2023: the year of cash and t-bills

[thowed]

To offer some diversification from all of these great results (congratulations all of you!), I had a frustrating & very low-returning year.

 

The Bad

Two of my larger holdings are closed-end funds, and they re-rated heavily downwards (from their historical premiums).  Their performance was OK, not great (& longer-term performance is terrific), but when you go from a 10%+ Premium to a 10-15% Discount in a year, it doesn't end well.

 

China - ugh.  I thought it might turnaround this year after last Autumn.  I am almost out now, though suspect it may finally turn in January as it is so hated now.

 

Similarly my Japan small-caps trod water again, but again I am more hopeful for next year.  Vietnam started well, but suffered in the Autumn.  Again bullish for the next decade, though stock-picking required.

 

All this Asia exposure meant that yet again I was underweight the US which I am slowly addressing.

 

I bought COST and CSU pretty much at the bottom in May/October 2022, but didn't have the courage of my conviction so they were in tiny amounts, which has been very frustrating, though at least means I am on the right track.

 

The Good

On the other hand, I feel like I learnt a fair bit.

 

I bought a few of my 'forever' stocks in October e.g. Ashtead, having waited too long, plus some other stuff like PSH.

 

My best trade was buying a fair bit more of TPL at around 1300 when it was really hated & people had given up.  Followed by buying AMT gradually as it came down this year to multi-year lows.  It is a truism that most of the best purchases have been the least comfortable at the time.

 

My India fund did incredibly well, which I didn't expect.

 

The board has been a huge help as always - this year the FFH material from @Viking has been invaluable, following FRPH last year from @BG2008.  

 

Having Gold as 'Cash' seems to have worked again, if one accepts the volatility, esp. as over 5 years or so it has matched MSCI World.

 

I continue to evolve as an investor, my longer-term performance is 'acceptable' & will hopefully improve with time, and I hope I have learnt from mistakes made this year.

 

Good luck to all for 2024!

 

p.s. Other mitigation is that I had a better year in 2022 as didn't have a lot of the Tech stuff that went down.

 

 

Edited December 30, 2023 by thowed

[Whensthepaintdry?]

28 percent. Mostly due buying big dips in Google and Amazon. I sold MSFT and Meta a little early. Added to brk, mkl, boc, and oxy through out the year in dips which all have lagged. I bought psh this year which has done well. Finally sold China stocks at a loss not sure if I want to jump into that suckfest again. 

[bizaro86]

2 hours ago, thowed said:

 

Two of my larger holdings are closed-end funds, and they re-rated heavily downwards (from their historical premiums).  Their performance was OK, not great (& longer-term performance is terrific), but when you go from a 10%+ Premium to a 10-15% Discount in a year, it doesn't end well.

 

 

 

 

I'd be interested in the identity of these if you're willing to share.

[thowed]

@bizaro86 Sure.  They're strange ones.

 

1: Lindsell Train Investment Trust.  About 60% of it is 10 quality (dull) de-rated blue chips: LSEG, NTDOY, RELX, ULVR, MDLZ, DEO etc.  40% is the Fund Management Co.  This is massively profitable, & AUM grew & grew, but their strategies just haven't worked post-COVID (partly having no MAG7).  Before that they were darlings of the UK Fund Management world (& track record neck & neck with Fundsmith) & pre-COVID it had outperformed NASDAQ since 2001.  It is Extremely illiquid.  Divi of about 5/6%.  They have 2 main funds: Global (which is 35 US, 45 UK/Europe & 20 Japan) and UK (which is 20% non-UK) so have also struggled with general performance of UK market.

 

So buying it now is banking on their companies coming back into fashion, which would then produce a virtuous circle as the AUM increased, and clients came back.  Which would also possibly return the discount to a premium.  If you can get hold of enough shares, it could be interesting.

 

As you may know, they are VERY long-term buy & hold, Akre-style.  About one new company a year goes into the portfolio.  Latest two have been RMV in the UK, which has derated due to possible competition from CoStar (I don't think CoStar will dislodge the first-mover personally), but is insanely profitable, and they also bought FICO for their Global fund in late 2021, which... has done alright for them!  So their talent remains I believe.  On the other hand they can be arguably overly stubborn about selling, and 

 

2: BH Macro.  A feeder fund to the Brevan Howard Macro Hedge Fund.  Stellar long-term record, especially in 2008, but suffered from low volatility in 2011-17 period.   Since 2018 has been roaring up & matching S&P500 with low volatility.  Unusual opportunity for Retail to be able to access a top Macro fund, and with liquidity.  2 & 20 fees obvs.  Main Hedge Fund closed now, so only way to access it, which led to 10% premium.  This year hasn't been so good for them but -1% so if you use it as a Bond-proxy diversifier, as I do, it's not a disaster.  But others have been unimpressed & has gone to 10% discount.  There is also concern over share overhang.  A recent UK wealth management merger has meant the new combined co has about 30% of the Trust, and so may sell a fair bit down.  Macro is a funny beast, and of course there is danger that their top traders will be poached by others.  But on the other hand, you can now buy a top Macro fund at a 10% discount, which is potentially quite appealing if you're looking for a non-equity, low volatility diversifier.

 

 

 

 

 

 

 

Edited December 30, 2023 by thowed

[aws]

I've transferred too many assets around to easily calculate things in my taxable accounts, but my Roth IRAs are pretty clean and it looks like things came in at +34% for the year. That's about the same return as I got last year, but it sure looked a lot better last year when it was crushing the market instead of matching it.

 

I had no big home runs this year. A few small positions crushed, like META, INTC, X. My China positions languished and a couple of microcaps I had positions in circled the drain. Nothing had a huge outsized impact on my portfolio.

 

The most interesting trade of the year ended up being BSMX. It should have been very straightforward. The company was being taken private by the majority shareholder at a fixed price, and I was buying shares at discounts starting at 10% which slid into 25% discounts by the day of the delisting. However, taking part in the buyout was not as straightforward as I thought. I had to convert my ADR shares to local shares to take part, and do so on a tight timetable before the books closed.  IBKR dropped the ball and almost nuked the trade for me. Luckily I transferred my shares to Fidelity one day before the books closed and they processed the conversion immediately. Then came the much harder part of actually selling the shares. To simply sell the shares required months of back and forth with expensive lawyers and accountants, international tax treaties, a critical document misplaced my Mexican customs, etc. In the end after all the drama and something like 35k in expenses related to the transaction, I made a net profit of about 20% on a trade that dragged out 6 months. A good result that I never want to repeat, and one that reinforced how good we have things with our markets in the US. Doing business internationally was so much more difficult, slow, and expensive.

[KJP]

29%, pre-tax in USD

 

Biggest contributors:  IES Holdings, Solitron Devices, Unit Corp, SNC-Lavalin, Fairfax

Biggest detractor:  Leatt Corp.

 

Historical

2022: -15%

2021: 11%

2020: 14%

2019: 31%

2018: 11%

2017: 10%

2016: 22%

[backtothebeach]

Regarding book keeping: I calculate monthly returns looking at the month-end values of my portfolio. The YTD or annual return is the monthly return compounded.

 

If I take out money I try to do it at the beginning or end of the month and subtract it from the starting value or add it back to the ending value of that month. It would be the opposite for inflows. Example: Let's say I start with 110k, and take out 10k on one of the first days of the month, I just pretend I started the month with 100k.

 

Or, with a lot of inflows or outflows you can net them out and adjust both the starting and ending balance by half the value.

 

Nothing too fancy, everything else would be too much work for negligible extra precision.
 

Edited December 31, 2023 by backtothebeach

[TwoCitiesCapital]

2015: ~(20)

2016: 24.7

2017: 25.9

2018: (14.1)

2019: 25.5

2020: (4.80)

2021: 18.8

2022: (19.66)

2023: 38.6

 

Fairfax, Exor, Eurobank, Fairfax India, Rolls Royce, and Bitcoin predominantly responsible for results. 

 

My positive outperformance in equities/debt in 2022 was overshadowed by a heavy allocation to crypto which did miserably.

In 2023, it's the drag from a heavy fixed income allocation that's being overshadowed as crypto bull market rages. 

 

Bonds provided a nice base from which to build returns from this year. I'm still thinking they may be a large driver of my returns in 2024. 

 

Edited December 31, 2023 by TwoCitiesCapital

[SharperDingaan]

3% on equities, 58% on cash, 16.8% overall; 34% capital repatriation over the year, 'Cash' for us is Cash/T-Bills, UBS, and a Bitcoin ETF; equities are primarily o/g. Overall a very weird year, in no way representative.

 

Year over year, o/g was down roughly 25%; solid risk management saved our ass. Capital repatriation forced o/g trimming over Q1/Q2 and reduced exposure. OBE and GXE swing trades took most of the bite out of the unrealised buy/hold loss. 

 

Our biggest issue is that YoY return is the wrong measure for us; we really need to move to a more 'corporate' rolling 6-yr CAGR, bench marked against a maximum Sharpe Ratio and capital repatriation plan. 2024 expected to be a pivotal year ... particularly if both UBS and BTC also oblige! 

 

SD

 

 

 

 

 

 

[coc]

17 hours ago, backtothebeach said:

Regarding book keeping: I calculate monthly returns looking at the month end-values of my portfolio. The annual return is the monthly return compounded.

 

If I take out money I try to do it at the beginning or end of the month and subtract it from the starting value or add it back to the ending value of that month. It would be the opposite for inflows. Example: Let's say I start with 110k, and take out 10k on one of the first days of the month, I just pretend I started the month with 100k.

 

Or, with a lot of inflows or outflows you can net them out and adjust the starting and ending balance by half the value.

 

Nothing too fancy, everything else would be too much work for negligible extra precision.
 

This is exactly what I do as well. Compounded monthly returns with inflows/outflows intra-month left out of the calculation. 

 

The only more precise method would be to do it daily, but as you said, doesn't really gain enough useful precision unless you're a professional fund manager.

[John Hjorth]

17 hours ago, backtothebeach said:

Regarding book keeping: I calculate monthly returns looking at the month end-values of my portfolio. The annual return is the monthly return compounded.

 

If I take out money I try to do it at the beginning or end of the month and subtract it from the starting value or add it back to the ending value of that month. It would be the opposite for inflows. Example: Let's say I start with 110k, and take out 10k on one of the first days of the month, I just pretend I started the month with 100k.

 

Or, with a lot of inflows or outflows you can net them out and adjust the starting and ending balance by half the value.

 

Nothing too fancy, everything else would be too much work for negligible extra precision.
 

 

1 minute ago, coc said:

This is exactly what I do as well. Compounded monthly returns with inflows/outflows intra-month left out of the calculation. 

 

The only more precise method would be to do it daily, but as you said, doesn't really gain enough useful precision unless you're a professional fund manager.

 

After thinking a bit about it, this approach appears to me to generate good  'approximation towards and near perfection' for practical purposes.

[TwoCitiesCapital]

15 minutes ago, John Hjorth said:

 

 

After thinking a bit about it, this approach appears to me to generate good  'approximation towards and near perfection' for practical purposes.

 

I do it 'daily' for cash flows, but cash flows are only ~2x/month when my 401k contributions hit. 

 

I try to time IRA/contributions and any withdrawals with this cycle so I don't have to update more frequently, rather just adjust the number used for removing the impact of cash flows. 

 

Might have 20-30 entries a year instead of ~12, but it works and keeps it all pretty accurate. 

[dwy000]

18 hours ago, backtothebeach said:

Regarding book keeping: I calculate monthly returns looking at the month-end values of my portfolio. The YTD or annual return is the monthly return compounded.

 

If I take out money I try to do it at the beginning or end of the month and subtract it from the starting value or add it back to the ending value of that month. It would be the opposite for inflows. Example: Let's say I start with 110k, and take out 10k on one of the first days of the month, I just pretend I started the month with 100k.

 

Or, with a lot of inflows or outflows you can net them out and adjust the starting and ending balance by half the value.

 

Nothing too fancy, everything else would be too much work for negligible extra precision.
 

thanks for all the feedback on this.  I do a weekly calculation which for me is a compromise between accuracy and effort.  I started monthly originally but I found it to actually be a meaningful difference if you got a really strong market movement that month.  In an extreme month (like a March 2020 say) the difference between using the start of the month value vs. end of the month value when adding/subtracting to the portfolio can move the needle quite a bit.  But it's a lot of work to do more and it doesn't really matter much at the end of the day. 

[james22]

2 hours ago, SharperDingaan said:

'Cash' for us is Cash/T-Bills, UBS, and a Bitcoin ETF ...

 

Why do you consider BTC as cash?

[rkbabang]

47 minutes ago, james22 said:

 

3 hours ago, SharperDingaan said:

'Cash' for us is Cash/T-Bills, UBS, and a Bitcoin ETF ...

 

Why do you consider BTC as cash?

 

of the things on that list Bitcoin is the only thing I consider to be money.  The other things are various debt based types of securities.

[SharperDingaan]

1 hour ago, james22 said:

Why do you consider BTC as cash?

 

We look to function vs the very narrow 'accounting/finance' definition; the benefits varying with our requirements.  We hold the Canadian ETF vs BTC directly, as the ETF also comes with portfolio management, custodianship, domestic investor protection, etc. 

 

Noticeable is that a few others on this board are also now doing something similar .... the BTC replaced with a FFH, BRK, etc. It really comes down to risk tolerance; the quality alternative always being liquid, and the liquidity discount you're willing to tolerate. 

 

SD

Edited December 31, 2023 by SharperDingaan

[james22]

BTC has had a drawdown of 93% (2011), FFH 88% (2003), and BRK 54% (2009).

 

If they are cash, what isn't?

[Gregmal]

Cash has embedded volatility and value fluctuations, many people just aren’t smart enough to realize it. It’s really just about being aware of the opportunity set. 
 

The purpose for most, of having cash is to have a liquidity lifeline. If you have an abundance of liquidity, cash is worthless.

[treasurehunt]

I ended the year with a return of just over 30% on my entire portfolio, adjusted for inflows and outflows. My IRA, which had no inflows or outflows, returned over 36%.

 

My best performers were

FRFHF - 15% of portfolio, 55% YTD

GOOG - 6% of portfolio, 59% YTD

TSLA - 5% of portfolio, 102% YTD

INTC - 5% of portfolio, 93% YTD

 

It also helped that I significantly increased my allocation to US banks after the regional bank meltdown in March and April.

 

My worst performers were

DVN - 3% of portfolio, -22% YTD

BABA - 3% of portfolio, -12% YTD

[james22]

2 hours ago, Gregmal said:

Cash has embedded volatility and value fluctuations, many people just aren’t smart enough to realize it. It’s really just about being aware of the opportunity set. 
 

The purpose for most, of having cash is to have a liquidity lifeline. If you have an abundance of liquidity, cash is worthless.

 

Sure, cash is more valuable when opportunity presents itself.

 

But I know I can exchange $1 cash for $1 then.

 

What can I exchange $1 BTC/FFH/BRK for?

 

Especially when opportunity presents itself is also more likely when what had been $1 of BTC/FFH/BRK might then only be exchanged for something significantly less.

 

BTC/FFH/BRK is wet powder.

Edited January 1 by james22

[Gregmal]

13 minutes ago, james22 said:

 

Sure, cash is more valuable when opportunity presents itself.

 

But I know I can exchange $1 cash for $1 then.

 

What can I exchange $1 BTC/FFH/BRK for?

 

Especially when opportunity presents itself is also more likely when what had been $1 of BTC/FFH/BRK might then only be exchanged for something significantly less.

 

BTC/FFH/BRK is wet powder.

Sure, but dry and wet powder is relative. I compounded random non meaningful initially but full margin positions like visa, Google, Alexandria and waste management for like 7-8 years and got many baggers out of all because I felt confident I didn’t need cash laying around and if I needed it I could find it. It’s all subjective and relative but people under the age of 55-60 hoarding cash waiting for the “all in” buying opp has been the suckers bet of the century. Cash has one of the longest running historical track records of being garbage and especially in the last 5-10 years the evidence of that has only grown. If you don’t need the money you need to be on the hunt for places to put it. Volatility is really just an excuse for pansies. If your fundamental work is accurate it’s irrelevant/ net-net a positive. I was 2.2x levered in mid March 2020 and still just buying shit that seemed to make sense. Turns out I was buying from suckers and I’m way wealthier because of it. 

[Gregmal]

Or put differently, 90% of the time the market is in what Id called a “steady state” mode. During this time period everyone is fixated on crashes and bubbles and risks. And the market just does what it unremarkably does. So for the super majority of the time, the market rewards risk takers and asset owners. For a very minimal period of time, the market penalizes dumb asses. And for a statistically irrelevant and non long lasting period of time(IE a few days/weeks/at most months) it hurts everyone. Folks just need to learn to cope with this. And own assets. Cash is not an asset. It’s a liability.

[Parsad]

6 hours ago, Gregmal said:

Sure, but dry and wet powder is relative. I compounded random non meaningful initially but full margin positions like visa, Google, Alexandria and waste management for like 7-8 years and got many baggers out of all because I felt confident I didn’t need cash laying around and if I needed it I could find it. It’s all subjective and relative but people under the age of 55-60 hoarding cash waiting for the “all in” buying opp has been the suckers bet of the century. Cash has one of the longest running historical track records of being garbage and especially in the last 5-10 years the evidence of that has only grown. If you don’t need the money you need to be on the hunt for places to put it. Volatility is really just an excuse for pansies. If your fundamental work is accurate it’s irrelevant/ net-net a positive. I was 2.2x levered in mid March 2020 and still just buying shit that seemed to make sense. Turns out I was buying from suckers and I’m way wealthier because of it. 

 

Your assumption is that when investors hold cash, they are holding for long periods of time.  Which isn't true in many cases. 

 

Cheers!   

[compoundvalue]

~+24.5% pre-tax, USD, across all accounts

[james22]

12 hours ago, Gregmal said:

Sure, but dry and wet powder is relative.

 

No, it's not. One has a stable value, one does not.

 

You conflate need with a cope.

 

I agree with you that cash held to dampen volatility is only a drag:

 

On 1/1/2023 at 4:15 PM, Gregmal said:

I’ve never understood the institutionally inspired obsession with fretting or fearing volatility. You should only be investing money you don’t need. And if you don’t need it who cares about what’s literally just one of the features of the stock market? I can’t think of anything that probably costs investors more money over the course of a lifetime than trying to avoid volatility. 

 

And cash held for long periods of time for some opportunity to present itself ("dry powder") actually has a greater opportunity cost.

 

But if you do need it (savings for a fixed expense in a short period of time), you should fear volatility and hold your $1 savings in something you'll know you can exchange for $1.

 

That's why it's important to use the more narrow definition of cash.

 

Cash is an asset if you need it, a liability if you don't.