Saul’s Portfolio at the end of January 2023
DON’T BE AFRAID TO COMMENT OR DISAGREE ON THE BOARD WITH THINGS I SAY! People do it all the time. (I may disagree with you back though. That’s the way life is.)
As I usually do, for my own convenience, I am ending the month on the last weekend of the month, and Monday and Tuesday will spill over into February (which is short a couple of days anyway ).
I went into January with great hopes that all the tax selling was over and we’d have a new start, but was I wrong! After the first three trading days (on Jan 5th) my portfolio was down 12.6% (at 87.4% of what I started the year with).
However, I finished the month up 9.7%. That means that my entire portfolio rose 26% in the last three weeks. [109.7 divided by 87.4 equals 1.26 or up 26%]. Let me be clear, I don’t have confidence that we are permanently on the way up and out of this horrible bear market but it’s awfully nice to see the portfolio up on the year instead of down.
A BEAR MARKET SUMMARY -
In spite of this month, this has been an awful, even terrible, 15 months for stocks, and especially for our stocks, which have been hit by the interest rate bugabear, as well as by spending cut backs by their customers. The good news is that, on average, our companies are at roughly a third of the stock price that they were at in November of 2021, while their revenue, on average, is probably about 70% higher, with better profitability, more cash flow, and better operating margins.
It’s evident now that our companies were probably overvalued a year ago. But it’s also clear that they were beset by wildly extraordinary circumstances. Indeed, a lot of things have occurred that could not possibly have been anticipated or foreseen, all leading to the the wildly risk-off mentality in the current market, that has sent our stocks to what seem to be ridiculously undervalued levels at present.
The markets, and our stocks walked into a series of once in 50 year storms, all hitting almost simultaneously!!!
These include the worst world-wide pandemic in probably 50 years, and maybe 100 years, back to the 1918 Spanish Flu, and next having the pandemic cause container ships to be bottled up in a couple of closed-down Chinese ports which caused shortages of all kinds of goods world-wide, leading to inflation.
Then we have to add on a crazy, unexpected, Russian invasion of a neighboring country, leading to oil and gas shortages all across western Europe which added to the inflation.
And then having the Federal Reserve raising interest rates at a rate that hasn’t been seen in 40 years.
Complicated by the Fed talking as if a good economy and full employment is a bad thing that needs to be crushed by further interest hikes instead of a good thing, which has brought about a fear of the Fed bringing about a recession.
This all hit us at once . Sure we could have realized that our stocks were overvalued, however, as the Fool says, the best companies are always overvalued. But think about this: we couldn’t have anticipated ANY of these storms (pandemic, invasion, container ships bottled up, sudden inflation, etc.)
And certainly not all these things hitting almost simultaneously, a pandemic, container ships bottled up and unavailable, shortages, a Russian invasion, inflation, and interest rates being pushed up at an almost unprecedented rate, the fear of a recession.
It was a nightmare scenario leading to an extremely risk-off market, bringing us where we are now with our companies seeming as undervalued at present as they were overvalued before.
You just can’t say “I should have expected this!” Some things happen that you can’t anticipate or expect.
I was aided by a useful thought that several of our companies CEOs have expressed. It was something like “Hey guys, this current macro turmoil may affect our current results, but it will pass! Yes, it will pass! And it doesn’t change our long term outlook at all!” That confirmed my thoughts and helped me quit to focussing on the very short term. After all, I don’t know what the next few months will bring.
Look, I can’t tell you what will happen next month, but I think our stocks are for the most part quite undervalued at present and the bots and sellers have way overshot, but that’s just my opinion.
NOW WE JUST HAVE TO WAIT FOR RESULTS , most of which will be coming out in the next month. For our companies, revenue growth will be down from a year ago because of macro conditions, but many old line companies will actually have lower revenue than a year ago, which is a big difference.
[What I mean is that, if we do get a recession, our companies may have revenue growing by “only” 50% (way down) while the old line companies may have revenue shrinking by 20%. So we will be looking at 150% of last years revenue for our companies, while they will be looking at 80% of last years revenue.]
I really can’t tell you how the market will react, whether it will be “Oh how awful, just 50% growth”, or “That’s where my money should be, it’s the only thing growing”.]
I have kept a permanent safety fund out of the market that I could live off for several years if necessary, and I feel everyone who does not have a secure regular source of income should do the same.
I have learned long ago that sticking with great companies wins out in the end, and beats market timing, but living through this decline has been awful.
I can’t give you a date when the current turmoil will end, though I hope it is close, but I know thatour companies have secure recurring revenue, and that they are growing very rapidly, at rates almost never before seen for companies at their scale, and considering these facts really makes our companies seem way oversold to me. But that’s just my opinion. I know literally nothing about technical analysis or economics and I have no training as a financial advisor. So don’t just follow what I am doing. Make your own decisions.
MY RESULTS MONTH BY MONTH FOR 2022
Here’s a table of the monthly year-to-date progress of my portfolio for 2023.
End of Jan up 9.7%
Last year at the end of January my portfolio was down almost 30%, so this year was a definite improvement!
Just for reference my portfolio finished last year, 2022, down 68.4%. That is down more than it was down at the end of 2008, when the whole banking sector was collapsing, and it was seeming like the entire economy would follow. It felt like the world was coming to an end.
This year the economy is “too strong”.
News showing full employment or a good economy causes a sell-off because of worry that the Fed will keep raising interest rates.
News showing weak employment or a weakening economy causes a sell-off because of worry that the Fed has pushed us into a recession.
Oh well! As I wrote above, this too will pass!
For those wondering about the long term results of investing this way.
2017 – up 84.2% 2018 – up 71.4% 2019 – up 28.4% 2020 – up 233.3% 2021 – up 39.6% 2022 – down 68.4% 2023 – up 9.7% so far
Cumulative – up 553.8%
Okay, in spite of the worst sell off you could possibly imagine in our stocks, my portfolio still has 654% of what I started with six years and one month ago. That’s SIX AND A HALF TIMES what I started with. In the same time the S&P 500 has risen 81.0%. That’s up 81% compared to up 554%, compared to sextupling and a half! Figure out for yourself which method gets you the best results!
HOW DID THE INDEXES DO?
Here are the results year to date:
The S&P 500 (Large Cap), Closed up 6.0% YTD. (It started the year at 3839.5 and is now at 4071).
The Russell 2000 (Small and Mid Cap), Closed up 8.5% YTD. (It started the year at 1761 and is now at 1911).
The IJS ETF ,The S&P 600 of Small Cap Value stocks), Closed up 10.1% YTD. (It started the year at 91.3 and is now at 100.5)
The Dow (Very Large Cap), Closed up 2.5% YTD. (It started the year at 33147 and is now at 33978).
The Nasdaq (Tech), Closed up 11.0% ytd. (It started the year at 10466 and is now at 11622).
These five indexes averaged up 7.6% ytd.
LAST THREE MONTHS REVIEW
November. I didn’t do much of anything in November except reduce my Monday position to 1.4% from 3.2%, and reduced my Cloudflare position from 19% to 15% (still a large position). I put the money to work adding to Bill, to Datadog, and to Sentinel (at what seemed ridiculously low prices). No closed out positions and no new positions.
December. I took a tiny try-out 1.5% positions in ENPH (solar energy) and in TMDX (medical transplant technology), but then closed out ENPH. I don’t know yet whether I will keep TMDX. I sold most of my Crowdstrike and a little bit of my large Cloudflare positions and, with the money, in addition to the TMDX, I added to Sentinel, Snowflake and Monday, and a little to Bill.
January. Snowflake is still at 25%. Bill inched up to 22%. I’ve reduced Datadog, Cloudflare, and Sentinel by about two to three points each to a current range of about 14.2% to 13.2% of my portfolio (still quite large). I’ve built Monday and Transmedics up about 3 points and 4 points to currently about 6.7% and 5.4%. I’ve sold out of my little Crowdstrike position.
Please remember that I could change my mind about any one or more of my positions tomorrow, depending on new information or other factors, and I may not do another update until the end of next month. Make your own decisions. Don’t just follow mine. I make mistakes at times! Guaranteed!
I have gradually concentrated my number of positions in this macro environment, and currently have two very large positions, three large ones, and two small ones. That’s definitely more concentrated than I like, but my five big positions are companies I have a lot of confidence in.
With five positions making up roughly 88% of the portfolio, it means that they average just under 18% of my portfolio each. Thus it’s inevitable that some will be over my usual 20% limit, and indeed, Snowflake is at 25% and Bill at 22%.
Here they are in order of position size, and bunched by size groups.
Snowflake 25.0% Bill 22.0% Datadog 14.2% Cloudflare 13.6% Sentinel 13.2% Monday 6.7% TransMedics 5.4%
JUST FOR INTEREST, HOW THEY DID SO FAR THIS YEAR
My portfolio: NET from $45.21 to $53.11 up 17.5% TMDX from $61.70 to $69.07 up 11.9% SNOW from $143.5 to $159.4 up 11.1% BILL from $109.0 to $119.9 up 10.0% MNDY from $122.0 to $129.7 up 6.3% DDOG from $73.5 to $77.2 up 5.0% S from $14.59 to $15.02 up 2.9% …and down for the month, I guess poaching those execs didn’t impress after all): CRWD from $105.3 to $104.5 down 0.8%