AnalogKid's 2023 Year End Summary

2023 End of Year Summary

Some of what I am going to share includes off-topic items that are not allowed to be discussed on this board. I am including them for the sake of completeness, but please don’t ask questions or start discussions on any of the off-topic items. Thanks.

Investing philosophy/strategy:

• I personally agree with the primary strategy of this board which is to invest exclusively in a concentrated basket of high-growth stocks. However, over the last couple of years I have found that I cannot handle the mental stress of it. I have had literal panic attacks where I have been awake all night when stock prices have been dropping significantly. I think this is PTSD/paranoia stemming from living through 2 major market crashes in the 2000’s.
• So, I have gradually adjusted my investment mix to something that will allow me to sleep at night while still having a significant % of my investments in growth stocks.
• I have gravitated the majority of my growth investments toward focusing on companies that I feel have the highest quality leadership, the greatest long-term potential, and are a little more mature in their lifecycle. I intend to hold these for multiple years, and because of the quality of the businesses and leaders, I’ve been able to be comfortable even when they have had significant drawdowns in the stock price. The four stocks that exemplify this (for me) are TTD, NET, CRWD, and TSLA. SOFI is another that I include in this category, although it’s not quite as solid as the others. These 5 companies make up about 60% of the growth stock portion of my portfolio.
• Over the past year I have established a minimum $ amount that I want to keep in cash. This cash position currently makes up ~48% of my total net worth. This is the main change I have made that allows me to sleep at night. I always keep this minimum in cash, and it’s non-negotiable. I no longer agonize about whether I should be investing more – if I’m at the limit, then that’s it. Since making this mental adjustment this year, I feel completely comfortable being “fully invested” with everything above my “cash on hand” limit. I know I’m not keeping up with inflation with the interest on the cash, but it’s close – and I’m ok with that.
• The rest of my investments are divided into several different asset classes which I will discuss below.

Follow-up from 2022 End of Year Summary:

This is a link to my summary from last year. For What Its Worth

  • I still agree completely with my first 6 points from that post. I especially feel like I have finally found my investment style (point #6) in 2023. It took a lot of iterations over the last few years, but I am completely comfortable with my current mix and allocations.
  • I started 2023 with 75% cash, but I stated in last years’ summary that - “In the last 2 months I have increased my investing of cash (into stocks) by quite a bit. I don’t know when the market will turn, but I think the risk has lowered to a point where I would be kicking myself if I had not stepped up my (stock) purchases and the market suddenly took off this year”. I went into a high % of cash in early 2021 and stayed that way until late 2022 when I started reinvesting. I continued putting more cash to work in the first 2 quarters of 2023. As of now, I am approximately 50% cash – so, I met my goal as stated at the beginning of the year. I forced myself to begin buying more stocks even though I still had some fear about it.
  • Another statement from last year was – “I have changed my approach for the “full position” (growth) stocks, and I have been trying to pick ones with the cream-of-the-crop management and business quality. I hope to hold all of these forever. These are the ones that I can see possibly doubling in stock price every 4-5 years for the next 10 to 20 years.” I will say more about specific stocks below, but for the most part I have stuck to this for 2023 with the majority of the growth portion of my stocks. Even when some of these stocks had big drawdowns this year, I did not panic-sell like I have been prone to in the past. Because I had developed confidence in them over multiple years, and because I had a percentage invested in them that I could handle, I was able to be much more calm and clearheaded about how to react to price fluctuations throughout the year.

Current allocations and 2023 performance:

I do not keep precise records, but based on rough calculations, my approximate total return for 2023 was 28%. This was achieved even with a cash position of ~70% at the beginning of the year, and an ending cash position of ~48%. The investments I selected had a (mostly) good year – and some of them were exceptional. I had a couple of stinkers too, but luckily I sized them appropriately and they did not bring down the overall average too much. I am now at all-time highs for my overall portfolio - about 15% above my previous 2021 all-time high (note – some of this is due to continued salary inflows because my wife and I still work, but the large majority of it is due to investment gains). This was achieved by going to a high % cash at the start of the downturn two years ago. I could have made a lot more in 2023 if I did not have so much in cash, but I’m prioritizing capital preservation over profit maximization.

Chart of current holdings:

Cash – I have about 48% in cash – split between my IRA and non-IRA accounts. It is in a mixture of CDs, money market funds, and a savings account at SoFi. All of these are earning between 4.5% and 5.2% interest currently.

Alternative Investments – Ethereum and Bitcoin. ETH is a 1% position and it is up 91% YTD. BTC is a 15% position and it is up 153% YTD. BTC is by far my highest conviction investment, and it has carried my portfolio this year. I have added to my BTC holdings consistently throughout 2023, and I am still adding now. In my summary last year, I encouraged everyone to spend some time researching it – I hope some of you did. It is not a ponzi, it is not a scam, it is not destroying the environment – all of that is FUD. My encouragement is the same this year – spend some time learning about it. I believe BTC is going much higher. I wish we could discuss it here, but alas…. My conviction with ETH is significantly less than with BTC. I have not added to my ETH holdings, and I do not plan to add to it.

Dividend Stocks – these are all the gray and brown bars in the left-middle of the chart. Dividend stocks are also off-topic for this board, so I won’t discuss them either. I hope the moderators will allow a brief comment on one of them - INTC is the one I like the best – up 88% YTD. The stock price tanked and reset last year when the company greatly reduced their dividend payout. They have cut costs, they are expanding fab facilities globally, and they are working on AI related chips (isn’t everyone?). I think they could be a major beneficiary of countries wanting to develop more domestic supply – to diversify away from Taiwan produced products. I could see INTC being a multi-year compounder from here. Not hypergrowth for sure, but I like it for diversification.

Growth Stocks:
TESLA (2.2% position) – the biggest reason I started investing in this stock is Elon. He is one of the top entrepreneurs and business leaders of all time. Electric cars/trucks/semis; solar; batteries; super chargers, underground tunnel boring machines; the largest satellite network; Neuralink; reusable rockets; Artificial Intelligence; the largest rocket ever launched; self driving cars; Twitter (X); Optimus; flamethrowers and short shorts even! I mean, stop and read that list again – how could you not have at least a little invested in this individual? I ignored this company for a long time because I was scared away by the FUD that is constantly blasted out in financial media. Since I have recently started looking into it, I have been more and more impressed by the technology – I really had no idea what the company was doing from a production standpoint until a few months ago. I also had no idea about the Optimus robot until recently. It’s kind of hard for me to believe Optimus is real to be honest, but if it is, and if it can really do the things they are showing in videos, this could be amazing. I think it is THE company with the greatest “optionality” and potential for huge revenue expansion in the next decade. I have DCA’d into TSLA over the last few months and it is now one of my top 5 growth stocks, and I plan to hold it long term. My cost basis is $245. (The stock was up 101% in 2023 – I only caught a tiny bit of that, but I’m in it for the future).

CRWD (1.7% position) – I have mixed feelings about CRWD because of the history of burnouts in other security companies. It is no longer hypergrowth, but it is still what most people would consider “high growth”.

The law of large numbers is going to make it harder to maintain >50% growth, but I think the company can continue to grow at a good rate for a long time. With over $3B in cash and positive cash flow, they are in a strong financial position. The CEO is consistently talked about in the most positive way and is recognized as being one of the very best. My cost basis is $132 (The stock was up 142% in 2023).

NET (3% position) – According to Y-Charts, the P/S of NET got as high as 110 in 2021! Hopefully we can all agree now that it was crazy high at that point. It has always had one of the higher P/S ratios of the growth stocks, and that to me is an indication that “the market” sees something special in the company. I can’t fully understand their technical capabilities, but I believe the market knows something, and that is why it is consistently among the more expensive of stocks. I also think this is another company with an exceptional CEO. People got frustrated with how he handled communication around the sales people issues in 2023, but other than that I think he has had very few slips.

Super steady YoY sales growth. $1.5B in cash and cash flow positive. I have read things saying that there is a use case for NET with AI – I don’t understand it well enough to try to articulate it, but if true that could be a major driver for the next few years. Back in July I posted a link to a podcast where a VC AI investor on the “Odd Lots” podcast said that his firm “sees Cloudflare in all the infrastructure behind a lot of our companies”. I added a lot to my position around the time of the May dip. My cost basis is $54 (The stock was up 84% in 2023).

TTD – Mature, profitable, plenty of cash, outstanding CEO, elite execution over multiple years. Slower growth, but still growing in the 20%+ range YoY. There are tailwinds from the ongoing switch to connected TVs and streaming media, and I expect positive revenue surprises from advertising on the elections this year. These elections are going to be SOOOO polarizing and hard-fought with tons of money pumped into advertisements by both parties and I think that is the short term catalyst that could propel the stock in 2024. In addition, Beth Kindig reports that “CTV ad spend is estimated to be one of the fastest growing digital ad channels next year, with forecasts calling for 30.8% to 39.5% YoY growth. Increased adoption of ad-supported streaming tiers from Amazon, Disney, and Netflix are core drivers.” I see this ad-supported model continuing, and I think TTD will be a beneficiary. I have a 2.5% position and my cost basis is $59.41. (The stock was up 63% in 2023)

SOFI – I’ve posted this link previously, but Brad Freeman has the best summaries for SoFi, and he provides them for free. Link to the latest summary from Brad - SoFi Earnings Review - by Brad Freeman - Stock Market Nerd. SOFI has been growing consistently and delivering on everything it said it would. They have stated that they will be GAAP net income positive this quarter (Q423) and in 2024. I personally use them as my bank, and I love the product. I really like the CEO. I have a 2% position and my cost basis is $6.59. (The stock was up 116% in 2023)

TMDX – I have written a lot of posts about this company, so I’m not going to restate any of that analysis in this summary – look back at my history if you are interested and you will find dozens of posts with my detailed thoughts. I still like the company long term, but I dramatically reduced my holdings after the Q2 ER for reasons I shared at that time. It was the right decision as the stock fell all the way to $37. However, I committed the classic blunder of being too greedy and thinking I could get an even better price to buy back in – and I did not buy back any shares even when it had dropped 60% from the high. Then, the stock rocketed higher after the Q3 ER and has not looked back. Luckily, I held some shares through all of this, and I continue to hold those shares today. I am still hoping we get another dip after the Q1 ER, but there is a good chance that does not happen. My hope is that in their next ER they will give an extremely conservative 2024 forecast which will result in a drop in the stock price. I could be wrong (I was wrong at the Q3 ER), but that is what I think will happen. I am quite confident that the CEO will sandbag his forward estimate – I just don’t know if that will result in a meaningful drop in the share price. For now, I am just watching and waiting. My cost basis on the shares I’m holding is $12.87 (The stock was up 27% in 2023).

BTC Stocks – this is a basket of stocks in Bitcoin related companies MSTR, SQ, MARA, CLSK, and RIOT – these are up 336%, 21%, 587%, 425%, and 356% YTD in 2023. I know BTC discussion is not allowed, but if I’m correct, there are going to be more Bitcoin related companies in hypergrowth in the coming years and the board is going to need to decide if they too are going to continue to be “off topic”. For now, I won’t say any more about these, but it would be nice if the board leaders would consider a rule change for the future.

Other growth stocks that are smaller positions:

TREX was a turnaround stock that I got at a good price – cost basis $51. TWLO is also a turnaround stock. (Up 97% and 57% YTD in 2023)

SHOP, DDOG, PINS, RBLX and RDFN (up 127%, 67%, 53%, 63%, and 147% YTD in 2023) were all recommendations from a stock service, and they have been spoken about positively by people I follow on Twitter.

UPST has had a crazy year with the stock price – as low as $12 and as high as $72. I bought and sold and bought again and currently have a 0.5% position that I’m planning to hold longer term. The stock is up over 200% for 2023. With 40% of the shares sold short, I expect volatility.

NVCR – I said last year that this one depended heavily on data that would be coming out in 2023. Well, the data was not good, and the stock was absolutely crushed. I sold all of it to tax-loss harvest, then bought back the same number of shares after 31 days. I will now hold this forever. Some might think this is dumb, and it probably is, but I’m holding this, TDOC, and TELL for similar reasons – to remind me of lessons learned. Every time I see them in my portfolio for the rest of my life I will be reminded of things I don’t want to forget. (NVCR was down 80% in 2023)

I have small starter positions in 8 other companies. FSLY, AXON, ZS, MDB, SWAV, DOCN, MQ, LMND. AXON, ZS and MDB I would like to own more of, but I’m hoping for a better price to scale up. I would probably sell TREX or PINS to fund any purchases if any of these present a good opportunity.

Quest for a hundred-bagger: I think (hope) that one of the stocks I bought in the last couple years will eventually end up being a 100x return – it might take 20 years for that to materialize, but I’m patient. The $ amount that I have in most of these is small, and I’m tracking this mostly to entertain myself. Here are the current standings:

If you’ve made it this far, God bless you….and, you have my sympathy. My final item is a recommendation to read the attached (link below) 2023 Investor Letter from Ross Stevens – the CEO of Stone Ridge Asset Management. This has almost nothing to do with growth investing, but it’s a pretty inspiring read (in many ways). I have not read something quite like this before in an investment letter. He has a gift. I wish I could work for this guy. It’s long, but I encourage you to read the whole thing. https://info.nydig.com/hubfs/2023-Stone-Ridge-Investor-Letter.pdf

Best wishes for the year to come. A quote from the letter referenced above - “A black belt isn’t someone who never gets hit. A black belt is someone who gets hit and doesn’t care”. If you have been figuratively “hit” by the market in the last 2 years, this is your chance to advance to the next color belt. I’ve been hit by the markets many times over the last 30 years. Sometimes the loss was so great I gave up investing for years at a time. I don’t claim to be an investing black belt, but I do think I’ve raised a couple of ranks since 2020. I can now take some hits and keep going through it. Don’t give up. If you invest long enough, you are going to have some soul-crushing losses eventually. Learn from it. Let it toughen you. Persevere and improve.

Peace

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@AnalogKid70 I wish you every success with your approach in 2024! Keeping a significant amount in cash to let you sleep at night is the approach that works for me as well. I have 5 years of living expenses in cash and near-cash at all times.

However I don’t count that as part of my investing portfolio. I have no intention of ever investing that cash.

Like you, I have invested in some stocks that I’m expecting to be steady growers. I think of this as the ballast on my ship: it keeps me steady as an investor in the storms. I have a different set of expectations for these stocks, 10-12% annually as a whole. Consequently I think of this group of stocks as a separate portfolio from my growth stock investments.

Treating each group of assets that have different intentions and goals as separate portfolios allows me to be clear about my performance and expectations for each one.

However you do it, I think you’ll find this board is helpful to organize your thinking about your companies. Good luck to you!

ActonUp

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