Q2’24 — Quarterly Letter
Q2’24 was great. The portfolio reflected what I thought to be the best businesses in the world at the time. Here are the performance numbers:
Q2 2024YTDSince Inception
(Apr 18, ’22)Since Inception
CAGRS&P 500 (TR)4.3%15.3%33.8%12.2%My Portfolio2.5%10.2%58.2%21.3%
Return-to-Stress Ratio
A fundamental long-only portfolio of 10 to 15 names will underperform sometimes. That’s normal. The cost to try to always outperform is higher stress and a higher likelihood of behavioral errors. I am not in the business of being stressed or increasing likelihood of errors, I gladly accept periods of underperformance.
I have a new metric. It’s the return-to-stress ratio. Right now, I’m hovering at ~21% Compound Annual Growth Rate (CAGR) with a stress level of 1 out of 10. A R/S ratio of 21! I attribute this to low turnover, understanding the holdings, trying to get smarter every day, and trying not to make stupid mistakes. It’s a high return relative to the amount of stress, especially for Q2’24.
I’m 75% sure I could raise the CAGR to 22% or even as high as 25% but with a stress level of 4-7 that’s not worth it. This scenario of 25/5 = 5, vs the current results of 21/1 = 21. As stated above, reaching for a higher absolute performance would also likely increase turnover and thus increase likelihood of behavioral errors.
For proprietary investors (and maybe for all investors), stress should figure in one’s investment strategy, much more than it does, perhaps, even more than financial risk, because stress is a killer and high stress situations – whether they carry high or low investment risk – will always carry a high risk to one’s health. In fact, one can now measure how many years of one’s life is cut short by being exposed to a high stress life.
My strength is I know I’m not smart, and I know I can make some of the stupidest mistakes on the planet. Another reason why time is better spent finding, researching, and analyzing wonderful businesses rather than focusing on CAGR.
The score takes care of itself.
Bill Walsh
Closing Thought
I’m very grateful to the members and supporters who have helped me grow so much as an investor and as a human. You know who you are.
Q2’24 was solid. On to the next quarter!
Mike
PS—You can read other quarterly letters here: Quarterly Letters
PPS—I made some portfolio changes recently. Here they are: Portfolio Change: New Strategic Position.
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