PERFORMANCE
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GENERAL THOUGHTS
The portfolio below will look like a marked change from previous roundups. The thing is I want to own only high growth names and be fully invested. But that hasn't worked this year as all my "long duration" assets have been murdered in the macro environment. So I'm iterating on my process to try and improve it.
Reading Year-end reviews from others with like-minded portfolios I see quotes from Charlie Munger and other missives about how an investor should ignore macro and be able to stomach massive drawdowns. However, I simply would feel intellectually dishonest if I didn't try to learn from the drawdown this year and do something to prevent it in the future. In a way, I think that those sayings are from another time in the market. And that the available information, especially to retail investors, is unlike anything before.
So I'm working on a process that will try to prevent a drawdown like this in the future while not giving up too much upside. For now I'm working on a signaling process for getting into and out of names. I'm using 5 7 EMA crosses for TRADE (3 weeks or so), combined with a 65 EMA for TREND (3 months). I'd like to find a way to incorporate Volume and Volatility too (I'm starting with the Bridge Bands in Tradingview).
At the same time, I'm dabbling in macro holdings that are currently in UP Trends.
So the portfolio is now in a way two portfolios: #1 my high growth names combined with #2 what I'll call the "Macro" names (I'm using Hedgeye for their macro framework.)
This is a macro topdown + my own "high growth" framework with a signaling process.
Basically what I'm trying to do is avoid the cascading waterfall selloffs that have occurred the past 13 months. While at the same time be in some names that are actually working. At some point next year the macro environment might favor high growth tech. That would be based off Growth and Inflation. When that happens, and if the signal is UP Trade and Trend, then I'll be fully invested in high growth names again.
It's been a tough year, and one that I've probably not fully processed. Down 62% YTD. Wow. But it's important to keep a nimble mind and not become paralyzed or obstinate to change. Perhaps High Growth has already bottomed and so me abandoning the fully invested strategy is too late, and thus a classic example of selling at the bottom. But I'm looking to create a system that I can iterate on for the next 30+ years. I really just can't take any more cascading waterfalls down. And the Macro environment doesn't look good going into 2023 with what will be an earnings recession. The story of 2022 has been Inflation. The story of 2023 looks to be downward earnings revisions. Just because all my companies have sold off so aggressively doesn't mean they can't sell off another 50% or more. That's what I want to avoid. Learn, be honest with yourself, and keep going.
Hell, who knows, maybe this new process is hogwash and a waste of time and I'll look back a year from now and realize I was just panic selling at the bottom. But I have to reiterate to myself that I can't come off a year like this without some serious reflection on how to prevent it in the future. I would feel stupid to just keep doing the same thing. If I try the process and it chokes performance I can continue to iterate or abandon, but for now I need to try to improve it.
In the market, every day is a new day. And you have to sort of start over every morning. The new year is a good reminder to do that. It's a good time to start anew.
So, as for my "desired portfolio", here is what it looks like based off the most recent earnings reports:
Tier 1 (Allocation sizes: 15%-25%)
None
Tier 2 (Allocation sizes: 7%-12%)
10-12% - Snowflake (SNOW)
10% - Bill.com (BILL)
8-10% - Zscaler (ZS)
8-10% - SentinelOne (S)
8% - Gitlab (GTLB)
7-10% - Cloudflare (NET)
7% - Datadog (DDOG)
7% - Crowdstrike (CRWD)
Tier 3 (Allocation sizes: 2%-4%)
None
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As for December, the high growth names continued to trend down but I was mostly out. On the final day of the year, SentinelOne and Snowflake both triggered UP trade (5 day EMA crossed the 7 day) so I allocated some there. For now what I'm doing to get back into a High Growth name, is to go 1/4th of the desired allocation when the Trade is up. So Snowflake position is 1/4th of 12%, which is 3%. And SentinelOne is 1/4th of 10% which is 2%.
When a name triggers UP Trend (above 65 day EMA) then I'll go fully invested in that name. Since most of my high growth names are pretty correlated they tend to cluster together in terms of when to get in and out.
I'll ignore the 5 7 cross if the price is above the 65 EMA.
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Macro Names:
8% - US Dollar Index (UUP)
6% - Gold (GLD)
4% - Platinum (PPLT)
4% - Gold Miners (GDX)
2% - Silver (SLV)
1% - Consumer Staples (XLP)
1% - Utilities (XLU)
High Growth Names:
3% - Snowflake (SNOW)
2% - SentinelOne (S)
69% - Cash
