Quarterly Letter: Q4, 2022 — Game On

Performance

We did not beat the market this quarter, but we remain ahead. Since inception, the Irreverent Value portfolio is down 6.70% while the S&P 500 is down 11.50%.

For the quarter, the Irreverent Portfolio is down 3.83% while the S&P 500 gained 7.57%. That is quite a closing of the gap.

It’s worth restating here that I post the “since inception” numbers first, as my overall goal is to beat the market over long periods. This means there will be periods of underperformance, which we saw this quarter.

Sectors

Below is contribution by sector, led strongly by Financials and dragged down by Consumer Cyclicals and Telecomm.

What does this mean?

Sectors perform differently. In different market environments, certain sectors tend to outperform others. In my limited experience, it does not make sense to chase sector performance, but to notice what happened as it may be an important data point down the road.

Knowing sector performance is nice, and to be filed away for later use (maybe).


Investments

Here are the top and bottom performers for this quarter:

Markel and Berkshire

The main reasons for buying into Markel and Berkshire were the logical conclusion that I do not know everything. The great people running both of those companies know how to navigate macroeconomic events better than I. Knowing that the market is still frothy, and weird things happen in the market, it would be foolish to not hold some sort of defensive investments.

Over the long term, however, I believe that some of our worst performers will turn out to be drivers for the portfolio, namely Roblox.

Roblox

Roblox is still viewed as a kids game, but the fact is that the age group of Roblox players is changing. Thirteen year-olds (and younger) are no longer the majority player. The age dominant age group is now above 13 years old. This is one of the leading indicators for the stock that they are evolving quickly into something amazing.

Intel

Intel is an amazing company that is extremely hated. Near all time lows, Intel has a P/E ratio of 9. They recently missed on earnings, with the company getting even more hate. I still believe the company is a major investment opportunity.

Google and Meta

Alphabet (GOOG) is one of my favorite companies. Their recent lawsuit against them by the US government speaks of their inherent monopolistic nature. While lawmakers complain about their immense power, customers are still using it all day, every day. People get what people want.

Meta is a different story. Zuckerberg is hated, but Facebook and the Family of Apps (FOA) has a very strong user base that continues to improve and grow. With the eventual downturn of TikTok, I think Meta will reign supreme. Note that this does not take into account the risk that Zuckerberg is taking with VR. There’s too much upside with Meta for me to be on the sidelines.

Outlook

“If you spend 13 minutes a year on macroeconomics, you’ve wasted 10 minutes.”

I can’t remember who said that, but it does not ring true anymore. Monetary policy greatly affects the economy. Since all companies are part of the economy, we cannot afford to turn a blind eye to the wrecking ball of a tool that the Fed has determined to be appropriate for guiding the economy.

While I do not have a cystal ball, I think it’s still wise to pay attention to the macroeconomic field.

Back in 2020, when an extremely large stimulus hit the United States economy, I was anticipating the aftereffects. It’s common sense that flooding an economy with money will drive up inflation. Many of us could see this coming a mile away. What most people could not see is the ramifications of inflation. Namely, higher rates.

Higher rates slow down the economy. The thing is, those people who needed that stimulus the most, were now hurting the most. That stimulus paid for a couple months of rent, and maybe some food. Now those same people are struggling to pay for basic necessities.

Non-essential spending got cut everywhere in businesses and homes. It paid investors to be defensive.

At the outset of this portfolio in April of 2022, I was extremely cautious. It’s why I decided to hold mostly cash in the portfolio and Dollar Cost Average into positions. I am very glad that I did. It gave me a leg up on the market during this monstrous downturn of the latter half of 2022. It was not a fun decision, but the outcome was positive.

It’s worth repeating that we are here to beat the market over the long term, not play at investing. The soundness of decisions is vastly more important than sounding clever. That is why I held cash. With the extreme run-up of equities since 2020, and inflation soaring, it was a matter of time before higher interest rates brought the party to a halt.

2023 And Beyond

For 2023 I’ll be:

  • taking a closer look at the both the companies I hold, and smaller companies that are lesser known

  • rolling out a few new features

  • going out on a limb with writing and presenting ideas

Rest assured that I am still over here obsessing about making a market-beating return, and then sharing everything I’ve learned.

Disclaimer: The information provided on this website is for general informational purposes only and should not be considered investment advice. Please read our full disclaimer for more information. You can access it by clicking HERE.

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