SoV Review 2023
'Tis the Season to be Jolly
As always, with the year almost over, it is time to take stock of the past 12 months - to reflect on the goals achieved and lessons learned, celebrate the highlights and wins, and look ahead with renewed perspective to the year to come.
I am happy to say that one big achievement is right in front of your eyes. This is the year I resumed my blog after a cool 8-year hiatus.
Here a list of the Student of Value Newsletter 2023 issues, including today's brings the total to 16, which is roughly 1.5 per month. I plan to stay in the 1.5-2 per month range. It is a good, realistic target for me while not adding too much clutter to your inbox.
5/8: Kazakhstan Primer
5/10: What Is Best in Life?
5/27: Kazakh OS
8/7: SoV Half-Year Review
10/14: High Spirits
Fading into oblivion is the common path shared by many investing blogs. Along the way, their authors usually dedicate themselves full-time to managing money, which often interferes with their ability to write on investment topics or at all. The lives of others turn onto different paths that take them away from writing. It is the rare few who stick to it through thick and thin, persevering with grit and resilience through the years. Their commitment sets them apart.
Here are a few of them that have inspired me. Last week, Value and Opportunity celebrated its 13th anniversary. This makes it one of the earliest value investing blogs I remember. Some of the other OG blogs in my book are:
Richard Beddard's Share Sleuth column in the Interactive Investor - another wonderful, grounded, no-nonsense kind of guy, despite our association being limited to the digital space. Now also on Substack at investing etc.
The super prolific Geoff Gannon at Focused Compounding - probably the guy online from whom I learned the most about studying small companies and thinking about businesses in general.
Nate Tobik from Oddball Stocks, who had a great run from 2010 to 2022 and is not focusing on his newsletter and other endeavors.
A lot has changed since those guys started writing and I bet they have been through a lot in that time. You can see they have grown and changed with time, but they kept sharing quality content publicly. I applaud their resilience and appreciate the practical wisdom they have been sharing thought the years. Meanwhile, new crops of investment substacks have flourished, but I will make a separate issue about them. Let me know who you think should be on that list, or on the OG list for that matter, by replying to this email.
This week I came across an article by Will Larson on the subject of Writers Who Operate. It clicked with me as I self-identified with that category. With the small exception of professional writers, all of us fall into that category. We write to think more clearly and make better decisions. The process of researching, writing, revising and rethinking on one side, and the reactions that this writing gets helps us calibrate our map to be a better representation of the terrain. Also, I wholeheartedly agree with this quote from the article:
Writing on a schedule is, in my opinion, not at all fun.
The Year in Review
It has been an interesting year. We started out with a bank scare, rising rates, expectations of a hard landing, and inflation was still running hot.
What a difference a year makes!
The hard landing did not happen. No landing at all, actually. We are mid-flight. Despite all the gloomy predictions of a near-term recession, the economy remained quite steady this year. The bank collapses, albeit among the largest in US history by asset size, were contained. Inflation is down to a very reasonable, and probably ideal for the debt-binging USA, 3%. Rates have peaked and the optimists are pricing in multiple rate cuts in 2024. The Dow is at an all-time high.
Those are some impressive numbers. When you drill down a bit, you notice that:
Almost 50% of the NASDAQ's gain, 70% of the S&P's and 100% of the DOW's, came in the last two months. They fluctuated before that, as indexes do, but the last two months have been a steep climb up. A bit overdone? Maybe.
The Magnificent 7, the top 7 companies in the S&P 500 with a combined weight of 28.1%, have gained over 75% and contributed 90% towards the index's performance. For comparison, the equal-weight S&P 500 is up a much more modest 9.5%, which is not far off from the Dow's 12.5%.
Emerging-market stocks are at their lowest point compared to the S&P 500 since 2000.
China is down 13.8%. Now, Hong Kong is in unison -17.4%.
Japan is up 27.8%. Buffett was right once again, but we didn't listen.
European indexes are a mixed bag. Germany surprised with +20%, Bulgaria as well +23%. The year was particularly good for my favorite Bulgarian stock, Shelly Group, which is up 122%, and more importantly well on track to hit its 2026 targets of €200M revenue and €50M EBIT.
It reminded me how every year since 2009, we had been waiting for the double dip recession. Come 2014, everything was a bubble all of a sudden. We are in a bubble today if you look at metrics such as CAPE, mCap-to-GDP, and the size of the US market compared to all others.
Trying to dance in and out of the market based on these broad numbers is a fools' game. You can't win and you are guaranteed to lose the benefit of long-term compounding.
The best strategy, for those of the right temperament to follow it through, is to stay invested in high-quality companies throughout your investing lifetime, accumulating cash when not finding compelling opportunities and deploying it when they appear.
I mean cash that is coming from outside your portfolio, not from liquidating positions, because ideally you only have positions that you want to own forever. Of course, we all make mistakes and the best thing then is to fix them quickly. But keep an eye on your trading activity. If it intensifies, this may be a good time to go over your decision journal and analyze the reasoning behind your buy and sell decisions.
You keep a decision journal, right? What? No? Do not worry. It is the season of resolutions. No better time to start than now. My advice, don't get hung up on the tools and protocols. Just pick something that is easy for you to use. It can be plain pen and paper. Who doesn't love the feeling of satisfaction from jotting down notes in their favorite notepad using their prized writing tool? Others prefer to build a searchable database on their computer. They have a rich choice of tools for the job. Just pick one and stick to it.
I am using Obsidian when I am on the computer, because I like to have all my notes searchable in one place and linked together logically. Obsidian has been great for this purpose. When I am away from the computer, I use TUL Gel Pens and whatever notepad I have at hand. Ideally, I consolidate my handwritten notes into Obsidian once a week.
Marry Christmas and Happy Holidays
This holiday season, may your days be merry and bright, filled with festive gatherings, meaningful moments, and joyful memories made with loved ones.
Thank you for reading and subscribing!