This post is about my “Fun Fund.” I am going to discuss the performance of this actively managed investment account in the recently ended fourth quarter and calendar year 2020 and share some thoughts on a few positions.
As a reminder, most of the prior posts about this account (which is really just a small Roth IRA that I am messing around with) are located on this page.
Q4 2020
The fourth quarter of 2020 just wrapped up. This account rebounded strongly in the fourth quarter, up 23.43%. Regrettably, this only made my annual performance slightly less horrendous.
This 4Q performance was better than the SPY , and QVAL (up 11.40% and 15.01%, respectively). RPV was up even more in Q4, flexing in at 25.94%.
My end of game rally (in a blowout) was due to COTY (+~135%), WFC, BAC, USB (+~26-31%), and VIAC (+35%). The rest of the portfolio didn’t really do anything. Natura was up about 16%, but was a small position. I sold it during the quarter. It was sort of a “legacy position” from a shot I took on Avon a couple of years back. I essentially broke even on the position but I, of course, had opportunity costs (I could have been losing that money in other stocks this whole time).
I bought just a little bit more WFC and BAC during the quarter. I just took WFC to full 10% at cost. I’ve now got about 20% of the account in these three banks. I might add some more BAC and USB on weakness. I would probably also buy some TD bank, but I don’t really want to mess with applying for the Canadian withholding tax exemption allowable under the U.S. – CAN tax treaty, so I will probably just buy that in a taxable account if I add any.
In addition, I sold a starter position in FCNCA after the pop on announcing the CIT acquisition. They really did telegraph that they were looking to scale up, but that wasn’t why I bought it. I might add that back, but I’m going to put it in another account that I can average into over time.
I also had a pretty huge cash position ~25% during this quarter. I have some ideas where I want to deploy this, but they are kind of higher-quality names which have been trading at higher valuations than I’m willing to pay for them.
I really need to get most of that cash invested (of course that’s how you are going to feel in a bull market when you are anything other than fully invested), but I am still considering implementing a kind of “coffee can” strategy in this portfolio (I haven’t firmly committed to that as of writing). I can definitely feel the impact of that decision in focusing me on being very selective and favoring cash generative, quality companies.
I mentioned this potential “hold forever” plan last quarter, as a reason I had not sold Natura. I’ve decided, however, to at least get the portfolio cleaned up from some of this “legacy” stuff, like COTY and NTCO, before imposing this rule (upon myself). If i’m going to be stuck with my selections, I want them to be a lot higher quality.
2020: ANNUS Horribilus
So, the 4th quarter performance was good, but the 2020 total year performance was decidedly…not great. I ended the year DOWN (11.72%). The SPY was up 17.24%. The ishares growth allocation ETF (basically a 60-40 with some international diversification) was up 10.75%. As a decent proxy for value, RPV was down (8.96%). BRK was up 1.52% (not that I think it’s a fair comp for me…but it is a good measure of my opportunity cost…I could just let Buffett & co. manage this account).
The suckage came from a few corners. First, I bought most of the WFC (in this account) prior to covid, so that left a big mark (it was down 41.59% in 2020). I also started the year with some junk like COTY which had furiously rallied in 2019 (COTY was down like 36% in 2020). VIAC was also down like 8%. Those three pretty much account for the underperformance.
Fin
In conclusion, I smoked the SPY last quarter, but got clowned over the entirety of 2020. The cash in the portfolio continues to be a headwind (to be fair, not as much as some of the common stocks which I have purchased).
I am still deciding on the conditions under which I am allowed to sell stocks in this account. I am debating a coffee can/never sell rule. Alternatively, I might agree (with myself) that I am only allowed to sell a stock if: 1) I want to sell it (due to valuation or a change in my fundamental view or whatever); and 2) the price momentum (perhaps defined by a simple moving average) is negative.
The addition of a momentum overlay/rule might serve many of the goals I’m looking for, but it’s not likely to force me to sit through a 90% draw down in Amazon.com and then enjoy the big tight tail that came after the valley, for example.
In designing these rules, I attempting to force myself to be more likely to sit tight and have a better chance to experience the positive skew of potential returns for common stocks (and to allow for momentum/reflexivity to work in my favor should I ever, by some miracle, find myself with a “hot” stock).
I think a potential secondary positive effect is that I might be more selective in securities I am willing to purchase. A drawback of transitioning to this approach is that I am finding myself holding a lot more cash than I might do if my purchase decisions did not feel so permanent.
Anyways, my performance in 2020 left something to be desired. I should have just bought zoom and internet stocks when the lock downs were announced (my god can it be that easy?). What an idiot. Well, hopefully you were smarter dear reader and will equally be smart enough to grab a chair when the music stops.
Happy New Year!