Our portfolios continue to be based on the investment ideas of Benjamin Graham (see box ‘Rules of Engagement’), and they have withstood the test of time, beating the FTSE All-Share index in 20 out of 25 years. During that time, they’ve generated an average return of 20.6 per cent in the first 12-month holding period, compared with an average increase of 4.4 per cent for the FTSE All-Share index.
Our long-term bias to small-cap companies is justified by the fact that the strategy has reaped handsome rewards over the years. However, this can work both ways: companies that disappoint can be punished more heavily given the less liquid nature of these shares. The flipside is that when we get it right, our track record indicates that substantial long-term outperformance is to be expected.
My 2023 selections failed to shine in what was a savage year for micro and small-cap companies. The FTSE Aim All-Share Total Return index shed 12.6 per cent of its value in the 12-month holding period, so it was a case of running up a down escalator. This largely explains why the 2023 Bargain Shares Portfolio delivered a loss of 5.5 per cent against our recommended buying price, and a loss of 9.8 per cent using the opening offer prices on the day of publication, as used in our performance table. But it's worth pointing out that this is the first time in the past seven years that the portfolio has failed to outperform the FTSE All-Share handsomely in the first 12-month holding period.