Enlightened American Portfolio Gains 40% In 2009

THE ENLIGHTENED-AMERICAN PORTFOLIO SPREADSHEET

  • Enlightened-American Portfolio: +39.6% for 2009 (my actual IRR, including cash balance)
  • DJIA: +18.8%
  • Nasdaq: +43.9%
  • S&P 500: +23.5%
  • DJ Wilshire 5000: +26.5%
  • Russell 2000 (smallcap): +27.0%

Our portfolio outpaced all major indices with the exception of the NASDAQ. Nevertheless, I could hardly be more pleased with the returns generated in 2009, especially since cash comprised over 30% of assets for most of the year.

2009’s portfolio returns seemed to be a case of less is more — as in, do less and gain more. ¬†While now a distant memory, the markets’ plunge early in the year set many investors scrambling to readjust or even liquidate their portfolios. For true value investors who bought stocks at attractive prices, holding tight and adding to core positions paid off by year’s end.

I opened no new core positions in 2009, even during the March lows. Instead I chose to add to current holdings or use naked puts to gain some exposure to cheap stocks. The decision to use naked puts may seem like a poor one in hindsight as it limited possible gains to 20% on stocks which eventually doubled but I can not regret the decision. Capital preservation often seems a trifling concern during market rallies but in March, risk was the name of the game (as it should always be).

The outlook for 2010 seems cloudier than past years. Fiscal problems in the US and other countries cast a less foreboding shadow than the housing and credit crises of the past few years. While there must be a price to pay for America’s wanton spending, who can know when that bill will come due? It could be years or decades before the full ramifications are felt.

In the meantime, we do what we always do at the Enlightened American — dig for cheap stocks while keeping our fingers on the pulse of the global economy. However, with 41% in cash, I expect our portfolio to eventually underperform the broader markets for a time if the rally continues. Such is the price of discipline.

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