2025 Performance Review
In 2025, my portfolio returned 6.55% and the S&P 500 index returned 17.88%.
Cash holdings averaged 85% for the year and ended the year at 91%.
Personal Performance vs. S&P 500 Index (with dividends reinvested)
Year Personal S&P 500
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2018 30.36 (4.38)
2019 11.59 31.49
2020 17.15 18.40
2021 21.15 28.71
2022 5.78 (18.11)
2023 21.76 26.29
2024 11.16 25.02
2025 6.55 17.88
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Compounded Annual Gain 2018 - 2025 15.42% 14.33%I don’t really have much to add to my previous posts. Activity during the year was minimal.
Virtually every company I look at trades for about 2x my estimate of fair value, based on what I think are reasonable (or even optimistic) estimates of discounted cash flows. In previous years, I’ve been able to find pockets of value (i.e. small-caps in Japan), but opportunities everywhere have become more scarce and less obvious.
It’s pretty clear that my valuation approach has been increasingly out of touch with the market of the past few years, but I’m unwilling to abandon a methodology that I understand for something that would essentially be indistinguishable from gambling to me.
There are clearly some reasonable approaches that are still working (special situations, niche markets, activist investing, etc), but none that I feel I have any particular expertise or advantage in.
I think one important distinction to make clear is that I am pessimistic about general business valuations and what that implies for expected future returns of stock prices. This doesn’t mean that I’m pessimistic about the underlying performance of a particular business or the prospects for a particular technology.
For example, Apple is one of the most impressive businesses in history, generating nearly 100B in free cash flow per year. Yet it also trades at its most expensive valuation ever, despite having its lowest rate of product innovation, its highest level of geopolitical risk, and its slowest revenue growth in recent history.
In fact, Apple’s 1.81% compound annual revenue growth over the past three years is actually -1.65% when accounting for inflation. Revenue from China, which accounts for 15% of revenue, peaked in 2022, and will likely continue to decrease due to geopolitical tensions. Furthermore, you have the existential risk of a company that is still almost entirely dependent on Chinese suppliers for manufacturing expertise, with no credible alternatives.
How much is fair to pay for a company with this growth profile and these inherent risks, generating $100B in free cash flow per year? Right now, the market is saying $3.86T, which: implies a 2.6% free cash flow yield; doesn’t keep up with inflation; and has a 38 year payback period in an industry that changes notoriously quickly. Even without a complicated analysis, this doesn’t seem right to me.
How many people would be willing to pay $1MM for a house that they could only rent out for $26,000 / year, when inflation is running at $27,000 / year? And that house is sitting on unstable land, with perhaps a 75% chance of a landslide destroying everything in the next 10 years? Oh, and 20% of that rent payment is actually a payment from a yard services company called Groogle; it wants to make sure that your tenants don’t switch service providers, and is willing to pay for you to “encourage” your tenants not to use anyone else. This payment has nothing to do with the value of the house itself, and is arguably just a market distortion.
While this neighborhood has been highly desirable in the past, and its houses have experienced incredible price appreciation historically, what does the future hold? After all, rent prices haven’t gone up in 3 years, things are starting to look a bit weathered, and there is an exciting new suburb (AI / technology / competition) being developed next door.
I should also mention that the mayor of this town is a bit capricious. He’s been known to raise and lower property taxes, sometimes by exorbitant amounts, with no rhyme or reason. If you try to raise your rents too much, he might demand a cut. God forbid your house wins “Best Yard of the Month” and you fail to dedicate the award to him. Most importantly, make sure not to dance outside, or he might annihilate your house completely.
Similarly, while I’m skeptical on most AI business valuations, I’m also more optimistic on AI as a practical technology than I was a year ago. One of my only investments this year was actually an angel investment in an AI related company.
I have no idea if we’ll have anything approaching artificial general intelligence anytime soon. But even if progress on AI were to completely halt today, I think enough real, foundational substance has been laid to support some interesting and successful new companies.
Current Portfolio
FEVR.L (Fever-Tree Drinks)
2371.JP (Kakaku.com)
Cash (91%)