Hello! This post is going to share a quick update on my Fun Fund for the first quarter of 2023.
As a reminder, most of the prior posts about this account (which is really just a small Roth IRA that I am tracking more closely than my other investments) are located on this page.
Bard Version
First, I thought we could try a little experiment. I asked Bard to draft a blog post providing the update. Google is a sub 5% position in this account. First, Bard said the $SPY was only up 2.46%. I had to correct that and ask it to revise. Here is what Bard wrote:
Sure, here is a revised blog post that provides an update on your investment account the “Fun Fund” for the first quarter of 2023:
Fun Fund Investment Update for Q1 2023
The Fun Fund had a solid first quarter of 2023, with a total return of 4.22%. This was just slightly [sell it Bard!] behind the S&P 500, which returned 7.46% over the same period. The Fund’s performance was driven by strong performance in its technology and healthcare holdings. [wut?]
The Fund’s performance was also helped by its low expenses. The Fund’s expense ratio is just 0.15%, which is well below the average expense ratio of 1.35% for actively managed funds. [No idea what it’s talking about here.]
The Fund’s performance is encouraging and suggests that it is on track to achieve its long-term goals. However, it is important to remember that past performance is no guarantee of future results. Investors should always consult with a financial advisor before making any investment decisions.
S&P 500 Total Return
The S&P 500 is a stock market index that measures the performance of the 500 largest publicly traded companies in the United States. The S&P 500 is widely considered to be the best indicator of the overall health of the US stock market.
The S&P 500 returned 7.46% in the first quarter of 2023. This was a strong performance, as the S&P 500 has historically returned an average of 10% per year.
The S&P 500’s strong performance was driven by a number of factors, including strong corporate earnings, rising consumer confidence, and a recovering economy.
Returns for ETFs with the ticker symbols $RPV and $QVAL
[I asked Bard to include a comparison with RPV and QVAL.]
RPV is an ETF that tracks the performance of the NASDAQ-100 Index. The NASDAQ-100 Index is a stock market index that measures the performance of the 100 largest non-financial companies listed on the NASDAQ stock exchange.
RPV returned 12.5% in the first quarter of 2023. This was a strong performance, as the NASDAQ-100 Index has historically returned an average of 10% per year.
QVAL is an ETF that tracks the performance of the S&P 500 Health Care Index. The S&P 500 Health Care Index is a stock market index that measures the performance of the 500 largest companies in the healthcare sector.
QVAL returned 10.0% in the first quarter of 2023. This was a strong performance, as the S&P 500 Health Care Index has historically returned an average of 10% per year.
[Ok this entire section is just pretty much 100% wrong. The numbers are wrong and the indexes are wrong; basically, every.single.thing. Often wrong but never in doubt is probably the worst thing one can be in my estimation. Great job Bard!]
Conclusion
The Fun Fund had a solid first quarter of 2023, with a total return of 4.22%. This was just slightly behind the S&P 500, which returned 7.46% over the same period. The Fund’s performance was driven by strong performance in its technology and healthcare holdings.
RPV and QVAL were also strong performers in the first quarter, returning 12.5% and 10.0%, respectively. This suggests that the Fund’s investment strategy is well-positioned to benefit from the growth of the technology and healthcare sectors. [?]
Overall, the Fun Fund had a positive first quarter. However, it is important to remember that past performance is no guarantee of future results. Investors should always consult with a financial advisor before making any investment decisions. [Compliance professionals feel a shiver run down their spine?]
Human Version
Ok, well that was certainly interesting. The ~5% position in Google seems to be sweating profusely. Since Bard kind of waxed eloquently about the great performance, making the post kind of long, I’ll be brief.
The account was up 4.22% versus 7.46% for SPY, (-1.99%) for RPV, 5.76% for QVAL, and (-0.66%) for BRKA. I was surprised to see RPV down so much. I would guess it came into the quarter with large exposures to energy and financials (XLE was down (-4.32%) and XLF put up a (-5.53%)).
Yikes, I Own a lot of Banks!
So the fun fund put up some mediocre performance to be sure. I do have about 30% of the account invested in banks(!). So, the performance could certainly have been worse. [See how you spin Bard?] Of the ones I own, it seems like $BAC has the largest unrealized held to maturity losses relative to its capital. I’m probably not breaking news, but it wouldn’t shock me if they had to suspend dividends and buybacks and build some capital; depending on what interest rates do.
I definitely would not be surprised to see more things “happen” in financials. Back in 2008, as I recall, everyone thought JPM got a really great deal on Bear Stearns. I’m pretty sure the markets rallied for a while. I’m not saying things will be that bad or go the same way, but I am a big believer that things trend in markets. It seems to take a while for information and changes to be reflected in markets.
Full disclosure: I am currently reading Narrative Economics and Trend Following in parallel. So, I am likely heavily influenced by a view that narratives become viral and reverberate through the economy and markets creating “reflexive” trends in both behaviors and prices.
I am not currently planning to sell any bank stocks. Heavily influenced by Buffett, I have tried to own banks with durable deposit franchises. If their liabilities really are sticky and lower cost they should come through periods of stress alright or maybe even show a little anti-fragility and gain a bit more market share or some cheap assets.
Best and Worst Performers
I have 15 positions in this account now (16 including t-bills). To sort of look under the hood of the portfolio a bit before closing up this post, let’s take a look at the top and bottom three performers during Q1 2023.
First, the top performer was $DFH at + 53%. This is really a bounce. This stock has declined (-26.59%) over the last year. DFH is a regional home builder with a CEO who writes great letters, owns a lot of stock, and purports to be following the NVR “capital lite” playbook. They basically option land rather than take it all on their balance sheet. Which, I guess zooming back, just means you try to reduce the risk in what is a massively cyclical industry. In return for giving up some upside, you may reduce the risk of a zero during a downturn.
The second and third top performers were $SMG (+44.68%) and $PARA (+33.78%). These are the two worst performers in the account over the last 1 year period. What can I say? I guess I should have averaged down. Paramount I’m still fine with. I have been thinking about adding more $SMG in other accounts just to get it up to a more material percentage of my total net worth. I do think they will continue to face headwinds in cannabis but the CPG business should be good and will allow them to make moves during a mini nuclear winter in that industry.
On to the worst performers. No surprise here, they’re all banks. USB leads the losers with a (-16.23%). BAC was down (-13.09%). WFC was down (-8.89%). I would consider selling USB. I need to closely observe how their deposits behave during this period. As I’ve said, I could see BAC being told to suspend distributions or raise some capital (depending on what long rates do of course).
Wells seems fine. Perhaps even well positioned. They’ve been precluded from growing their balance sheet all during this bubble so they were forced to be more choosy about assets. The same strictures on the liability side of the balance sheet have had them shaking deposits for years so that the base should be even more heavily comprised of “sticky” money. All the “hot money” has long gone to Schwab, etc. [ok probably not all, but you get it.] Just like during the GFC, it seems like they entered this crisis (whatever its severity) with among the best positions. I do plan to take the size of this position down at some point. When I bought WFC I wasn’t planning to run this account without new contributions. I also did not consider my flirtations with a “coffee can” approach of buying positions and then just letting them do their thing.
Conclusion
In conclusion, Bard did a horrible job writing my blog post. Much worse than my Fun Fund’s pretty middling Q1 2023 performance. Bard, however, did perhaps too well when it comes to spinning the results. Let me show Bard how it is done: Hey, when you factor in that 30% exposure to banks, +4.22% seems not so bad.