance Review – First Subpar Year – Still Crushing The Market

***

Correction, I noticed a mistake I made when calculating Buffett’s Returns while doing my 2018 Performance Review.

The numbers below are now the correct ones.

***

Like in 2017, 2018 is also known as the year of continuing to find a few great stocks and then sit on your ass and do nothing.

Charlie Munger said this, or something similar, and it’s what I’ve done for almost 4 full years now.

I’ve bought ZERO new stock investments since April of 2015, when I bought a few great businesses, and haven’t done much since.

At least in terms of buying investments.

Why?

Because even though there was a slight market slump in late 2018, valuations on ALL assets worldwide are still at or near all-time highs.

This is why I’ve spent my time building businesses and training others in the last four years.

But this is where we, as deep and disciplined value investors, can gain a MASSIVE advantage over other investors.

I WILL NOT alter my criteria just to buy an investment.

Even when its been 4 years since I’ve bought one.

I’ll remain patient and diligent, and continue to learn and wait for valuations to come down.

The above quote from Benjamin Graham is one of my favorites.

It means in the short-term – emotions and psychology drive the market, but in the long-term – the market and individual stocks, get judged on how well they’ve operated and grown over time.

This is great news for us as long-term – oriented value investors.

If we can find a few great companies at cheap to fair prices, and hold them for the long-term, we’ll have great returns over time. Why? Because…

“Time is the friend of the wonderful company, the enemy of the mediocre.” – Warren Buffett.

With this as a backdrop, below is the 2018 performance review.

For links to the prior years’ performance reviews you can use the links below.

• 2012
• 2013
• 2013 Updated Numbers
• 2014 and 2015
• 2016
• 2017

Also, as noted above in some of the individual posts, I made multiple mistakes in 2013 when calculating my returns. The numbers below – which show the seven full years between 2012 and 2018 – are correct.

2018 Performance Review

I still own all the companies from 2014 and 2015 except four. I bought 3 new companies in 2015, ZERO new investments in 2016, ZERO investments in 2017, and ZERO in 2018.

These investments produced a 22.6% average LOSS in 2018.

Below is the full spreadsheet…

SPREADSHEET LINK HERE

Results were pulled down this year, because like with the overall market, my stock investments were at or near all-time highs and dropped back from those levels this year.

The ones I still own are up on average 20% from when I bought them originally years ago.

Another two factors affecting this year’s results were:

1.) Since I last bought a stock in 2015, there are 5 companies I owned that have been sold / bought-out / merged / gone private. These 5 companies were some of the best companies I owned.

2.) The average cash position in the portfolios I manage is now up to 45% with new cash additions, sales of stocks, and proceeds from merging / going private transactions.

This huge cash position is a huge reason I lagged this year but again, I’d rather wait and build cash than buy something just to buy something.

So what does this mean for cumulative full seven-year returns now?

Seven Full Years Of Returns

Here are Buffett’s returns that I’m referencing.

I don’t compare myself to Buffett because I want to be the next Buffett, but because everyone knows who he is, as he’s regarded by most as the best investor ever.

I want to be known as the first Jason Rivera when my career is over.

In the end, I want to be known as a better investor and capital allocator than Buffett and to produce better returns over time than he has so I can help millions or billions of people all over the world.

For the first six full years in my career I was achieving this lofty goal…

Now in the seventh year, I’m slightly behind Buffett.

In the first seven years of my career, I’ve produced average – non-compounded – returns of 19.9% each year. Or a total cumulative return of 139.4% over that period.

In the first seven years of his career, Buffett produced average – non-compounded – returns of 22.8% each year. Or a total cumulative return of 159.3% over that period.

This means in the first seven years of our careers, I’ve produced returns, now 2.9 percentage points LOWER each year, than Buffett did in the first seven years of his career.

But what does this 2.9 percentage point excess return per year mean in dollar terms over this period?

Assuming we both started with an asset base of $10 million at the beginning of the seven-year period, I would have grown that $10 million into $35,623,311 million after seven years.

Buffett would have turned his investors $10 million into $42,110,323 million in that time.

This is why every point of excess returns is so important, and why you need to be aware of any fees charged to your account by your money managers.

Over a long period – or in this case seven years – ‘only’ an excess 2.9 percentage points each year would have made investors $6,487,012 million extra.

And this further illustrates the power of compounding over time.

Last year, this difference between my returns and Buffett’s returns were 5.5 percentage points and a $9.8 million difference IN MY FAVOR. This year, it’s a 2.9 percentage point difference and $6.5 million difference in HIS FAVOR.

I explain why I’m now losing to Buffett, and why I’m not worried about this for my long-term goal of beating Buffett in the video below.

But I’m still crushing the market.

And Crushing The Market

From 2012 through 2018, the Dow Jones Index produced a total cumulative return of 46.8% – or almost doubled – for the seven years or 6.7% per year on average.

The S&P 500 produced a 49.3% total return  – or about doubled – for the seven years or 7% per year on average.

And the Russell 3000 index – the closest thing to a small cap index – produced a 48.2% total return or 6.9% per year on average.

I’ve produced returns in excess of these indexes by 13.2%, 12.9%, and 13% points respectively each year over these seven years.

Assuming a $10 million asset base like above, I would have produced $19.6 million more for investors over this seven-year period than the Russell 3000 index would have.

• $35.6 million minus $16 million the Russell 3000 would have produced

I started posting my results publicly in 2012 because this is when I began doing ‘real’, in-depth, investment research and analysis instead of speculating.

Results have been great thus far, better than I expected.

But there’s still a lot of work and improvement necessary to continue this, especially with valuations still at or near all-time highs.

And also because of mergers / sales / acquisitions, the portfolios I manage are down to 7 companies owned, and the portfolios are now on average in 45% cash.

Other Highlights From 2018

Thanks to you investing in yourself via sales of my products, services, courses, real estate sales, and consulting jobs, we continued helping Mhicaella and her family in the Philippines.

The last letter we received from her mother told us that Mhicaella is now in 1st grade. She loves P.E. and can read and write.

Here is a picture of Mhicaella when we first started helping her and her family…

Here is a recent picture of Mhicaella…

Sadly, Mhicaella’s family moved and is no longer involved in this program with Children.org so the company said we can no longer sponsor her.

However, we’re now sponsoring 11-year old Ashley…

You can see her below.

With your help, some of the things we’ve been able to help provide for these two girls and their families are: school supplies, medical and dental care, birthday presents, and Christmas gifts for her entire family.

We were also able to help 75 families in the Philippines this year by providing food, shoes, and other necessities around Christmas time.

You can view that post here in full below.

A percentage of all sales of my books, services, and products sold will continue going towards charities like these well into the future.

We will expand on this in the future and help even more kids and their families.

Thank you so much for helping and being a part of this milestone.

***

Other highlights from 2018 are:

• Launched The Masterclass
• Launched The Training Vault
• Relaunched the Coaching Program
• Officially launched our Marketing Business Rivera Brothers Marketing
  • Got Our First Monthly Retainer Marketing Client
• Sold 3 homes as a real estate agent
• Published my second book On Float
• Launched the TEV Video Training Course
• Launched the Owners’ Earnings Video Training Course
• Launched The On Float Video Training Course
• Launched our new Financial Consulting Company – Alpha Capital Allocation
• Launched the My Thoughts Series on the blog
• Launched the Value Investing In Your Car Podcast
• Launched the Case Study Series on the blog
• Launched the Free Training Friday Series on the blog
• Did several live / replayed training webinars
• Became profitable as a set of companies
• Read north of 50 books
• As mentioned above, continued helping Mhicaella and her family
• Began helping Ashley and her family
• Helped feed and give shoes to 75 families in the Philippines
• Learned several valuable skills to help my own businesses and others’ business
• And a lot more…

All this will continue to grow even more as we go forward and learn and improve.

Conclusion Thoughts

We’re now narrowly losing to Buffett, but still crushing the market.

And I expected these returns to reverse in the short term. Here’s what I said about this in the 2017 and 2018 performance reviews…

***

Value investing works best with a falling or stagnant market, so with valuations at or near all-time highs, and reaching new highs on an almost every day basis still, this is expected.

Unless the market corrects sometime soon, I would expect Mr. Buffett and the market to continue catching up to or possibly passing us in the near future.

As I said last year at this time, barring a major sell-off, I expect to add few to no companies again in 2018.

This is because I will only buy something that meets my ultra-strict criteria. Under no circumstances will I buy something because I haven’t bought in a while.

This helps keep us only in great companies and real estate investments and should help us continue producing exceptional returns over time.

No matter what the market continues to do though over time, I’m confident we’ll continue to beat the market by a wide margin, and continue to compound our wealth over time.

And with the market’s march ever higher, it’s allowed me to take the time to learn other valuable business skills.

This will help us even more over the long term as we get back into buying public companies stock, and into buying private businesses and multi-family real estate investments once we reach enough revenue and cash flow.

Here’s looking forward to an even bigger and better 2018.

***

And here’s the video I made this year telling you results were bad this year, but also why I’m still not worried about the long term.

VIDEO HERE

Thanks so much to everyone who’s been a part of this journey so far, and please let me know how I can continue to improve things going forward in the comments below.

Jason Rivera

Chairman, CEO, and Founder of Rivera Holdings LLC