The story so far

We set the bookbook fund up in October 2011. The fund attempts to earn an above market return over a long time period. The principals are long term investors who intend to add to the fund.

The fund buys US equities. As the principals of the fund live in New Zealand, the purchase of US equities is an attempt to diversify away from the heavy human and other capital investment that is tied to the New Zealand economy (ie, our jobs and other savings are based in New Zealand).

The first stocks were purchased in 12 October 2011, with the majority being purchased in November. The current market value of the fund is $52 036, up from the $51 003 invested since 12 October 2011. This represents a $1033 or 2.02% return.

Because most of the fund was purchased in November (over the course of the month), it is difficult to compare to the market return. To take a true market return, we compare the return on shares purchased with the market return had we purchased a S&P500 market tracking exchange traded fund (ETF) (NYSE:IVV). This means that we create a hypothetical portfolio that purchased IVV instead of the particular stocks purchased, on each day that the portfolio purchased particular stocks.

Example:

On 2 November 2011, the fund purchased 102 shares of Dolby Labs (NYSE:DLB) at a price of $29.40. The trade cost $2998.80 (no fees were charged for this purchase, but are included in returns when charged). At the same time, we added $2998.80 worth of IVV to a hypothetical portfolio in order to track performance, at the then current price of IVV. If we did not create the hypothetical portfolio at the time of purchase, matching fund performance would be impossible when cash is being regularly added to the portfolio for future purchases. Matching share purchases with hypothetical IVV purchases allows us to compare a 100% equity invested value portfolio, selected by the bookbook principals, with a passively invested index fund, without distorting the results by market timing bias.

Over time, as the portfolio builds up and only minor changes are made each month (as the strategy is buy and hold) we will simply be able to look at the monthly market return of IVV without having to create a hypothetical portfolio.

Compared to this hypothetical portfolio, the fund has outperformed the market by $214 (ie, the hypothetical market tracking fund is currently worth $51 822, vs the actual fund's $52 036).