End of Year 2021 Performance

Investing Strategies Abandoned Arctic Outpost #13
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Wishing a Happy and Properous New Year to Fools Everywhere!

Note 1) I am a moderately mediocre amateur investor. Over the last several years the total portfolio return has increased somewhere around 4.5 times its original value. This is better than some, worse than others, and hopefully in the middle of our growth investing cohort. Or something like that. The totality of my returns are due to nothing more than a raging Bull market, stealing the right ideas from the very top investors at the right time - coupled with more than a little personal PDL.

A) 2021 Performance

The Portfolio ended the year with a +66.2% gain.

I am thankful to the Motley Fool, Many, many Fools who freely share their thoughts, and a large number of subscriptions services that I track. My returns are far better than I expected them to be in 2021 and I attribute that to a great many swings from being fully invested to booking profits along the way, healthy cash positions at opportune times; as well as, a fairly large number of TBs used to boost those returns incrementally.

Here is last month’s performance summary:

https://discussion.fool.com/Message.aspx?mid=34991130

2021 Month-by-Month Performance:

Jan +13.6%
Feb…+9.2
Mar…-9.5
Apr.+14.8
May…+1.6
Jun.+15.8
Jul…+2.1
Aug.+21.9
Sept.+5.1
Oct.+16.2
Nov.-21.7
Dec…-2.9
…+66.2%

So that’s 2021. As we go into Jan 2022 I have once again began to go to a heavier cash position late last week. For what it might be worth - I find myself thinking that 2022 might represent a sort of whimpering end to the Great Bull Run. Not that I think that our High Growth Portfolios are going to suffer grievously - or be punished, for our past incredible gains. I just think it might be a lean year for our strategy while value might continue to pile on the points until all the various economic plot twists and turns worth themselves out. This as a whole, while individually, as Saul has proven time and again - individual stock picking works. I just try to add a little investing seasoning by taking advantage of the ebb and flow of the markets while peppering returns with trading blocks in high confidence companies. That particular strategy worked very well in 2021 but it remains to be seen if it has the dexterity and the momentary specificity to be repeated. We’ll see I suppose.

Here is the Current Portfolio Roster:

A) STARTERS - Up to 70% of Portfolio

UPST
MNDY
DDOG
ZS/CRWD
ZI

B) The Bench - Between 20-25% of Portfolio

NET
GLBE
AFRM
CFLT
DOCN

C) Scout Team - Maximum of 10% of Portfolio

Work in Progress

I recently completed my end of the season portfolio roster review and have a number of adjustments and additions/subtractions to make. For whatever reason I am hesitating to do so. And while I made a couple of adjustments on Friday I just wasn’t in the mood to complete the 2022 roster just yet. Here are the companies that I am trying to fit in somewhere; which, by design, will push some Bench level companies down to the Scout Team.

SE - Most likely a Bench level position. Think they are going to come roaring out of the gate with a really nice FQ4 2021 report. As long as the gaming division keep pumping out cash to fund it’s growing e-Commerce offering they should be just fine.

BILL - As I have noted in other places, sometimes you invest in good companies because there are more Rabbits than Eagles. BILL is just such a company. Of note, on their most recent report they Beat on Revenue by about 10%. Perhaps something of a foot fault, but I always tend to think that a larger crush on Revenue coupled with his Revenue Growth along with strong guidance is a pretty good bet. We’ll see.

SNOW - Sell-off of a company that will most certainly retake the high ground seems reasonable to me.

S - Back and forth and a little wobbly on this one; but, the growth is there for sure.

COIN - Wing and a Prayer company whose future is entirely dependent upon the wild ups and downs of the crypto thing. If it gets crushed by regulatory issues or just dies in concept then it could go to zero. On the other hand, if the crypto goes on to new heights and manages to get off the landing beaches and take the interior - then it should be just swell. Risky stuff though and volatile for sure.

Note 2) My goal has never been to be one of the high flyer investors with eye-popping, gaudy returns. Over the last few years it’s worked out that way but certainly not by design. Frankly, and in all honesty, I am just an average sort of investor who has benefited from a strong bull market while being in the right place at the right time. I know my personal limitations and my annual goal is to simply beat the major market indexes by double digits. If 2022 comes down to actual skill then I might be in real trouble.

Note 3) As an alternative I am considering sitting 2022 out. 2022 could be a little wobbly…you know,… just a little wobbly for us High Growth types. And if not sitting it out entirely then perhaps a bit. This investing stuff can be tricky and my full court press (The old Arkansas 40 minutes of Hell) strategy requires a great deal of work and time.

All the Best,

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Champ, congrats on your outstanding 2021 performance and for sharing your thinking with everyone
and for being an all-around Good Person. You make the sometimes weary world a more cheerful place!

Usually people attribute good outcomes to skill and bad outcomes to luck. It’s refreshing to see
you offer a changeup of sorts.

I’m always interested in peoples opinions about skill vs luck. If we think of various activities
that might involve either all luck, or all skill, or some mix of skill and luck…

roulette ============> 100% luck
grandmaster chess ====> 99% skill

college basketball=====> ___? percent skill and ___? percent luck
investing===========> ___? percent skill and ___? percent luck

Can you take your best guess at filling in the blanks for college basketball and investing?

Would much appreciate your opinion!

Sincerely,
noserunnin (or just plain nosy)

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Hi Ears:

Happy and Prosperous New Year for the Ear family!

Great questions and with allowances for perhaps flawed logic I might give the points were I you.

That said - it’s a proven fact that college teams with higher rated players (Think 4 and 5 Star recruits) have a much higher winning percentages that those teams with a collection of lessor rated players. Something on the order of 90/10 (give or take +/- 5 or so) at the top range outcomes of that level. But there are a couple of caveats to consider:

  1. There are a handful of coaches who just win. Before they were recognized as great coaches they won with lessor talent. As their winning years rolled up their recruiting improved and they now get more 4 and 5 star recruits which increased their winning percentages. All of which begs the question - what is the minimal player skill level needed by a coach with the highest of skill levels? Well…it depends.

  2. Home Court Advantage - As you might expect, a team of high skill players coached by a high skill level coach along with the Home Court Advantage is almost unbeatable; however, there are many cases whereby a team of lessor skilled players coached by a very skilled coach along with Home Court Advantage wins.

  3. The Way the Ball Bounces - Sometimes regardless of skill the ball just doesn’t bounce your way. Thats why the vast majority of teams composed of Highly Skilled Players and coached by Highly Skilled Coaches seldom go undefeated.

All that said, I think I will stick with my initial figures as long as everyone can agree that by its very nature luck is a 50/50 proposition.

I see investing with much the same principles especially for high growth.

For example - it would be hard to find a lot of folks who would’t agree that selecting the right companies (think 4 and 5 Star companies) provides investors with higher percentage opportunities for greater returns. If that is reasonably correct, then the devil is most certainly in selecting those companies. Simply said - the best companies can be generally expected to provide the best returns IF one is astute enough to select them. But there are caveats here as well:

  1. If you would bear with me - I would expect that lessor experienced investors would have somewhat less success in selecting the best companies. That would be a ding on skill and tend to favor luck a bit more.

  2. Along with #1 above, you have to consider that the market is just like basketball in that there is a never ending series of runs: days of positive results invariably followed by days of negative results. What that means is that even if a novice investor picks the right companies it is usually just a flip of a coin as to whether they are buying on a down day or an up day. This then is a result of luck as well.

  3. If the investor is a LTBH then over time poor luck is overcome by the market’s historical march upward. But - be that as it may, an investor with poor luck will never attain the results of an experienced investor with good luck. Plain and simple. But - to be a LTBH investor you have to accept the roller coaster ride up and down never taking advantage of what the market might give you. You’re just along for the ride.

Now let’s take Saul as an example. Saul is both a great judge of talent as well as a fantastic game coach. He invariably, for his investing strategy, selects really good companies, substitutes strategically, and cuts players as their peak playing days ebb. To remotely out coach Saul you would have to take a few risks - and have a great deal of luck going your way. All in just my humble opinion of course.

Now - I built all that to provide my highly flawed opinion on the second part of your question - skill/luck in investing:

Highly Experienced Investors with a Talent for Selecting 4 and 5 Star companies: 80% Skill/20% Luck

Note: Luck for these investors revolves not so much around roster management as it does on the unknown; which, is to say, that any investment is one Earnings Report away from underperformance.

The Rest of Us Investors: 60% Skill/40% Luck.

All in my ever so humble opinion.

But then - the one thing that can turn the tide a bit, level the playing field as it were, for the Rest of Us Investor types is roster management. And it is that skill that most of us should concentrate on and let the experts like Saul, The Fool, and a variety of other investing Hot Shots like Bert, Kathie, Andres, BVP, among others, do the heavy lifting. That as well as being more flexible in portfolio composition.

Anyway that’s my quick take on it all and certainly flawed by any measurement on any give day.

Please let me know your thought - I value your input a great deal.

All the Best,

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God stuff.
Only 20% YTD for 2021.
Scared to look. Thought I was at 0%.
I’ll take the 20% and never look back.

Might start looking at TBs. Might get out next time it hits 60% like it did a couple months ago.

Happy New Year!
MoneySlob

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Hi Champ,

Thanks so much for your response. Informative, as always. And much appreciated!

Michael Mauboussin has done the most work in this arena – at least that I’m aware of – and he
agrees with your basketball numbers. He disagrees with your investment numbers, putting investing
much closer to roulette on the luck/skill continuum.

By the way, he has a couple of interesting observations…

  • Whenever you see an extreme positive outlier, it’s a combination of great skill and great luck.

  • In activities requiring both luck and skill, as skill increases, luck becomes more important.

He offers men’s Olympic Marathon times as an example of the latter. In the last 80 years they’ve
improved by 24 minutes or so for the top finisher. However, during the same period, the difference
in times of the person who came in 20th has decreased from 39 minutes to about 5-7 minutes.
Everyone’s skill level has improved, leading to increased clustering at the top, thus leaving
more to chance to become top finisher.

Another interesting characteristic of investing is that returns, like earthquakes, are asymmetric.
You can shoot the lights out for thirty years and in year thirty-one lose it all.

Best to you,
Ears

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First things first:
Happy New Year and I hope we all do as well as the Champ did this year.

My portfolio looks actually similar to what you hold at the moment, but my performance is way behind.
I finished the year up at 4.9%

Here is my list with percentages:
AMPL 2.5 %
CRWD 9.0
DDOG 12.0
MDB 18.0
MELI 3.0
MNDY 5.0
NET 12.0
OKTA 8.0
UPST 10.0
ZS 1.5
CASH 19.0

My cash was as high as 40%,(retired and I need to live off that money)
My return would have been a lot better if I had stayed in the 40% cash mode:-)

From the low in March (down 10% at that time)to the high in October my portfolio was up 51%

My mistake was UPST
I bought at around $138, bought some more at around $200 and the watched it go $400 and loaded up on the pullback starting at $350 to $300, cost average on that stock is now at $209 with the stock at $150
I still own OKTA and MDB
I think it is time to lighten up on these and re-allocate my portfolio a little

Good luck everyone for 2022
Wyking

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Hi Ears:

Did I forget to mention that I very much appreciated. your kind thoughts. Means a lot coming from an investing GOAT Fool member like yourself.

Now about Michael’s numbers:

There is no real hierarchy of investors, experienced/skilled or not. What there really is though - at least in my viewpoint, is a genuine old fashioned, easy to explain - Bell Curve.

While everyone knows and understand standard Bell Curves lets take one on just for an example.

Take how people feel a about non-related others.

At any given time, 5-10% of the people you know and meet like you. They don’t especially know why they like you - they just like you. On the other hand, there are 5-10% of the people you meet and know who do not like you. They to might not know why they dislike you - they just do. What remains in the major part of the Bell Curve are the bulk of the people you know and meet can take you or leave you dependent upon the outcome of any recent - say the last - time you interacted.

Now take that same general example and apply it to investors. There are some investors on the left hand side of the curve that are simply fantastic investors. Then you have most of us in the big Bell Curve ballon that bulges to the peak - and then you have some right side folks that are just really bad investors.

Ok if any of that is reasonably accurate, then Michael’s finding that:

“In activities requiring both luck and skill, as skill increases, luck becomes more important.”

I would actually believe that as skill/experience increases, luck has a diminishing less influencing impact.

Be all that as it might - the determination and/or primary skillsets in the measurement of investing
Capability is twofold and totally dependent upon both Stock Selection and Portfolio Management. Any non-specific weaknesses in either of those primary investing traits relegate investing success, as well as general investing skillsets, toward the middle of the Bell Curve. Perhaps mastery of just one or simple, common but limited, mediocrity of both put you in the middle bracket while mastery of both register you on the right hand side.

Now the luck thing: Luck, in the end, is always a 50/50 proposition. According to Michael would he say that Saul has simply been the beneficiary of 20+ years of luck and that us rather ordinary investors are just to obtuse to recognize that as a fact?

Much more to the point for me personally, since I was the object of a tremendous amount of good luck this past year - I suppose everyone should absolutely continue to hit on 8 or less and stand pat on 12 or more. No more risk taking at the 13-14 area?

Please remember that I am much the investing simpleton who trys to count the investing cards - be that as it may. But Ears - you’ve made me think a bit and I really appreciate that; although, to be fair, I’d much rather not. Thinking is hard work while simply continuing to believe that my Basketball System Works is the much more pleasant path.

The one thing - speaking as both a player and a coach here, is that the moment that you decide you can’t do something then you certainly can’t. In the vast amount of life’s chaos ignorance can indeed by bliss.

All the very Best,

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Hi Wyking:

Thanks for posting your portfolio and thoughts. It will help others along the way and thats the real gift of the Fool discussion boards.

I think the rabid pursuit of UPST until its rapid decompression represented a mistake a great many folks made in 2021. One of the Fools rock solid guys had 55% or so in UPST. He is a pretty good guy and investor and I really feel for him. It’s an example of how group exuberance can overcomes portfolio allocation strategies that can ruin your day.

The good news is that you booked a positive year and have another year of experience under your belt.

The wife and I ameliorate substantial losses by taking different paths: She has a Roth that invests primarily in dividend paying companies. The family generates a great deal of reasonably dependable annual income with it that more than covers our expenses. The knowledge of that steady income allows me to take on a bit more risk in the growth sector which I generally take advantage of.

Wishing you and your family all the best in 2022,

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Champ
Thank you for your reply
Maybe I should just let my wife handle our money; she is up 24.4%
Life is good, we are healthy and enjoy retirement
Stay safe
Wyking