An honest look into the past: 2022 recap

Mistakes, learnings and plans for the future.

I went into 2022 with 20 stocks. Micro to mega cap, cash burning to highly profitable, weak to strong moats and no track record to decades of shareholder value creation. As of today 14 of them had to leave my portfolio and 3 were added, high turnover ratio (if you care about more detailed portfolio updates you can find them here: Q3, recent one: Q4/end of ‘22).
So let’s dive in why, where i see my mistakes, what I’ve learned and how I want to become a better investor in 2023.

Naivety

After 2021 I thought I elaborated the basic idea of my investing approach. I thought I know which stocks I want to own, how to value them, which traits I’m looking for or how I would behave in certain situations, how to handle volatility, how to handle my emotions and my plan for 2022 was to develop a more precise strategy/framework.
I was wrong. Looking back I had no idea of how my basic idea looks like. If I would have an idea I wouldn’t have sold 14 out of 20 stocks. So why is my turnover that high?

As I saw my portfolio down 20% after the first quarter I was forced to think about my approach and as I did I had to realize: I don’t really have one. Sure I knew some basics, I knew I prefer quality/growth over value investing and that I don’t want to own too many stocks but that’s not a strategic approach that gives you confidence and conviction in tough times. The drawdown itself wasn’t the problem for me, I could handle the volatility so I tried to reduce my exposure to the daily market news, Fintwit and all that noisy stuff and use that time to finally elaborate a fundamental starting point on which I can build up a stratgy. The two main effects of that were to sell all stocks with a market cap >10B$ and to keep my portfolio focused on higher conviction plays instead of diversification. With that I force myself to focus on my own research because for smaller companies you usually won’t find 100 articles of research out there and secondly owning less stocks leads to more research time per stock and more skin in the game to my own decisions.

It seems like I had to make that experience of my stocks getting crushed by myself to really to truly understand the basics and learn about myself. That said: I knew nothing until I saw myself in that particular situation and made that experience by myself.

Position sizing:

I didn't think about position sizing that much in the past and I felt that with -16,5% performance in January this year. Beside some basic large caps which made up about 1/4 of my portfolio another 1/4 was filled with SE 0.00%↑ ETSY 0.00%↑ NFLX 0.00%↑ and Bico Group (unprofitable swedish MedTech). As I bought APPS 0.00%↑ later it instantly made up 8% in a portfolio of 17 stocks.

Afterwards it's easy to say I should have made things different but if I look at these companies they provided some risks like high valuation (SE & APPS ), easing covid tailwinds (basically all of them), heavy M&A (BICO & APPS), unprofitability (BICO & SE), weak moat (NFLX), unexperienced management team (BICO), ... which I didn't pay that much attention.

So I believe here was my main mistake in 2022: Didn't acknowledge risk by position sizing while allocating for an (naive?) upside without considering downside. I don't want to set strict rules for that in 2023 but I will play around with position sizing e.g. decreasing exposure to a riskier stock if it makes up XX% of my portfolio. Call it risk management. I have to find out what works for me so it probably won't work out as I want, we will see.

Stock picking:

As I'm down -40% for the year (true-time weigted rate of return) I have to comment on the stocks I picked. Did I pick the 'right' ones at an unattractive valuation or did I pick the 'wrong' ones beside their valuation anyways? Hard to say what's right or wrong respectively easy to say in hindsight and one year isn't the right timeframe to answer that anyways but I believe I did some basic mistakes:

• extrapolate past growth into the future

• don't care about valuation

• rely on analysts expectations

those are simpliefied. It wasn't that bad. I knew a company won't grow with 30% p.a. for 20 years, knew that high valuations shrink future returns and that analysts can and will be wrong but I guess I didn't take this 'knowledge' serious enough and was likely to ignore it more or less when valuing a company.

Noise and focus:

2022 was noisy. Everyone had opinions on everything. Wherever you looked someone knew what you have to change in your portfolio, which stock you need to sell because they will go bankrupt and which macro trade will outperform everything. At the start of '22 I saw myself wasting so much time on senseless predictions and discussions totally distracting me. Luckily I was able to get rid of the noise throughout the year by cleaning up my Twitter feed, avoiding market news and daily performance checks and focusing on impactful discussions and content out there. I'm confident to continue that in 2023.

Spend twice as much time knowing what you own versus new ideas. What you don’t own can’t hurt you. - Ian Cassel. In the past year I definitely spent more time looking for new ideas than keeping myself up to date and diving deeper into the companies I already own. As my portfolio is more concentrated now I want and need to change that. Hard to say but maybe I could have avoided some losses if I would have been more focused, who knows.

Risk tolerance:

At least something went great in 2022: I didn't overestimate my risk tolerance. I'm totally fine with that volatility, I'm fine with being red and I'm not in a bad mood at all.

Plans for 2023:

I definitely want to read more investing related books. What means more? Four Books are the goal, one every quarter. Sounds easy for many but I never had a reading habit so I need to start somewhere. I want to start with rereading 100 Baggers by Chris Mayer as I didn't take any notes as I read it last year followed up by:

• Common Stocks and Uncommon Profits by Phil Fisher

• The little book that still beats the market by Joel Greenblatt

• One up on Wall Street by Peter Lynch

so nothing too special, just some 'basic' stuff. By reading more, combined with my experience so far and dozens of other sources like Fintwit, Commonstock, Substack, YT, ... I would like to define a more detailed framework on top of my basic idea. But that's something for the 2nd half of '23. In the first half I plan to spend some time with Excel. Create one big spreadsheet were I can find all the data of my stocks to really track the fundamental development and to compare them. It's not that difficult but will take some time to organize the data.

That said I hope everyone who celebrates had a great christmas time and I wish you all the best for the upcoming year. Don’t forget to sit back and reflect on your personal 2022.

Stay humble, avoid overconfidence.

Cheers.