2023 Performance Review
A standout year with a total return of 174%, but still licking wounds from 2022
I could not be more satisfied about my 2023 total return of 174% (no typo). In fact, I wouldn’t have believe that such a performance was possible with a long-only equity portfolio. At the same time, I also wouldn’t have believed that it was possible to lose 74% in a single year, as it occurred to me in 2022. I am hence still licking wounds, as I am still down -33% from the end of 2021.
The following table outlines the returns required to recover from a certain drawdown:
While it is relatively doable to recover from drawdowns up to -40%, it gets pretty difficult once drawdowns reach 50% or more. It takes a 100% return to recover from a 50% loss, and it takes a return of already 150% to recover from a 60% loss. It is thus easy to see how even a year with a 174% return has been insufficient to recover from the 74% drawdown I suffered in 2022.
Nevertheless, my performance in 2023 is a reason to celebrate. Frankly, it has been an outstanding year for me where nearly everything has worked out. Most importantly, my long-term track record is back on track with a CAGR of 20% and I am proud of this outcome. The table below shows my returns since 2016 when I started to record my performance:
How to Make 174% in a Single Year?
Start with a very bad prior year, but don’t lose your conviction
First of all, my 2023 performance would not have been able without my horrible 2022. While I was very disappointed at the end of last year, I also had a strong conviction that the market went too far in punishing my holdings. This conviction enabled me to take highly concentrated positions in companies that I knew were extremely undervalued. Below is my portfolio going into 2023:
As you can see, I had more than 50% in my top 2 positions Meta and Opendoor. Meta was trading at $120 one year ago and is today up almost 200% at $354. Opendoor was trading at $1.13 one year ago. Today, the share price is $4.48, up almost 300%. Another massive winner from my portfolio at the start of 2023 has been Upstart, which traded for $13.16 and is up 210%.
Contrarian Take
I entered 2023 with a pretty contrarian take. While everyone was extremely bearish at the end of 2022, anticipating a recession in light of seemingly sticky inflation, I was getting ready for a recovery in overly beaten down losers from 2022. In this article I also outlined my contrarian take on inflation, which fully played out.
Loading up on Once-in-A-Lifetime Opportunities
While 2022 losers recovered quickly, German residential real estate stocks kept crashing, which opened a “no-brainer” opportunity that I outlined in my article: Once in a Lifetime Opportunity in German Residential Real Estate Stocks.
Active Trading
The truth is also that my 2023 performance would not have been possible without a rather high degree of active trading by my standards. When Carvana surprised the market with strong EBITDA, I took a 5% position around $7-$8 in Q1 and let it run. Carvana was one of the best performing stocks, up more than 10x (!) or 1000% this year.
When unprofitable growth stocks rallied extremely strongly into July, I decisively took gains. This was also as I felt the rally has gone too far in light of the overly aggressive tightening campaign by the FED. In fact, I actually benefitted a second time from when I was able to reenter Upstart, Carvana, and Opendoor at much lower prices.
There were a number of further significant wins (e.g. US REITs, bottom-fishing in Dye & Durham, bottom fishing in Biotech). From a timing perspective, almost everything worked out well this year.
I have to admit that it was also a stressful year to trade my portfolio this actively, but at the time I made the moves, they looked obvious to me, so it would have felt like a strong mistake to keep sitting on positions where I felt adjustment was necessary.
In parts, this was also due to the fact that 2023 was an extremely volatile year. I do not anticipate to trade this actively again in 2024 and beyond, but of course it will depend on the cards that the market gives me.
2024 Outlook
I will publish my portfolio going into 2024 in the next few days, though I will have to do more work in terms of further shifting my portfolio to emerging markets. I also plan to follow-up with more detailed writeups on my largest positions IWG and Hellofresh in the next few months.
I wish everyone a great start into the new year and a very successful 2024!