2024 H1 update: Ruthless portfolio rejiggering
Disciplined position sizing wins the first half.
During H1 2024 my overall portfolio grew by 17.9% (as of this writing 21/5/24).
Crypto up 16%, compared to ~60% for BTC.
Equity up 19.43%, compared to 12.9% for the QQQ and 12.2% for the SPY.
Q2, including this earnings season has been very active for rebalancing and positioning my portfolio for what I deem/hope will be a successful 2024-2025. The movements are based on my learnings from 2023 (which you can read here), mainly:
Managing risk more ruthlessly: both for opportunity cost of capital (underperforming positions over time) and for higher risk positions.
Appropriately positioning my portfolio in a smaller number of high conviction stocks, and the rest in the QQQ.
The underlying principles here are, to quote Buffet:
"The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule. And that's all the rules there are."
And to quote Munger::
“The first rule of compounding is to never interrupt it unnecessarily.”
So, first I want to not lose money, second I want to compound it and outperform. Based on these principles here's the rebalancing I've conducted:
Sold out of Starbucks entirely: Management has underperformed for a year and remains unproven, so there's no reason to give them the benefit of the doubt. SBUX was a relatively large position and letting it underperform was a risk that I deemed not worthwhile. You can read more about my analysis of Starbucks here.
Sold out of Hasbro: During 2023 I shifted Hasbro from an investment into a trade. The trade played out and I sold my position for a ~30% gain. You can read the full analysis here.
Sold out of Nike: Nike was a trade I put on in 2023 that didn't play out. Despite a powerful brand and good management, it doesn't look like they've been able to turn around sales in time to make this 6-12 month trade horizon successful.
Sold a majority of Innoviz: Innoviz has been one of my core long, large contrarian bets. While I'm still long term bullish, during Q1 it became clear to me that the lidar cycle is playing out on a 12-24 month delayed timeline. Therefore I trimmed a large part of my position with the goal of adding at lower prices and over the following 12 months. A full in depth write up of my bullish Innoviz thesis is coming.
I added to positions opportunistically based on pullbacks or to bring them to starting position size. My strategy around position sizing is:
Only hold core positions in companies I have conviction in that can outperform the QQQ over my investment time horizon. Conviction is a must because it's what helps me lean in on down turns and hold overweight positions on upswings. If a position isn't going to outperform, it's not worth the time and energy spent on it over holding the QQQ or SPY.
Positions should be scaled into over price and time. Just like stocks become more attractive at a lower price, they become more attractive the better I know them, and this only happens over time.
Positions with outsized risk/reward can be very large.
In regards to position sizing I've been doing the following:
"Invest and investigate" learning positions: these are companies or themes I want to learn more about, so put skin in the game to start off. These will be up to 1% of my portfolio.
Starting position: These are positions in companies I have conviction in or am building up a deep conviction. A starting position is 2-4% based on how the stock has been trading. 2% is a fairly small position to impact a portfolio, so for conviction buys, I like to get closer to 4%, however if a stock has been trading at all time highs, or hasn't had a significant pullback recently, my starting position will be 2%.
Core positions: These positions vary between 4-10% and are based on starting positions that are built out over time and price fluctuations - both up and down. Buying the dip is stock common wisdom, but buying the rips is less talked about. I have no problem violating my cost basis and 'averaging up' if a company has merited it over time and my position is still <10%.
Outsized bets: Positions that have either grown to become more than 10% or have an outsized risk/reward that I've double downed on.
I've added to the following to bring them to:
Starting position: CPRT, ODD, AXON, DNP.WA, META
Core position: MNDY, ADBE.
I've also increased my trade position in AVAV following a great quarter and business wins and opened a trade in AAPL on its pullback to the ~$170 level.
While a lot of my conviction positions are relatively small (2-4%) this reflects that:
I’m still building faith in these positions.
They're mostly richly valued. These are quality companies, but at quality prices. I added opportunistically to ADBE, MNDY and ODD who all had 10-20% pullbacks during the first half.
The markets have been up and to the right for the past 18 months and I feel more comfortable waiting for a significant pullback.
Other portfolio changes during H1 2024 include:
Bringing UBER, CAVA and TOST up to invest and investigate learning positions.
What caused outperformance
Equity outperformance came from:
Spotify up 60%
Monday up 25%
Most other positions outperforming the QQQ
Underperformance came mainly from:
Ross stores, -5%. I'm less concerned about Ross. It's a slower growth company that adds consistency and diversity to my portfolio. I don't expect them to outperform the higher beta QQQ.
Oddity Tech: Sold off during the first half following a shelf offering. I bought on the pullback and was pleased to see them report outstanding results for Q1, which led to late first half outperformance.
Amazon underperformed by 10%. Amazon has a long track record of outperformance, so I'll hold this one for the long haul.
Adobe was a big laggard during the first half, I've increased this position as I believe the fears of its market position are overblown and this is a good buying opportunity for second half underperformance. I've been averaging down and currently the position is down 6%.
Positioned for H2 and 2025?
What I've most been focused on recently is:
Not fucking up 2024 by properly managing risk.
Setting up for the rest of the year and 2025.
It's tough to manage both of these, as the second requires taking risk and the former requires avoiding risk. I've been taking care of #1 by closing out and managing risk in underperforming and high risk positions (SBUX, INVZ). I'm also sitting on ~18% cash, which provides a good anti fragile component.
I'm taking care of #2 by holding some of the best companies in the market, who can compound at above market rates. Additionally, three of my core positions, ADBE, ODD and MNDY have been underdogs. If my thesis on them are correct, there's room to outperform.
Overall I'm happy with my portfolio positions and performance overall. I’d anticipate a further winnowing and increasing of positions size over the second half. But for now, patience is the name of the game.