Portfolio overview: Good, Great & utter failure
2023 was a strange year. My portfolio returned 20% but remained behind the VT and SPY indices. Taking a longer term perspective the returns are still very satisfactory.
Given the amount of year reviews I hope not to bore everyone and try to deliver something slightly different.
In this article I will look at:
my largest positions.
Look at what I did well
The excellent decisions
And the mistakes I made in 2023
1. Largest positions
I have always run a fairly concentrated portfolio. The reason is that you only can have so many good ideas and it is worthwhile investing more in the best ideas. That being said my portfolio has a big position in Berkshire, which is kind of funny for someone who wants to beat the market by picking stocks.
Berkshire Hathaway
I have held the position in Berkshire for quite some time and it has nicely grown, but never got overvalued in my opinion. At the start of 2023. I liked the valuation, large cash buffer, and the fact the company is perfectly positioned for a tightening insurance market. While valuation increased somewhat the thesis in my mind is still playing out. Actually due to the ongoing buyback and significant increase in the share price of Apple and UNP (Proxy for BNSF). I think the valuation is attractive (1.4x book). I still really like this anchor in my portfolio and believe Buffett will do the right thing when a crisis comes.
Brill
Dutch publisher of scientific papers. Got hit by the bankruptcy of a big distributor. Print was losing significance anyway in the business. Followed this company for years and it was a great entry point. Idea was that the situation will get sorted and company is very cheap. Competitor swooped in with an offer around the previous prices. Not great, but a good return for me. Stock will get sold in 2024.
Heijmans
Position that caused most frustration in 2023. Heijmans is a large Dutch construction company. Heijmans is benefiting from a housing shortage in the Netherlands. Public spending on public works in my view will also be less risky going forward. Heijmans had a fortress balance sheet. This was wasted on an ok acquisition. Stock is still cheap, but not as great as it used to be. The worst part was the company paid partly in stock. The good thing is that interest rates decreased after the acquisition. Maybe should have sold directly. Sold part of the company for other investments. I still like the thesis and valuation.
Hornbach
see my detailed blog I wrote. I Really like the business model of just destroying the competition with consistently lower prices and better service. Real estate is worth more than the market cap. The stock declined because of boom years during covid. Surprising how manic-depressive the market can be.
Petrobras
An idea I stole from Twitter. The stock was just stupidly cheap. In addition, I figured:
The government is not nationalizing a company it already owns for the most part
lots of undiscovered oil field potential
Cheap and lots of dividends which the government likes as well. Getting paid to wait is nice when governance and capital allocation are sub-optimal.
My reasoning for why it got so cheap after the Brazil election was that after Russia people are probably scared of state-owned oil & gas companies. A major risk I see with this company is corruption. Hear many people are selling/taking profits, but in my view, they might leave quite some profits on the table. The company is still delivering fat dividends but is not getting rewarded for the development potential in my view.
2. Look at what I did well
What is good about the result of 2023 is the lack of major losses. A rising tide lifts all boats, but 2023 had some nasty mines that exploded in investor’s faces.
The largest loss is at Hornbach, but I have no problem with that at all. In my view that is just a stupid market move. The market in my view is afraid of rising interest rates and that renovations will never recover from covid boom. I bought some more in 2023 and like that it is a good-sized position in the current state.
Mines I avoided:
US banks. I’m heavily invested in insurance and European banks, but moved out of US banks before the start of 2023. Risks were rising and return profiles declining. Well done.
Imploding real estate. I do have significant exposure to real estate, but not to real estate that is strongly affected by rising rates. In 2023 I started another position as a real estate developer that is showing a profit. Well done.
Just looking at the above numbers I’m surprised with how stable my results have been. Probably not going to stay like this, given the level of concentration, but I do like the stability of my portfolio in the weaker months.
Total returns for the last 2 years have also been great. It is hard to recover from large losses.
Rule No 1: Never lose money Rule No 2: Never forget rule No 1.
Warren Buffett
These returns are from the point that my broker makes them. I do have a longer term track record, which is not this good, but satisfactory. Given this is a free blog I use the one which is easy to use.
One more chapter of patting my shoulder, before you guys get to see the mistakes.
3. Excellent decisions
Making significant investments in ideas I liked. Sometimes I forget to pull the trigger, but this year I’m very content with significant portfolio allocations to Petrobras and Brill. These are very different investments, but both delivered great returns. I hope I can keep this decisiveness in the following years.
4. Utter failure
The start of 2023 would have been a great time to increase my exposure to technology. After a great 2022 in my portfolio I should have thought more about buying more technology. It just all felt so bubbly to me. Given my value inclination, I usually find it difficult to buy more expensive stuff. I do have some exposure to Alphabet and Microsoft, but actually, my largest exposure is in Apple through Berkshire Hathaway.
In my defense, this kind of reasoning feels a lot like resulting to me. That being said I have to get more respect for companies with long growth runways, who are investing through the income statement to realize that future state.
Another mistake I made is not cutting the weeds quickly enough. Underperforming stocks have to be cut and proceeds reinvested. This mistake has been fairly costly over the years, but I have the feeling I’m improving on this point.
Selling your winners and holding your losers is like cutting the flowers and watering the weeds.
Peter Lynch
Currently not the time I think to increase exposure, but thinking about how I can improve in that field (looking at growing medical companies currently).
Conclusion
2023 has been a satisfactory year. For 2024 I worry about the US market, but also want to increase exposure to long term compounders. I will probably look more into Japan and might increase the exposure to the healthcare sector. My first significant investment in Brazil was a clear winner and I might look for more winners in South America as well.
I recently started working again for an amazing company. I do like the blog too much to stop though and I will continue to publish an article every month.
Hope everyone has a great 2024 and don’t forget the words of one of the great who left us at the age of 99.
There are always people getting richer than you and this is not a tragedy
Charlie Munger
Very interesting thoughts!