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 reflected 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 17 out of the 21 years in which we have run them. During that time, they’ve generated an average return of 21.4 per cent in the first 12-month holding period, compared with an average increase of 4.5 per cent for the FTSE All-Share index.
My 2019 Bargain Shares proved no exception, generating a 12-monthly positive total return of 33.1 per cent on an offer-to-bid basis and including dividends. By comparison, the FTSE All-Share Total Return index, the index against which we benchmark our annual performance, produced a total return of 13.4 per cent and the FTSE Aim All-Share Total Return index rose by 6.7 per cent. That’s not to say this investment strategy is a one-way bet. Investing rarely is; the laggard in the 2019 portfolio, North Sea oil exploration company Jersey Oil & Gas (JOG), has lost more than a third of its value, thus highlighting the benefits of having a diversified portfolio.