In 2021, my portfolio returned 21.16% and the S&P 500 index returned 28.71%.

Cash holdings averaged 60.75% for the year.

Personal Performance vs. S&P 500 Index (with dividends reinvested)

Year	                                Personal      S&P 500
-------------------------------------------------------------
2018	                                30.36	      (4.38) 
2019	                                11.59	      31.49
2020	                                17.15	      18.40
2021                                    21.15         28.71
-------------------------------------------------------------
Compounded Annual Gain 2018 - 2021      19.87%	      17.65%

While performance was quite good, it was challenging to find enough attractive investment opportunities, and large cash holdings continued to create a headwind versus the S&P 500 index. Outside of some smaller cap companies in Asia, which I recently discovered, there are few stocks that seem cheap to me.

The handful of companies I did own performed well, and it would be easy to congratulate myself for my stock-picking acumen, but it’s hard to know how much to take away from the current market environment. In many cases, my companies included, stock price appreciation far outpaced improvements in fundamental business conditions. In a world where borderline fraudulent companies, “pre-revenue” IPOs and meme-stocks have all performed well at various times for seemingly nonsensical reasons, it’s hard to disentangle skill from luck, especially in the short run.

I am reminded of the story of Croesus, one of the wealthiest figures of antiquity who was eventually burned alive by his enemies - “count no man happy until the end is known.”

I’ve tried to limit spending too much time on analyzing general market or economic conditions, not because I don’t feel like these things are important, but because 1) these seem impossible to predict and 2) even if you predict correctly, it’s also impossible to foresee how markets will react. With that said, I will offer two brief observations.

First, almost all popular explanations for short term price movements in the markets (China is increasing regulation on private companies, inflation is higher than expected, Omicron case are up, etc) only attempt to explain valuations on a relative basis: the price of x is up / down today because of y. But they mostly fail to account for whether or not the baseline prices make sense to begin with. This is like a weather forecaster who raises his predicted temperature by 1 degree every week because, after all, one degree of difference between one week and the next seems like a perfectly reasonable relative variation, until eventually the earth has melted.

Second, the argument that stocks are cheap because TINA (“there is no alternative”) in such a low interest environment seems like a false dichotomy. The alternative is to not invest at all, even if this results in the unfortunate fact that you will slowly lose cash value to inflation. For most people (especially professional money managers) this is probably unpalatable, but nowhere is written that positive returns are a given, or that any set of choices must include a good one.

If choosing between seemingly overpriced stocks and bonds is no different from choosing to play Russian roulette with a six-chambered or an eight-chambered revolver, perhaps the best course of action is to not play the game at all, or to find games where the odds are more in your favor. I’ve been trying to focus on less crowded areas of the market, such as:

Foreign / emerging markets, especially Asia
Small / micro caps
Illiquid stocks
Special situations
Unloved industries

Even so, it’s still a challenge to find value. While some of these categories might appear undervalued relative to the S&P 500, on an absolute basis they still seem unattractive, so in essence you may just end up slightly overpaying for an average company with more risks vs. greatly overpaying for a good one.

I think the biggest challenge of 2022 will be to resist lowering my standards by investing in average but not great situations, with inadequate margins of safety, because of FOMO. If I can continue to be patient, fish in uncrowded waters, focus on fundamental drivers of individual business values, and wait for blindingly obvious opportunities, I don’t need a lot of good ideas to do well long term, regardless of whatever the market does.

Current Positions

MU
LNSTY
BOLSAA.MX
700.HK
BTI
S61.SI
YELP
752.HK
1977.HK
5122.T
H02.SI
C07.SI
9988.HK
Cash

This Time Is Different

2021 Performance Review