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Friday, January 1, 2010

Returns -- For Calendar Year 2009

Wow! What a difference a year makes!
At the end of 2008, we stated that "we have to go back to the Great Depression to find a stock market performance that was worse than this year." Fortunately, in 2009 the stock market made a comeback. The Russell 3000 benchmark used by the Covered Calls Advisor increased by 25.5% in 2009; which is its best overall result since 2003. In comparison, the Covered Calls Advisor Portfolio increased by 37.9% in 2009, thereby outperforming the Russell 3000 benchmark by 12.4 percentage points (37.9% minus 25.5%).

It is a well-accepted premise that the covered calls investing strategy generally outperforms an overall market benchmark in neutral and bearish years. A slight outperformance by covered calls might also be expected in slightly bullish years. But in a strongly bullish market such as 2009 (when the market benchmark increased by 25.5%), a common belief is that covered calls should underform versus a buy-and-hold benchmark. Thus the Covered Calls Advisor Portfolio's significant outperformance in 2009 is especially satisfying to this advisor.

The Covered Calls Advisor Portfolio (CCAP) was begun in September, 2007. The annualized returns achieved for 2007, 2008, and 2009 compared with the Russell 3000 benchmark results were as follows:




The Covered Calls Advisor's motto is:
"Stick with Covered Calls!"





The underlying premise of this blog is to demonstrate that "with a well-managed covered calls portfolio, we can achieve market-beating returns." However, the annual double-digit percentage points outperformance that has been achieved since this blog was started in 2007 should not be misinterpreted by readers of this blog. The Covered Calls Advisor cautions all readers that the levels of outperformance achieved to-date should not be considered as an expectation as to the level of future outperformance, either by the Covered Calls Advisor Portfolio in particular or by the covered calls strategy in general. Although this advisor continues to expect a disciplined, well-managed covered calls portfolio to outperform the Russell 3000 overall market benchmark over the long-term, it is likely that the long-term outperformance by the Covered Calls Advisor Portfolio will be closer to a mid-single-digits (perhaps +3% to +7%) outperformance rather than the double-digit outperformance that has been achieved each year so far.

As a further caveat to readers of this Covered Calls Advisor blog, I would now like to reiterate the disclaimer always shown in the lower right sidebar:
"Disclaimer: The content of this site is for informational and educational purposes only. If you invest using information contained here, do so at your own risk."

As a reminder, the single measure used by the Covered Calls Advisor to determine overall portfolio investment performance results is called 'Total Account Value Return Percent' -- a simple example demonstrates how this measure is calculated:
If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100.

As always, I welcome any comments or questions you might have. Please feel free to submit them by clicking the 'comments' link below. If you prefer more confidential correspondence, my email address is listed at the top-right sidebar of this blog site.


Sincerely Wishing You a Happy, Healthy, and Prosperous New Year in 2010!

Regards and Godspeed to All,
Jeff