Q2 2024

Disclaimer

Nothing discussed/written should be considered as investment advice. Please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets. In other words, if you buy something I bought, you deserve to lose your money.

The only reason why I am making my portfolio public because it provides accountability to me. Some or all the analysis I provide could be from the top of my head and should not be considered accurate.

My investing goal is simple; to try to manage risk while being fully invested without market timing. Howard Marks said it best, “even though we can’t predict, we can prepare.”

All my references to the Market are only for the US Market.

Performance

For the year I returned 19.40% compared to 15% for the S&P 500 (with dividends reinvested).

The table below is a breakdown of my portfolio at the end of Q2. What you see below where my entire net worth, excluding my home, is allocated.

Below is a category breakdown:

Portfolio Activity

I substantially added to my EQC (Equity Commonwealth) position. In early May the company released a press release that said, “Before the end of this year, we expect to either announce a transaction or move forward with a plan to wind down our business.” They currently have approximately $2.2 billion in cash (nearly $20 per share) and no debt. Net of their preferred stock, the cash balance is just under $19 per share. My average buy price is $19.20 so I’m getting all the cash basically for free along with four office buildings.

Management also said they’ve begun the process of selling three of the four office buildings: two in Austin and the other in Washington, D.C.. The fourth building in Denver would require shareholder approval. I applied a 10% cap rate to the net operating income (NOI) for the trailing 12 months and I think the stock is worth a little more than $23 a share.

I added starter positions to Energy Transfer (ET), Western Midstream Partners (WES), Delek (DK) and Brighthouse Financial (BHF). The most intriguing company is Brighthouse because the stock recently hit its 52-week low and in the last four years they have repurchased nearly half of the shares outstanding. Most of their revenue comes from annuity products, which means the biggest risk is equity markets underperform and the company has to make good on the minimum guarantees. I continually remind myself that buybacks are great overall but the company has to be profitable for the buybacks to truly be worthwhile. The upside of buybacks is an AutoZone and the downside of buybacks is Big Lots.

Quotes & Charts

“Perfection is impossible. In the 1526 singles matches I played in my career, I won almost 80% of those matches. Now, I have a question for you.

What percentage of points do you think I won in those matches? Only 54%.

In other words, even top-ranked tennis players win barely more than half of the points they play. When you lose every second point on average, you learn not to dwell on every shot.

You teach yourself to think, okay, I double-faulted … it’s only a point. Okay, I came to the net, then I got passed again; it’s only a point. Even a great shot, an overhead backhand smash that ends up on ESPN’s top 10 playlist. That, too, is just a point.

And here’s why I’m telling you this. When you’re playing a point, it has to be the most important thing in the world, and it is. But when it’s behind you, It’s behind you. This mindset is really crucial because it frees you to fully commit to the next point and the next point after that, with intensity, clarity, and focus.

You want to become a master at overcoming hard moments. That is, to me, the sign of a champion. The best in the world are not the best because they win every point. It’s because they lose again and again and have learned how to deal with it. You accept it. Cry it out if you need to and force a smile.”

— Roger Federer

“Fundamental results can justify rising concentration. From 2014 to 2023, the top 10 stocks were 19 percent of the market capitalization, on average, while the companies made up 47 percent of the total economic profit. In 2023, the top 10 equities were 27 percent of the market capitalization and the firms contributed 69 percent to the total economic profit. The relative market capitalizations of the stocks of these companies is not without a fundamental foundation.”

Source: https://www.morganstanley.com/im/publication/insights/articles/article_stockmarketconcentration.pdf?171753639734

“You shouldn’t expect to make money without bearing risk, but you shouldn’t expect to make money just for taking risk. You have to sacrifice certainty, but it has to be done skillfully and intelligently, and with emotion under control.”

Source: https://www.oaktreecapital.com/insights/memo/the-indispensability-of-risk

“As with many market-timing schemes, the positive result from those correct calls has made selling after a new high a popular strategy.

But if we look back at the past 50 years (600 months), the S&P 500 achieved a new high in 156 of those months—or 26% of the time. It’s much more common than people think.

Despite those four very timely sell signals, selling all the new highs would have given many more sell signals that destroyed value.

An investor who sold every new high and waited for a lower re-entry price would have missed the opportunity to make more than 200 times their money by just buying and holding the S&P 500 for 50 years.”

Source: https://oakmark.com/news-insights/navigating-market-highs-and-avoiding-value-traps-u-s-equity-market-commentary-1q24/