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Is it OK to underperform the market?

Wednesday, October 9, 2013

Some mutual funds require fund managers to stay fully invested. Sometimes, large investors in a specific fund stipulate that the fund avoid holding cash.

Mr. Will Browne, a manager of Tweedy, Browne Global Value Fund whose fund holds nearly 17% cash said he pushes hard against such demands.

He prefers to buy companies at prices that are lower than what an informed buyer would pay in an acquisition. If he cannot find them, he is prepared to lag behind market returns for a while.

The Business Times, 9 Oct 13, page 36

Sounds familiar?

"In the pursuit of passive income, it makes sense to do a bit less pursuing and, instead, be pursued."

$15,000 passive income. To pursue or be pursued?

It is OK to underperform the market in the short term. Don't feel compelled to put all our money to work here and now. It is more important that we have the resources to load up on undervalued stocks as and when they appear in future.

“In the short run, the market is a voting machine, but in the long run it is a weighing machine.” Benjamin Graham. In the long run, the true value of a stock will be reflected in its price. Don't be too bothered with the short run. The long run is what really counts.

Related posts:
1. When to be fully invested in the stock market?
2. Little Book of Value Investing.


Singapore Man of Leisure said...


Sorli sorli...


Put your clothes back on!

Walking around naked #$*$!!($&$!

The Sun said...

This is what legendary investor Warren Buffett does. His holding company Berkshire Hathaway holds billions of dollars in cash so that when an attractive investment opportunity comes along, it has the resources to do execute the investment.

Recently, it was reported that Warren Buffett made over ten billion dollars (and counting) just from the bailout deals he made during the GFC. Simply put, it pays to have a war chest ready at all times!

AK71 said...


Oh, my. ;p

Some people know they are naked. Not so bad.

Some people like to wear the Emperor's new clothes...

I am a shorts and t-shirt guy. Where do I fit in? -.-"

AK71 said...

Hi Sun,

I shared that article on my FB wall too. $10 billion! Wah!

Of course, there is no way we can ever board Buffett's luxury liner. However, I would be quite happy if I could catch the next sampan. ;p

Solace said...

Hi ak,

It is totally fine to underperform the market sometime. As long as we have have a strong safety of margin in mind, we can consistently make profits. For me this is an important point, I don't pay much attention whether I can beat the market as a I have a peace of mind when I own a truly undervalued stock.

Being picky means letting many stocks runs, stocks that don't meet my valuation criteria. But it also increases the odds of doing well in the long run, most importantly being picky help to limits the odds of a real blow up damaging my portfolio!

AK71 said...

Hi Solace,

I agree that being picky is probably a good idea.

Like what Pat Dorsey said, "not making money is a lot less painful than losing money you already have."

So, better to miss a boat than to jump in hastily. It could end up sinking. ;p

I have had my share of sinking (and sunk) boats... :(

Anonymous said...

I read from papers most funds cannot beat the Index fund consistently. During bull market when cautious is thrown in the winds, even warren underperformed the market as I remembered in 2010.

What I wondered aloud, does my selective stocking picking stragegy yield better than say I invest in bonds or varying maturities and companies or oven govt bonds. They requires less reearch and should yield 3-4% annually almost risk free.

I will know when the next bull and bear cycle come and goes, and I will know if I should continue this path or stock picking or just come to terms with reality about my skills, and perhaps just buy bonds.

note: bonds are different from bond funds. Not to be confuse withAk earlier article.

veronika said...

If we were to understand, believe what our goal, needs and want things would be simpler.

If our goal was to meet our returns based on market performance ( the benchmark ) it may not meet our needs or wants.

For example:

I want to retire comfortably
I need to retire with $5000 per month.
My goal would be to invest in products that will give returns of $5000 per month for the next 30 years.

Benchmarking against the market misaligns our goals and when it goes down, we are upset. Ignore the markets' ups & downs and focus on the goal.

Benchmarks using market performance is for fund managers and a host of financial people to argue their case.

Would not using our goals, needs and wants be more accurate? we are not competing with each other are we?

AK71 said...

Hi Veronika,

Well said! Understand our motivations and have an appropriate strategy! :D

Singapore Man of Leisure said...

Congratulations AK!

You are inspiring your readers to pause and think:

Hmm, should I go for off-the-rack or haute couture (bloody big word for tailor-made)?

LP taught me the use of white spaces between paragraphs.

Now I will borrow with pride your "pause".

How's that for a compliment?


AK71 said...


Compliment? Let me pause and think about this.




Oh! Compliment! Kamsiah! ;)

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