The Prudent Speculator: January 2013

by John Buckingham

A couple of paragraphs hardly do the subject justice, but the simple annual attribution reports shown below help to better understand how our newsletter portfolios are performing relative to our Russell 3000 benchmark index. They allow us to gain insight into the impact of our investment decisions as we are able to see which market Sectors contributed the most (or least) to performance and how much of the performance difference can be attributed to allocation (Sector weighting), versus selection (stock picking).

  TPS Portfolio, which outperformed the Russell 3000, enjoyed stronger selection within the Consumer Discretionary and Energy Sectors, with comparatively weaker selection in Materials. On the allocation front, underweighting Consumer Staples and Utilities aided returns even as sub-par stock selection proved detrimental. Also, underweighting Financials and maintaining cash proved to be drags on performance relative to the benchmark.

  Buckingham Portfolio trailed the Russell 3000 in 2012, as its non-ownership of homebuilder MDC Holdings (MDC—$37.36) led to a disappointing (relative to TPS) selection effect in the Consumer Discretionary area, while poor stock picking in Materials and Information Technology also did not help. An overweight position in Energy and light exposure to Financials hurt relative performance, as did the cash position.