My Encounter With Reality

2022 was a brutal year for the markets. Independently of which market you take a look at, 95% chances are that it’s been down and badly. Volatility is something we have discussed in this newsletter several times and I think it’s very coherent for me to share the actual experience prior and post events occurrences. Prior to things happening, I post what I consider to be theory of how these potential scenarios could look like and how one can react to maximize chances of making right decisions. Well, last year filled many gaps between theory and reality.

This is something I wrote on my second post, on July the third of 2022:

“The investor should know about these possibilities and should be prepared for them, both financially and psychologically.”

“Not everybody has the nerves to handle a drawdown, and believe me, nobody is ever prepared to suffer a 20/30% cut in its capital”

The conclusion? It takes living to know what living looks and feels like.

As I mentioned before, I, along with two colleagues, started a small fund in late 2021. We were able to gather some capital after several meetings with potential clients.

The reason for me mentioning this is that I felt like I owed an update regarding such pertinent subject and to discuss another point in accordance with the article. It is very hard to psychologically handle a drawdown, but, in my experience, it is way harder to properly handle a drawdown with money that’s not yours.

I told you we were here for the long term, and to maximize the odds of succeeding in the coming future, we had to work extremely hard in 2022. It is key to detect mistakes and correct them as soon as possible, and I think we were able to capitalize upon them. In terms of knowledge acquired and experience gathered, 2022 was a wide success.

I am of the view that people should absorb opinions and content as information, for everyone to make their own decisions, according to their particular circumstance. That’s why I generally do not disclose positions nor publish DCF models or articles that could negatively influence your capacity of making your own call. However, I also believe transparency is fundamental to solidify arguments. It adds a necessary layer of humanness, hence I’ll be sharing how the current portfolio looks like (in no world this should be taken as financial advice) and how performance has been.

The following image illustrates the target portfolio, not the current one. Cash is at 15/20%, so not all positions are complete, we have been slowly adding to them throughout this past year. Keep in mind the target portfolio will change as research and reading are done.

Source: Self-made

On the other hand, this table below shows how performance is at the moment, since inception. It also tells how the S&P 500 and the Nasdaq 100 have both performed in the same period. The portfolio is composed by technological and real economy businessis. Therefore, we think that utilizing these two indexes as benchmarks is precise and, if we were to use only one, it would be a mix of both.

Source: Self-made

Note made on January of 2024: Returns seem incorrect, probably a byproduct of mis-selecting the end date.

Return seems satisfactory, though not ideal, of course. The portfolio has a large technological component and being the return quite far from the Nasdaq’s could be seen as positive.

Neurologically interiorizing drawdowns are natural was a heavy task, but I believe we were able to do so. At the point of maximum loss, the portfolio was down around 19/20%. In relative terms, it does not seem awful given how 2022 has been. In absolute terms, a 20% drawdown is not ideal and it’s painful.

I’m sure having lived such drastic year early on in the fund’s history will prove very rewarding. Experience and knowledge will compound from this layer and I can’t see how we do not benefit from it.

Personal Commentary

I have been quite off the past two weeks because I’ve been getting everything ready for tomorrow’s departure. In case you missed last article, I’ll be moving to the US to study for a master’s degree. I think I can now get back to having the thinking time required to prepare the usual-kind of content. I hope you enjoyed today’s and if you are looking to continue keeping up with the newsletter, feel free to subscribe below.