The idea behind our annual Bargain Shares Portfolio is simple. It’s to invest in companies where the true worth of the assets is not reflected in the share price, usually for some temporary reason, but where we can reasonably expect that it will be in due course.
Our portfolios are based on the investment ideas of Benjamin Graham (see box ‘Rules of Engagement’) and they have certainly withstood the test of time, beating the FTSE All-Share index in 18 out of the 22 years in which we have run them. During that time, they’ve generated an average return of 21.8 per cent in the first 12-month holding period compared with an average increase of 3.9 per cent for the FTSE All-Share index.
My 2020 motley crew of Bargain Shares proved no exception, generating a 12-monthly total return of 30.2 per cent on offer-to-bid basis and including dividends. By comparison the FTSE All-Share Total Return index produced a negative return of 8.6 per cent, the index against which we benchmark our annual performance. That’s not to say this investment strategy is a one-way bet. Investing rarely is, and the laggard in the portfolio, finance company PCF, has lost a quarter of its value, thus highlighting the benefits of having a diversified portfolio.