Every January, investors conduct the same familiar exercise – an exercise which is rapidly approach again. Twelve months of market activity are compressed into a neat sequence of charts and percentages, then we draw conclusions with an air of finality that the underlying evidence does not support. The problem is not that annual reviews exist. It is that they are usually asked to do the wrong job.
Most are less an examination of investment judgement and more a retrospective performance commentary, shaped by the calendar rather than by the realities of capital allocation. They judge portfolios as though they were a series of annual wagers, rather than a living system designed to compound over decades. This year, I want to make a request of all my fellow investors that write them – let’s try something different.
Markets don’t conclude arguments neatly at year-end. Business models evolve over multi-year horizons, capital cycles turn slowly, and valuation excesses can persist far longer than most investors expect. But the annual review imposes a false sense of completion, encouraging premature conclusions about decisions that are still in motion. I believe it leads to distorted judgment for many of us, causing us to assess investment theses prematurely, and draw too many conclusions from short-term price action.
My own portfolio is not reset every January as much as modified with a view of building on it’s history. Can you say the same?
Most annual reviews place their emphasis on what happened rather than on why it happened. We celebrate positions that have done well with little interrogation of valuation, risk, or opportunity cost. Likewise, positions that have failed to live up to expectation are quietly criticised (or ignored entirely). This outcome-driven assessment flatters luck and obscures discipline.
Investment skill is not revealed by whether a share price happened to rise within an arbitrary period. It is revealed by whether capital was deployed with an appropriate margin of safety, whether risks were understood and sized correctly, and whether decisions were revised when facts changed.
Why sales matter more than buys
This is where most reviews are at their weakest.
Purchases are easy to narrate – everyone likes shiny new opportunities. Sales, on the other hand, are not. They require an admission that the balance of probabilities has shifted, that expected returns have compressed, or that risk has increased relative to reward. They expose judgement in a way that buying rarely does.
As 2025 draws to a close, I made a few final decisions for my portfolio for precisely these reasons – not in response to short-term price movements, but because the quality of the underlying investment had deteriorated relative to alternatives. In some cases, this was about more than the price, more than the fundamentals, but reflects my own intrinsic feeling about the industry and specific business which drove them. Consider each in turn:
Tritax Big Box REIT (LSE:BBOX) was sold not because the assets were poor, but because the investment case had become increasingly one-dimensional. Although operational execution remained sound, I was actively looking to consolidate my portfolio, and so took the decision to consolidate my position into my other REIT holding, LondonMetric Property (LSE:LMP). The position was sold after a 5+ year holding period for a 37% loss including dividends
NextEnergy Solar Fund (LSE:NESF) was a harder decision in some ways, with a significant discount to NAV. Unfortunately the constant erosion of this value over the last five years and constrained dividend progression was sufficient to convince me to divest my holdings. Any investment that cannot protect – let alone grow – it’s NAV over time is essentially an investment that is slowly cannibalising itself. A high yield is no substitute for that basic economic reality and so my position of 2+ years was sold for a 31% loss including dividends.
Anglo Asian Mining (LSE:AAZ) presented a more complex challenge. Although bullish on commodities generally, I was never entirely happy holding this position in a single, high-risk operating jurisdiction, which suffered from significant production issues and cost inflation, giving me limited visibility over future cashflows. While commodity exposure has been rewarding for me historically, it must be accompanied by robustness – not hope. As the balance between risk and reward shifted, capital discipline demanded re-assessment rather than loyalty and so I divested my holding for a 129% return including dividends after holding for nearly four years.
Henderson Far East Income (LSE:HFEL) was one of my oldest holdings, and in many ways, one of my most disappointing. A persistent discount to NAV, uneven income progression, and not insignificant geopolitical headwinds made returns elusive for much of the nearly eight years I held the fund. With a return of just 7% over that period, or marginally over 1% a year, I finally decided to move on from the investment.
Finally, Baillie Gifford Japanese Fund was another holding for several years with a patchy returns history since I initially began investing in 2021. Despite an attractive profile, one of the biggest positions in the fund was the notorious Softbank – well-known for its massive global tech investments via funds like the SoftBank Vision Fund (investing in AI, IoT, robotics) and its core telecom/internet businesses in Japan, many of which have gone horribly wrong over the last few years. With a hugely volatile price, I decided the fund didn’t really reflect my underlying investment approach and so decided to reallocate the capital to the Nippon Active Value Fund (LSE:NAVF), an actively managed fund that seeks to provide shareholders with attractive capital growth through the active management of a focused portfolio of quoted companies which have the majority of their operations in, or revenue derived from Japan.
None of these decisions were attempts to time markets, but rather an expression of the reality that my portfolio’s capital is finite and opportunity cost is real. Clinging onto every legacy holding the name of consistency isn’t discipline as much as a refusal to make decisions.
What an annual review should actually judge
Coming back to our topic of annual reviews, a meaningful review does not ask whether a portfolio “beat the market” in a single year.
- It asks whether capital was allocated rationally.
- Whether income streams became more dependable.
- Whether risks were recognised early rather than rationalised late.
- Whether mistakes remained survivable.
Above all, it asks whether the portfolio still functions as a coherent system, rather than a collection of familiar names.
Setting the standard for what follows
This article exists to establish the standard by which my forthcoming annual review should be read. As usual, my annual review will include numbers and comparisons but it will not treat twelve months as a verdict on long-term judgement. Nor will it apologise for decisions made in the interests of capital preservation, balance-sheet quality, and disciplined opportunity cost.
Good investing is rarely theatrical. It is often defined by quiet exits, unpopular restraint, and the willingness to revise views without embarrassment.
That is the lens through which the year should be judged – and the lens through which the review that follows will be written.
Thank you
Finally, I’d like to thank all my readers and supporters for a fantastic 2025. It’s been a privilege to write for so many of you this year and wonderful to engage with so many through the Twin Petes Investing podcast! If you’ve enjoyed reading my articles this year – or the show – please do consider visiting our JustGiving page and donating a few pounds before the end of the year to our charity fundraise for Menphys. It’s hugely appreciated and a terrifically worthy cause.
If I don’t get a chance to publish another article before the end of the year, I wish all of you a very Merry Christmas and a most happy and prosperous New Year!