Quarterly Letter Q3, 2022 — Beating The Market

Performance Since Inception: -2.99%

Second quarter of outperformance in a down market. This is great, but we are still just getting started. I hope to outpace the market on a long time frame. This little recession is giving us a head start.

I am at -2.99% since inception vs -18% from the S&P 500. Very good!

To see what stocks I’m buying you can become a member here. I will be purchasing more stocks this Tuesday the 25th. Members will get an email the day before detailing what I’m buying, and how much.

Q3 2022 Performance: -2.09%

Here is the performance of last quarter and how we compared to the benchmarks:

Irreverent Value had a total return of -2.09% while benchmarks hovered around -5%. Another outperforming quarter. Also great.

It’s worth noting that beating the market in a recession is good, but positive returns are even better. The thing is, I would rather outpace the market over a long period of time than guarantee a miniscule positive return every quarter. I do not believe you can outpace the market in the long run without having down quarters, but I am open to discussion on this point. If you disagree or have thoughts on the matter, I’d love to hear them below in the comments.

Risk Analysis

Here you can see Sharpe and Sortino ratios, along with some other fun data.

The Recession, The Fed, and Rate Hikes

I said this back in the early days of the pandemic: manipulating the market upwards will end in the market inevitably coming back to reality in a violent way.

The thing is, we pushed the pendulum so far to the right that at some point (now), it must return to the center, and keep moving left. All we know is that we were at peak greed, and now we are somewhere between the bottom and the top. Nobody knows how far the recession goes, and to pretend to know is either a fool’s errand or a snake oil salesmans forte.

The interplay between greed, fear, the fed, inflation, and the market is one that I leave to economists. I will continue to focus on buying and holding quality companies at reasonable prices that put their customers first and execute their vision through great leadership.

I cannot influence interest rates, and it’s a terrible idea to trade on such notions. It’s best to leave economics alone and focus on what we do best: value investing.

Market Observations

The main thing that I’m seeing is less of: “what are the next 100 baggers?” (meaning multiplying your initial investment 100 times over, a 10,000% return) Below are the greatest investors of all time and their returns.

Warren Buffett got a measly 20% over 60 years! This is hardly anything compared to the kids who were getting 100% and more in 2020 and 2021.

The main thing here is that Warren Buffett did this over a period of 60 years. He’s outlasted the Cathie Woods and the Chamath Palihapitiyas of the world. (The charlatans).

Take the above numbers as a high-end benchmark for the future. It will a combination of skill and luck to reach such numbers over decades. You and I will have up years and down years, but the goal remains the same: hold quality businesses at reasonable prices for a long time. Everything else will take care of itself. The real trick is knowing ourselves as much as the markets.

The biggest enemy of most investors is self-sabotage.

The End Is Near?

Last time I wrote “Anyone touting ‘the end is near’ is either ignorant or trying to sell you something. Sure, we may see significant drawdowns from here, but who knows. I don’t know, and neither do any professionals.”

The same still applies. Lots of people will try to say that investing should be left to the professionals, you need a doctorate, or a special course to invest. These are not true.

Clarity, courage, and discipline are needed. Intelligence is nice, but common sense is better. All are in short supply.

If you’re having a hard time during this market downturn, do not worry: good businesses will still be in demand, and will still solve problems for people. As long as there are people and problems, there will be good businesses worth investing in.

The Average Investor

Don’t be the average investor we see below:

Being the average investor comes from making too many moves. Remember: returns come from compounding, not from action.

Until next time

I have a lot of big things in the works, all of which support the main focus of investing. Stay tuned.

And thank you to those who have trusted me with your attention. Thank you to the members for being awesome. This wouldn’t be possible without you.

If you see anything that doesn’t make sense, or have a question, let me know.

The man who asks a question is a fool for a minute, the man who does not ask is a fool for life.
— Confucious
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