2023 has been a pretty perfect year for my portfolio. By the end of July 2023, my portfolio is up 150% year to date after a 1% base and 10% performance fee, or about 167% before fees. This performance would, of course, not have been possible without the disastrous performance of 2022 AND sticking to my prior year's losers. On December 29, 2022, I explained to my readers in detail why I was confident about an imminent performance reversal: https://modernvalueinvesting.substack.com/p/tax-loss-selling-window-dressing. It is gratifying when a plan works.
How is such a performance possible? Well, I started the year with an almost 30% position in Meta Platforms that had doubled by the end of April. Perhaps even more importantly, I held significant positions in highly shorted stocks like Upstart (+445% YTD), Opendoor (+356% YTD), or Carvana (+933% YTD). Most other positions did not disappoint either, so I ended up with a once-in-a-lifetime 7-month investment performance. Nevertheless, I am not celebrating this success as much as you may imagine. I am still recovering from the 2022 losses.
While at the end of 2022 my portfolio value was incredibly low, I knew exactly what assets I was sitting on, so I was confidently holding a pretty concentrated portfolio. After recovering this strongly in just 7 months, I am getting somewhat more cautious. As I anticipated, inflation has been coming down to just 3.0% by June. However, despite this progress the FED has decided to raise interest rates another time to an incredibly high level of 5.25%. The September meeting seems all about a pause or another raise, so it will be at the very least until the November meeting before the FED starts cutting rates. I believe this is way too late to correct an extremely tight level of monetary policy. I anticipate things will break once again before the FED cuts more significantly. Commercial real estate, in particular, offices, is looking very bad. Banks remain very vulnerable, and I anticipate it's just a matter of time until the recession in China and parts of Europe (Germany) will take its toll on the US economy.
I am thus positioning more diversified. I have capped the maximum size of portfolio positions to 7%. I have invested in a few more defensive names with still decent upside, and I have invested more internationally. Importantly, I have also built a 7% position in long-term treasuries via TLT/iShares >20ys US treasuries ETF. The yield to maturity of 20-30y US treasuries is currently about 4.1%, which I consider very attractive. If markets experience turmoil, the yields on US treasuries usually fall, so I consider this position as a partial hedge over the next 12 months. Over a longer period of 3-5 years, I expect long-term treasuries to fall back to 3.0% and lower; combined with a yield of 4.1%, this would allow for IRRs above 10% even if I should hold this position longer.
Below is the overview of my current portfolio as of August 1st. I will provide write-ups for paid subscribers in the weeks and months to come.
.