Portfolio Update - Q3 2023
Portfolio returns (in €)
2019: +30.2%
2020: +41.8%
2021: +47.4%
2022: -29.9%
2023 YTD – Q3: +22.5%
Do not let my returns in recent years fool you. My main goal remains protecting my family's purchasing power (even more so since becoming a father). Preserving my family’s wealth, which I consider an irreplaceable asset, depends on the decisions I make – decisions that I will always make thinking about how much I can lose if I am wrong and not about how much I can gain if I am right. In order to increase my wealth, I must first protect what I already have instead of getting distracted by what I could have.
The current environment is still marked by uncertainty – a period where there is no lack of potential risks, but also no lack of opportunities. The Fed continues with its plan to lower inflation at any cost and the rise in interest rates continues to influence asset prices and the behavior of consumers, which are more cautious than ever before. Of course I read newspapers and keep up with the economy. I just choose not to waste my time trying to predict what will happen next. In any case, I avoid making decisions based on what the consensus of analysts is, or what those who call themselves macro experts think because, at the end of the day, the secret is to realize that nobody knows anything. The only existing guarantee for those who intend to invest for several more decades is that a recession will eventually arrive, but no one knows when. Danish physicist Niels Bohr said it first: “It is difficult to make predictions, especially about the future.”
I waste no time trying to predict market turmoil or trying to reduce portfolio volatility. I feel comfortable knowing that I can prepare, but I have no control over when that moment that some investors fear so much will come. I trust my investment process even knowing that its quality cannot be measured in days, weeks, months or even a couple of years. I invest with an eye on the next ten years because I believe that is where the least attention is paid and where the best opportunities can be found. You will not come across a quarterly earnings call of a medium-sized company where the management team is not asked about revenue estimates for the next quarter.
In case anyone is wondering, my goals for the next quarter are the same as for the next decade:
Avoid making big mistakes that could compromise my family's wealth.
Continue reading and studying about different businesses, industries, and corporate cultures.
Select only companies that prioritize resilience and value creation over growth at all costs.
By avoiding making big mistakes I mean trying to reduce the rate of unforced errors, but I am not going to fool anyone: a good investor is made, not born. Successful investors did not get where they are without battle scars. My portfolio is made up of 30 carefully selected companies that balance resilience, strong competitive advantages and the ability to reinvest, but the road so far has not been easy. I must add that even if I am comfortable with my current portfolio, I will have failed if years go by and I stop learning new things. I believe that investors either get better or worse with each passing day, but they never remain the same. The question is what direction they head. I really like a quote from Chuck Akre which says: “Good judgment comes from experience, and experience comes from bad judgment. Every day is a learning process.”
Portfolio rotation may be lower from now on, with the occasional purchase and sale, but that does not mean I am doing nothing the rest of the time. In order to be extremely patient with my investments I need to be extremely active with the rest of my work time. Reading about various companies and putting my thoughts on the blog allows me to expand my circle of competence. It helps me recognize common patterns to more confidently rule out new investment ideas and it also helps me appreciate the companies I invest in.
Selecting only businesses that prioritize resilience and long-term value creation over growth for the sake of growth is essential if one intends to invest and not end up indirectly speculating. Almost half of the companies in my portfolio have more than 60 years of history and a quarter of them have more than 100. That is not a prerequisite for the companies I invest in (I am a shareholder of some recently founded companies), but I do believe that it is a relevant aspect that is not at all given the importance it deserves. The longer something lasts, the more likely it is to persist into the future. A business that is two years old is likely to last another two. A business with 100 years of history is very likely to continue building its legacy for another century. Only the companies that do not display myopic behavior, those that ignore the siren songs that encourage them to try to beat analyst expectations for the coming quarters, will do well in the long term.
This quarter has been especially quiet as far as changes in my portfolio are concerned. In a world where it seems like everything is moving very quickly and that you are missing out on something if you do no't buy or sell, we forget that money is made by being patient. The one who makes money buying and selling is not you – that is your broker. Good investments, like good things in life, take time.
I plan to do this indefinitely. Every decision I make is made with an eye toward preserving and growing my family's wealth (in that order), and not toward quick profits. As simple as it may seem, I think that in order to create value, one must ensure not to destroy it first.