In 2020, Eight Ventures’ Smart Whales model, our only all-stock portfolio, returned 60.4%.
Smart Whales mimics the investments of five of the world’s top performing buy-and-hold oriented investors, replicating their strong conviction buys. The investment managers tracked by Smart Whales have created incredible wealth over the preceding decades and 2020 continued the multi-decade trend.
In 2020, the Smart Whales stable was brimming with thoroughbreds like MyoKardia, innovative companies so unique and special they could not escape aggressive takeovers. In fact, three Smart Whales companies were bought out in 2020, all at rich premiums. We made large winning bets in cybersecurity and biopharma. We made a timely bet on an automaker (not Tesla), and winning bets in stocks representing diverse industries – transports, AI, a brokerage firm, and a money center bank.
What follows is a quantitative look under the hood.
Smart Whales Portfolio Stats:
- 2020 return: +60.4%
- Jensen’s Alpha: +49.7 (benchmarking risk and return against S&P500)
- # of investment managers tracked: 5
- # of stocks in model: 18-20
- # of stocks held at present: 19
- # of winners in existing portfolio: 19
- # of losers in existing portfolio: 0
- # of companies bought out in 2020: 3
Note: Smart Whales does not utilize leverage and has a risk profile lower than that of the S&P500.
Jensen’s Alpha defined:
Jensen’s Alpha, also known as the Jensen’s Performance Index, is the gold standard measure of the excess returns earned by the portfolio compared to returns suggested by the Capital Asset Pricing Model (CAPM). Alpha is represented by the symbol α. The value of the excess return may be positive, negative, or zero. The CAPM model itself provides risk-adjusted returns, meaning it takes into account the risk of the security. Therefore, if a security is fairly priced, its actual returns will be the same as CAPM. The Alpha in this case will be 0. If, however, the security earns even more than the risk-adjusted returns, it will have a positive Alpha. Negative alpha indicates that the portfolio has not earned its required return. A higher Alpha is always desirable by portfolio managers. Jensen’s alpha focuses only on non-diversifiable, relevant risk by using beta and CAPM.
The formula for Jensen’s Alpha:
- Rp = Returns of the Portfolio
- Rf = Risk-free rate
- β = Stock’s beta
- Rm = Market return