2022!

2021… What a year. Just when we thought the pandemic was finally coming to an end, the Omicron variant popped up and threw the whole world right back into chaos. I hope the trends of this strain appearing less deadly continue, but nothing would really surprise me at this point. While 2021 clearly ended on a sour note, I’m hopeful going into 2022. The world has looked so bleak the last couple of years, we could all use a return back to normal.

Investing wise, 2021 couldn’t have gone much better, at least for me. The bull market rages on and markets closed at or near all time highs. We have however seen some downright strange patterns. While the markets as a whole keep climbing higher buoyed by megacap tech, many names find themselves in deep bear territory. The back half of 2021 was a bloodbath for many names, particularly those that had risen quickly in the beginning of the pandemic. You don’t have to look very hard to find companies trading 50% below where they were trading just a few months ago. Even after a precipitous fall, I don’t find much value in most of these companies, but always good to be on the lookout.

I have partnered with the great group at 7 Investing and become an affiliate. They offer monthly stock recommendations and so far they have absolutely crushed the market. The team chooses their 7 best picks each and every month, one from each of their 7 lead advisors. Follow this link and use coupon code GARP to save $10 off your first month. I highly recommend their service!

Let’s have a look at my results:

Q4 Performance

As of 1/1/2022, my 10K portfolio is worth $19,846.55. When I started on 8/19/18, the SPY had a price of $285.06 and my account started with $10,000. As of 1/1/2022 the SPY had a price of $474.96. In reality, the SPY has done even better due to dividends given out, so I have accounted for dividend reinvestment in the return calculation.

10K Return(1)SPY Return(2)Difference(1-2)
2018(8/19-12/31)(13.95)(13.71)(.24)
201937.3332.64.73
202021.2217.593.63
2021(1/1-12/31)38.5528.4311.52
Since Inception(8/19/18)98.4772.8025.67
CAGR22.8317.844.99

While I am a bit disappointed that I didn’t end the year at $20,000, 2021 was an incredibly successful year for my portfolio. I put up a 38.55% return, an amount far beyond even my wildest predictions. This was mostly due to the market rocketing upwards, but I still beat the SPY by 11.52% on the year and now 25.67% since inception. 2021 was by bar my best investment year both in terms of overall return and when compared to the S&P. Some reversion to the mean is likely, I don’t expect to beat the market by nearly that much going forward. Some of my company valuations have also become stretched, meaning the stocks could take a tumble while still producing fantastic business results.

As usual, the Nasdaq continued to trounce me. I did however make up some ground in 2021, as the QQQ’s were “only” up 21.4%. Since inception of the portfolio, the QQQ’s still beat me by just a hair over 20%, so there is still work to be done. Maybe I’ll keep up the momentum and even pass the Nasdaq, but I for one doubt that will happen anytime soon. Stranger things have happened, but I certainly wouldn’t bet on it.

Transactions
ETSY- By mid November, Etsy stock had run up quite a bit, peaking around $300. I decided that it began to represent too large a portion of my portfolio, good problem to have I suppose. I had roughly $3,000 invested in the company, meaning it was approximately 15% of the account. While I generally recommend sticking to your winner’s and letting them run, occasionally the gap between estimation of fair value and total market cap becomes too wide. The stock had gotten out in front of their skis.

For this reason, I decided to trim my holdings. I sold half of my Etsy shares, still leaving me with a significant investment. So far this has proven to be the right decision, as I sold those shares at $297.14 and as of the new year the stock traded at $218.94. Granted, the shares I held on to have obviously fallen by that amount. I remain a big believer in the company and plan on holding onto the rest of these shares indefinitely, but I feel much more comfortable at a 7.5% position than a 15% position.

AMAT, LRCX, KLAC- Part of my reason for selling Etsy actually had to do with a need to raise cash. I was fully invested and saw an opportunity that I couldn’t pass up. I have been following the semicap equipment manufacturers for quite some time and after seeing their most recent quarterly reports, I could no longer sit idly by. I had to be a part owner of their success. Quarter after quarter I would watch this group produce spectacular financial results and I determined that it was time to pull the trigger.

I would be foolish to believe that I could ever fully understand the minutiae of the semiconductor industry. The technology involved is incredibly complicated and I am by no means an expert, far from it. I also can’t tell you exactly who will win on the consumer side. Will Nvidia and AMD continue to steal market share from Intel? Will Intel bounce back and regain their market dominance? Will TSMC continue their fab supremacy(almost assuredly)? I don’t have the definitive answer to any of these questions, but I don’t think I need to. What I can tell you, is that overall semiconductor demand will continue to grow significantly decades into the future. We live in an increasingly digital world, one where the reliance on semiconductors grows every year. This doesn’t mean the industry is without cyclicality, categorized by innovation followed by years of stagnation. There will be down years, but on average growth will be immense.

In my opinion, the semicap manufacturers are a far safer play than the consumer facing side of the industry. To protect myself even further, I’ve decided not to even try and pick the winner amongst them. I have invested in a basket of the top 3 American equipment manufacturers. Together I am considering them to be a single investment, roughly the same size as any of my other bets. They all produce fantastic financials, significant revenue growth with high levels of free cash flow. None require large capital investments, meaning they can allocate capital to buybacks and other shareholder friendly endeavors. All should continue to do well years into the future. If one should falter, it will likely be due to one of the others winning their business. I’m betting on the category, rather than a single company. Time will show if this is wise. I won’t be breaking down the numbers here, but at some point I’d like to post a deep dive showing why I like all three and what each brings to the table.

As always, I would like to thank you for taking the time to give this a read! Feel free to leave some comments or questions. Best way to reach me is on Twitter, follow me @TheGarpInvestor.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s