Welcome to a stock picker's market [Q1 2023 Portfolio Update]
The content of this post, or any post on Stumbling About, is for informational purposes only and does not represent investment advice. You should do your own research before using any of the information that we share, and especially before investing.
A stock picker’s market
We have officially arrived at a stock picker’s market! What, pray tell, does that mean you ask? Well, let me explain 😎
A stock picker’s market exists when your portfolio returns are more dependent on the performance of the specific stocks that you hold, rather than being dependent on the performance of the market as a whole.
2020, for example, was NOT a stock picker’s market though many people thought that it was. In 2020 (and 2021 for the most part), it was easier to buy anything and get rewarded. This led to a lot of folks (bless their hearts) believing that their 2020 stock returns were a result of investing talent…when, for many, it was the result of an overall sling shot in the market1.
However, 2023 has brought us a market that has returns which are highly concentrated in just a few stocks. With that level of concentration, you can’t safely rely on your portfolio being supported by the the overall market — what you hold matters2.
Let’s check out the data. In the first quarter of 2023, more than 70% of the gains in the market came from the 10 largest stocks by market cap3: Apple, Microsoft, Amazon, Google, Berkshire Hathaway, Nvidia, Tesla, Meta, UnitedHealth and Exxon.
I love concentration, as you all know…at least when it pertains to my personal portfolio. Concentration in the market as a whole is dangerous. Now don’t get me wrong, I’m a fan of all markets types, but stock picker’s markets in particular are the most fun for me. Be careful out there in the a stock picker’s market. They bring both ample risk and ample reward. We’ll see if it treats me well, but either way I know I’ll enjoy the ride. Wheeee!
The usual context setting
My portfolio is primarily based on a Long Trend Momentum model that I created called Farfin. You can learn more about Farfin here. In addition, I will usually also have a relatively small investment in broad market ETFs, concentrated mostly in the Vanguard Total Stock Market Index ETF (VTI)4.
The combination of these typically results in my investments based on Farfin being 90%+ of my portfolio. However, I will opportunistically pick up other stocks when the market calls for it. As of the end of Q1 2023, my portfolio was roughly an 85%/15% split between Farfin and non-Farfin, respectively.
High level quarter summary
Results5: The overall portfolio was up +7.3% for the quarter, continuing upward momentum from Q4 last year….but still well off the all time highs that 2022 crushed.
Market Results: As a reference point, the market (VTI) was up +7.2% for the quarter, so right about the same amount.
Buys: It was the start of a year, so Farfin buying fun time! I bought 3 new stocks this year. Brief descriptions below, and I can’t wait to see these puppies fly!
EPAM Systems (EPAM) is a US company that provides engineering, consulting, and design services for other companies. It’s beaten the market by ~8x over its public life, ending 2022 with a ~$19b market cap on $5b in annual revenue.
Inspired Medical Systems (INSP) is a US company that has minimally invasive sleep apnea solutions. It’s beaten the market by ~6x over its public life, ending 2022 with a ~$7b market cap on $400m in annual revenue. 👀
SolarEdge Technologies (SEDG) is an Israeli solar company (keep it green!). It’s beaten the market by ~6x over its public life, ending 2022 with a ~$16b market cap on $3b in annual revenue.
Outside of Farfin, I had no long term buys this period, but I did play around in banking stocks — specifically Charles Schwab and First Republic. More on that later.
Sells: Farfin instructed me to sell 6 stocks at the start of the year; aside from those and the Alibaba shenanigans I mentioned in my Q4 post, I didn’t sell anything. Here are the Farfin sells, along with their total returns (which are very sad btw).
SeaGen (SGEN): 12.5%
Five9 (FIVN): 3.5%
Icon PLC (ICLR): -37.3%
Hubspot (HUBS): -56.1%
Trupanion (TRUP): -60.3%
LendingTree (TREE): -76.1%
Top Holdings: DexCom remained my #1 holding at roughly 33%, and here’s the full top 5:
DexCom (DXCM): 33.4%
Broadcom (AVGO): 24.8%
Twilio (TWLO): 6.6%
SolarEdge Technologies (SEDG): 5.2%
Inspire Medical Systems (INSP): 4.6%
Top 10 holdings cumulatively: 89.4%
Below is a pie chart of my top 10 holdings for those that enjoy visuals.
Lowlights and Highlights
Lowlights
Let’s get the suck out of the way.
I have a confession — I did some gambling this quarter 🫣. I know…shame, shame. Banking is the specific nonsense that I got into. And not just any banking, but First Republic Bank(ing).
Why am I gambling?!? Because I enjoy the gamble every now and again. It’s a thrill, and when it represents a relatively small part of the portfolio I think it’s all good.
The shame comes because, even when gambling, it’s important to me that I follow my own sell criteria and respect the process. [Spoiler alert: I didn’t]
My intention was to buy First Republic and to hold it no longer than a week because I believed that the market was overreacting and would spring back quickly. And spring back it did! But I continued to hold…some call it greed…some call it stupidity…I call it both. 🥺
I kept #hodling and got gobsmacked in the face for it. Alas.
As of the end of the quarter, I’m still holding First Republic and it’s down -43%. Ouch. Other that that one, no huge downs within the portfolio, which is a far cry from the dark despair 2022.
Here are the 5 bottom feeders’ returns for the quarter (full year returns in parentheses):
First Republic Bank (FRC): -42.8% (-42.8%)
Dollar General (DG): -14.5% (-14.5%)
EPAM Systems (EPAM): -8.8% (-8.8%)
NextEra Energy (NEE): -7.2% (-7.2%)
Inspire Medical Systems (INSP): -7.1% (-7.1%)
Highlights
Now for some fun. And it’s about time!
Meta, Meta, Meta. This quarter was all about Meta. I haven’t seen someone that could turn a ship as large as Meta as quickly as Mark Zuckerberg has, and twice in the last 2 years. Big turn number one — the Metaverse pivot, effectively throwing gobs of cash into the abyss. Big turn number two — Zuckerberg’s “year of efficiency'“, effectively reversing all hiring decisions made over the prior two years. For better or worse, it’s quite a thing to watch. Here’s the stock chart.
That’s a ~75% decline from September 2021 to November 2022, following by a ~115% increase from November through the end of Q1. Whiplash!
I reluctantly bought Meta last Fall because the price was just too juicy. It’s a stock I really don’t want to own, but I just couldn’t help myself any longer.
As for the overall portfolio, here’s the top 5 quarterly best performer list (full year returns in parentheses):
Meta Platforms (META): +76.1% (+76.1%)
Twilio (TWLO): +36.1% (+36.1%)
Philips (PHG): +22.4% (+22.4%)
TransDigm Group (TDG): +17.1% (+17.1%)
Broadcom (AVGO): +15.6% (+15.6%)
Just like last quarter, I love seeing TransDigm getting back to thriving glory. That company is quite unique in the awesomeness of it’s business/revenue model. I’d have more money in it if I wasn’t so wary that one day the government will lay the smack down.
The most significant winner for me this quarter is Broadcom. It’s not the biggest gainer (obviously), but it’s a big part of my portfolio so this type of movement is material. And it’s quite fascinating to see Broadcom start to give DexCom a run for the money on overtaking the top portfolio spot. I’m gearing up for quite the competition between these two!
Looking to the future
Overall: 2023 is off to a solid start. I continue to believe the market will at least come close to its all time highs again before crashing. But who knows, and I’m merely mortal so just watching along with the rest of you.
To sell: Charles Schwab and First Republic Bank are the destined to sells this quarter.
To buy: Most likely nothing, but starting to run some screens to see if there might be some radar-deserving hits.
Oh, and if interested, you can see my whole end of Q1 portfolio here — these are all my holdings, along with performance for the quarter. Enjoy!
The content of this post, or any post on Stumbling About, is for informational purposes only and does not represent investment advice. You should do your own research before using any of the information that we share, and especially before investing.
I’m sorry to be the one to break it to you.
To be clear, I am absolutely not recommending that most people should hold individual stocks. I’m just saying that if you do, this is the type of market where what you hold really matters.
Market cap = market capitalization = the overall value of the stock according to the market (the stock’s price x the number of shares outstanding).
Throughout this and other posts, when I refer to a stock’s performance relative to “the market”, I’m using the Vanguard Total Stock Market Index ETF (VTI) as the proxy for “the market.”
All of my returns are calculated using time-weighted returns.