Live Long, and Prosper.
Portfolio Review – Year 1 & Big Lots Initiation
Artwork generated by A.I using the prompts- Live Long and Prosper, Mountains, and Progress.
Dear Readers,
Happy New Year!
Today is the 1st of January 2024, so I thought it would be fitting for me to reflect on how 2023 has been for the portfolio and markets in general. Although my focus has generally not been on analyzing or forecasting where markets would be in the future, I thought it would just be good mental practice to keep track of what has happened. 2023 is a special year for me because it is also the first year that I have formally started managing a small capital of my own. Nonetheless, I am keenly cognizant of the fact that 1 year worth of results is no indication of long-term results. The main motivation for writing this is annually to be brutally honest with myself and keep track of my own progress. With that, let’s get started.
Activities in 2023
Over the past year, the Nasdaq 100 recorded an impressive 57.6% growth. The S&P 500 and Dow Jones both recorded significant gains too, up by about 26.1% and 14.6%. On a wider scale, the developed markets (MSCI EAFE) recorded a 17.2% gain while emerging markets (MSCI EM) recorded a modest gain of 7.5%.
Japan has had a brilliant year, recording gains of about 26% over the past year, though adjustments must be made due to currency weakness, which has declined by another 7% in 2023. On the flip side, Chinese and Hong Kong markets were unsurprisingly weakest in 2023, with the HSI index declining by 14.3% in 2023, while the 2 Chinese indices, Shanghai Composite and Shenzhen, declined by 3.6% and 11.4%, respectively.
If we zoom in on the US market, the only positive factor relative to the S&P 500 was growth, while factors such as value, momentum, small-cap, low-volatility (defensive), and high dividend yield factors were underperforming by 8% – 16%. Specific weakness in value and small-cap continues, although we saw a rebound in small-cap performance towards the end of 2023. The S&P 500 outperformance was largely driven by the Magnificent 7. It is currently traded at ~25x P/E, but if we were to exclude the Mag-7, S&P trades around ~22-23x. The 5-year/10-year average is around 22.4x/20x respectively.
Portfolio Results
For myself, I have only made 3 investments in 2023 and have exited 1. The company that I have exited is Disney, of which I recorded a modest gain of 13%. The reason for exiting is due to other better opportunities for capital deployment and uncertainty over Disney's overall economics. I think the challenges that Disney will face are not only on an internal basis but also across the competitive landscape. As I feel that I have not understood Disney enough to forecast and analyze the company, I have decided to exit the stock.
As of 1st January 2024, I am about 75% invested, with about 25% remaining in cash. Over the past year, I have recorded a return of 26.3% on a portfolio basis, but a 33.7% return on capital deployed (Cash was a performance detractor). I will be adding 1 stock, Big Lots (NYSE: BIG), over the next few days, though it is likely to remain a small position in the portfolio. My thoughts on Big Lots will be published in an investment paper I have written for my investment club – Next Gen Investment Club. I will attach a link to the paper through my chat when it gets published.
Reflections Onward in 2024
As I will be embarking on an internship coming mid-January till mid-April, I will temporarily stop writing for the blog. Currently, I hope I will be able to publish my in-progress HRM software sector and company dives, which include ADP, Paylocity, and Paycom, but honestly, my progress has been a bit slow these days. Nonetheless, my focus over this year is to continue building competencies in the consumer staples sector and start moving towards discretionary/specialty retailing. I am also very interested in building an area of competency in a few software verticals as well as industrial segments. This will be my focus moving forward in 2024. I look forward to many more learnings and am thankful for all the words of encouragement and support that I have received!
Yours Faithfully, Ryan Ang