🎊 Merry Christmas, and Happy New Year!
What a crazy year it has been.
As we came out of the depths of the 2022 stock market sell-off, we were met with bank crises and continued inflation. Enter artificial intelligence, and everything seemed to turn around.
If I could use one word to describe 2023, it would be efficiency.
The companies who saw immense stock price appreciation were those who doubled down on profitability by focusing on efficiency and cash flow.
In this post, we’re going to:
Walk through our performance
Share our biggest mistakes
Talk through 2024’s strategy, changes, and best picks
If you’ve been a subscriber for a few years now, you’ll know that in late-2021 I pivoted the focus of my investment portfolio away from high-octane growth stocks and instead doubled-down on quality.
Here’s a link to the post explaining my rationale and strategy.
We predicted the 2022 stock market collapse, as well as kept you updated every step of the way (example, example, example).
⚡ 2023 Performance
However, 2023 was different.
As we rebounded from the October-lows the markets began to come back to life. I introduced my $2M Dividend Growth Portfolio — my 8-12 year journey of building $80K / year in passive income.
I update this portfolio constantly inside of the Portfolio Tracker — the value of the portfolio today stands at $236,650 (including the cash I have sitting in reserves for dollar cost averaging).
The portfolio was divided into three major categories (four if you include my straight-up S&P 500 investing).
Dividend Growth Stocks — companies growing their dividends aggressively every single year
Long Risky — names I’m confident would be profitable sooner rather than later
Long Technology — Big Tech
👉 Dividend Growth Stocks
The best performing names inside of this category all had one thing in common — profitable growth. Which makes sense right? If you’re growing your operating cash flow — dividend growth follows suit.
Some examples include:
Broadcom (AVGO) +113% return
Willams-Sonoma (WSM) +77% return
W. W. Grainger (GWW) +28% return
Union Pacific Group (UNP) +28% return
Snap-On (SNA) +23% return
The Home Depot (HD) +20% return
👉 Long Risky
The best performing names inside of this category all had one thing in common — operating / free cash flow. Considering these names were beaten down in 2021 and 2022 because of interest rate hikes, they were rewarded when they proved to investors their ability to generate cash flow.
Some examples include:
Crowdstrike (CRWD) +193% return
SentinelOne (S) +159% return
Palo Alto Networks (PANW) +95% return
Lululemon (LULU) +94% return
Shopify (SHOP) +93% return
Datadog (DDOG) +83% return
Cloudflare (NET) +79% return
Uber Technologies (UBER) +64% return
To remind everyone, these returns are NOT normal and should NOT be expected in 2024!
A very big reason we saw triple digit returns in names like Crowdstrike and SentinelOne is because their stock prices sold off over -70% from 2021 highs — and we bought the bottoms in 2022 and 2023.
👉 Long Technology
The Magnificent Seven had an outstanding year — which is primarily what this category was invested into. However, I very much regret choosing ASML Holdings (ASML) over Nvidia (NVDA) when building this category late-2022. Hindsight is 20/20.
The reason these names performed so well is simple — artificial intelligence. Once OpenAI opened the flood gates in November of 2022, we were off to the races. More specifically, the Big Tech companies with tens of billions in cash on hand to invest into AI infrastructure were off to the races.
Because interest rates on corporate debt were double digits, Big Tech had a chokehold on the rest of the market — they were able to move quickly, spend exuberantly, and invest into a technology that clearly would make them more efficient in the long run.
Some examples include:
Salesforce (CRM) +81% return
Tesla (TSLA) +77% return
Amazon (AMZN) +64% return
Google (GOOG) +61% return
Microsoft (MSFT) +58% return
Meta Platforms (META) +56% return
👉 Cryptocurrency
We can’t forget about the best idea of 2023 — cryptocurrency!
Back in February, I shared with you all in a Week in Review portfolio update that I had begun dollar cost averaging into Bitcoin around $23K. My goal was to build a position in Bitcoin / Ethereum to the same size as my Dividend Growth Portfolio.
Why?
Alpha, of course. I’m 27-years-old, I have a long 8-12 years of investing ahead of me before I expect to hit my $2M portfolio goal — might as well try to generate some extra alpha with an asset class I’m very familiar with.
That’s just what we did — invest in a 75 / 25 split into Bitcoin and Ethereum (because Bitcoin is King and was going to outperform altcoins in 2023 as its price climbs from 52-week-lows).
I was right, and made over $20,000 in additional gains beyond the Dividend Growth Portfolio’s $12,000 — bringing the total market gain to $32,000! But there’s one more investment we’re forgetting about…
👉 Tesla Covered Calls
As you all might remember, I experimented with writing covered call option contracts against the 100 shares of Tesla stock I purchase during September.
Well, Tesla stock still isn’t trading back around the $263 / share range (as of 12/31) — so if I was forced to sell my position tomorrow I’d be in the red from a share price perspective.
However, I’ve been able to generate $2,210 in premium income via covered call option contracts against my position — which means I’m “technically” in the green on this idea by about $800.
My plan, as explained here, with this strategy was never to “be in the green.” My plan was to generate passive income via covered call option contracts. Considering Tesla’s price appreciation recently, I’ve been forced to roll my contracts forward by several weeks (I don’t want to give up my shares) — slowing down my passive income.
I should be able to generate another $900-1,100 in premium income in February from my shares — bringing my total just north of $3,000 (all while the stock price traded down / sideways).
⚡ What Went Wrong
Nothing went wrong — we outperformed the S&P 500 and are very satisfied with 2023’s portfolio performance.
However, we can always learn something. It’s important to reflect and learn from decisions made — allowing us to be better investors in the future.
👉 Selling Winners Too Soon
I’m not sure if you all remember this, but I sold MongoDB (MDB) back in April for a +40% gain. Sure, that sounds great… right?
Their stock price is up +118% YTD — it would have been a triple digit winner.
My motto remains the same… “Profit is profit.” I encourage all of you to keep a similar motto as “timing the market” is nearly impossible.
However, it’s always gut wrenching to see names like this run so much higher after you sell them. So then I ask myself, “Why did you sell?”
The answer is simple — I thought “This name is up +40% this year! There’s no way it goes any higher. I should try and time the market and sell the top.”
Sheesh — what a mistake.
Same deal with SentinelOne (S) — I didn’t sell this name, but I didn’t believe in myself and my ability to pick long-term winners enough to double-down on the name when their stock sold off aggressively in June after their Q1 earnings call (down -40% in a week).
Patient investors would have jumped at the opportunity. Instead, I trimmed my portfolio weighting down from 5% to 2% thinking it was going to be a long time until their stock price recovered.
Well, those patient investors would be up +107% in only 5 months! For myself, I still saw a triple-digit return but it wasn’t because I double-down. It was instead because of my long-time of dollar cost averaging.
👉 Refusing To Chase a Stock / Thinking You Have Full Information
I’m not going to lie to you all — after I saw Nvidia’s stock price run up in May after their initial AI-related hype earnings call I said “There’s no way this is going to last. I hope those who got lucky sell and cash in on their profits.”
Why did I think that?
I looked at Wall Street’s earnings estimates for Nvidia for the year of 2023 and said “If Nvidia beats their estimates by some 10-15%, they’re still INSANELY overvalued. It wouldn’t make any sense to chase this stock.”
Holy shit was I wrong.
Their stock price climbed another +25% after their initial +32% pop — bringing their total YTD return to +245%. Why? Because Wall Street was wrong, and I trusted wrong information.
Wall Street expected X, and I expected Nvidia to deliver X + 10-15% higher earnings results — totally reasonable considering past performance.
Enter AI — allowing Nvidia to deliver X + 100% higher earnings results. Seriously, Nvidia literally delivered double the profits of already raised extremely high expectations. It was just unbelievable.
I never bought the stock thinking “This won’t last.” Well, it’s lasted this far… who knows was 2024 will bring.
⚡ The 2024 Playbook
I’m going to divide this into a few sections — Magnificent Seven, cryptocurrency, cash flow expectations, and bonds.