Closing 2024: Our Portfolio Outperforms S&P 500 By 23%, Here Is What We Own!
Our portfolio is now up 47% in the last twelve months against 24% of S&P 500. Here is our updated portfolio!
💥Our portfolio is outperforming the market by 23%!
Portfolio is now up 47% in the last twelve months against 24% of S&P 500!
I have started this newsletter with a clear vision in my mind: Help retail investors outperform the market. I am proud that the publication achieves this goal.
I always believed that outperformance in investing stems from:
Fundamental knowledge of investing as a discipline.
Strong general knowledge in business, finance, competition and tech.
Emotional discipline that allows you to stick with the strategy in speed bumps.
This is why you are seeing a unique combination of essays in Capitalist-Letters that range from tech to finance, from competition to entrepreneurship, from macroeconomics to fundamental essays about investing and stock deep dives.
All to help us pick the best “business”, not the stock, and buy it at attractive prices.
I am proud to say that this works and anybody who wants to outperform the market should have a unique combination of knowledge in these areas.
Knowledge in business allows you to detect and analyze the most relevant performance indicators for each company; knowledge of competition allows you to pick businesses that have wide moats, command on entrepreneurship literature allows you to bet on the right young businesses etc…
These disciplines are like institutions within you. They differentiate you from others and when the set of institutions you have interact with a critical juncture, such as market correction, they lead to a further institutional drift: When everybody leaves the ship, you buy the bargains.
These disciplines will remain as our building blocks in Capitalist-Letters as we go forward.
I will give you the portfolio update in a minute but first there is one more thing I want to talk about.
Substack and Twitter (X) have an overabundance of fake outperformers... How the hell do I know that? Because they take pride in their outperformance like an amateur.
Anybody who brags about outperforming the market by having spotted a few no earnings, giant hype stocks earlier than others obviously lacks strong investing fundamentals. That type of outperformance isn’t something valuable because:
Even if it’s true, nobody can see the future consistently.
Outperformance at the risk of permanent loss of capital isn’t desirable.
Anybody can outperform the market that way. I am giving you the strategy to achieve this: Buy a basket of no earnings, high revenue stocks in the market crash.
There is a very basic reason for this: Such stocks are valued like options because they have a higher chance of failure given the lack of earnings.
Analysts value the story and let’s say they come up with $100 per share fair value.
They then incorporate the chance of failure into the valuation by estimating the value in failure.
In bad times, the chance of failure skyrockets so the stock gets hammered down to nearly worthless by the market.
If the company survives the downturn, it skyrockets because it’s really hard to go bankrupt in good times due to the easy money environment.
You don’t want this type of outperformance. It doesn’t control risk at all and if the bad times take longer than you expected, you will likely end up with 0.
The most important thing we do here is shooting for outperformance by controlling the risk.
We run a barbell portfolio where strong businesses with durable competitive advantages are complemented with fast growing companies with strong balance sheets and competitive edge in their markets.
This allows us to do two very important things:
Propel growth by not assuming too much additional risk.
Arranging our risk posture without changing the portfolio holdings.
Outperformance while controlling risk is what we want, not outperformance at all costs.
And we are achieving this:
Our portfolio is now up %47 against 24% of S&P 500!
Following transactions took place in our portfolio in December:
We opened 3 new positions.
Increased 3 of the existing positions.
We also trimmed 1 position for reallocation purposes.
We now have 17 positions in total. I am very glad with the current composition of the portfolio. I may not buy any new stocks and the portfolio will do just well over the next decade. I want to keep this portfolio under 20 positions as I like concentration. But I am always eyeing for great opportunities and if I see a gross undervaluation, I’ll not shy away from buying.
In the last update, I discussed the outlook for each stock we own and explained to you what you can expect from them going forward. In this update, I will do the same for the 3 new positions and give you a broader commentary on portfolio performance and what I expect in 2025.
Let’s dive in!