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Response: NQ Focused Value Fund - Great investment or 1 year wonder?

Hi. I’m the manager of this strategy. 2020 was a lucky year. I actually get this question a lot from potential subscribers - “what happened in 2020?”. This is a good question.

I was running the strategy from 2014 to 2019 as a quantitative/systematic model with pretty tight risk controls. The results were mediocre - it was too conservative and I was disappointed with the results - matching the S&P500 after 5 years. In early 2020, I decided to run the strategy with more concentration, aggressiveness, using only fundamental analysis - pivoting away from quantitative investing/periodic rebalancing. My initial timing wasn’t great - when Covid hit in 2020, my strategy went from $87k back to $50k where it started in 2014. It stayed there for just a moment. I stubbornly stuck with my favorite ideas and aggressively traded my way back to even and then into a really great and lucky year in the 4th quarter of 2020. Additionally, this is my personal account - when the account rose to 20%/year with a 6-year record, I decided to TOS certify it. Also, the Collective2 returns are accurate, matching my real-life account. Also, I did take more risk than ever but I only trade stocks so this was not an extreme lottery-type situation. I don’t trade options and am not an expert.

Like most people, I make decisions to generate wealth, if I can get some subscriber fees that is a cool bonus but a minor consideration given the true gains in a real-life portfolio, which has grown to nearly $1M. If I really wanted to mislead people to gain subs, I would have abandoned the mediocre quant record and started a new strategy but that’s not important to me - if I did that in 2020, I’m pretty sure I would have more subscribers looking at 500%+ return on a 1-2 years record.

Most important - I think the long-term results and the strategy pivot show how real capital is traded - managers change strategies all the time. Even Warren Buffett used technical analysis for a number of years. The markets are dynamic, styles come in and out of favor (quant vs fundamental, growth vs value, small vs large, momentum vs quality…). To me, records of 10-15+ years are what I consider demonstration of skill - so even 5 years is too short.

Hopefully, this can generate some useful conversation but that’s what it was - a lucky year and lucky strategy change and still a work in progress. We’ll know in another 8+ years if I have any skill. I certainly do not expect 50%/year returns over the next 7 years.

Some people on here have some impressive returns. So congrats and good luck to people like greg_morris2 and others who started with better numbers than me.

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Thank you for this honest assessment, I had just seen your strategy roll by on the Activity Feed and was wondering the same thing. Congratulations and I wish you continued success!

Thank you. Good luck with your investments!

Nice work.
Seems to me the emphasis on 10/15 year trading history is overblown at times. I don’t particularly buy into giving my money to someone and forgetting about it for 30 years.
An impressive decade of profit doesn’t prevent one from crashing out 9 months down the road.

Just make me a bunch of money without losing my money.

Thanks, I don’t disagree with that. It’s the process and management that you need to believe in but the result over a short-run (like a year) include a lot of factors beyond the manager’s control. If I knew Warren Buffett at the start and he asked me to invest at the beginning I would not wait until I saw 15 years to say maybe he knows what he is doing. Nor would I change my mind if he had a down year after a decade of impressive returns.

“An impressive decade of profit doesn’t prevent one from crashing out 9 months down the road”
This is very true and a down year from someone with a decade of impressive returns would not cause me to sell unless I no longer trusted their process. I believe Buffett lost 50%+ more than once. It would’ve been a mistake to sell after that.

Btw, I am not even comparing myself to Buffett or implying any similarity to his fund or process or brilliance. I’m 1000x worse – I am a quant dabbling in small cap “value” investing.

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Congrats on the great 2020/2021, will be interesting to see if you can keep up this phenomenal rate, even if you keep up 50% of it going forward, that’s very good.

Thanks. I don’t think that’s sustainable - something 15-20%/year is possible - I can double the portfolio in 3-4 years, I’d consider it a win.

this is a great thread, thanks for giving some color on the process behind your track record. what does value mean to you? how many positions do you hold? when do you exit a position? how often do you add new positions? are you deterred from adding new positions in the current environment? do you look for value in markets other than North America? Could you apply any systematic, or quantitative, techniques, to value investing?

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