In the two years after we launched our Australian Shares Fund in October 2009, the cumulative return was zero. In the four years since, we've notched up 120%. Obviously the market has been friendlier, but I was sitting watching Slater + Gordon (SGH) plummet today and thinking about how important avoiding mistakes is (it fell more than 50% today). In the first two years, we picked plenty of winners, but we offset those gains with significant losses in duds like Photon Group (now Enero, ASX:EGG). We like buying beaten up stocks. And we took a good look at SGH after its share price had fallen 2/3rds. But identifying which of these fallen angels are turnaround prospects, and which are potential failures, has been something we have worked extremely hard at. Put 5% of your portfolio into something like this, and you are going to have a lot of catching up to do.
What was it about SGH that made you stay away? For me it was the horrible cash flow situation, increase in receivables, and the the large asset revaluations which made up for the majority of earnings.
Yep, same concerns re "foggy" accounting (as Rolls Royce referred to their own books this week). I wasn't sure there was something wrong, but I was sure that there was a lot of leeway for accounting estimates. Still not proved yet, though.