4th quarter report 2022
4th quarter report 2022
Stoic self-reflection and a turning point in discretionary long-only investing
Quarterly performance reports for Pilane Capital are compiled from broker statements net of expenses, and publicly available information on the S&P 500.
Results for Pilane Capital v the S&P 500 for the fourth quarter of 2022 are as follows:
The Pilane Capital: 1.15%
The S&P 500: 7.09%
Review
Here’s an extract from my journal
Adidas, Meta, Apple, Nvidia. The mainstream financial press gifted these relatively unpopular large companies as opportunities during the fourth quarter and I simply did not take them.
My journal is a place I write down hard lessons.
My basic error was not pulling the trigger when the world was selling for a song in the final quarter of 2022.
In the Q3 report I stated that ‘my general view of global large-cap stocks – the type in which I invest – is that they are at fair value.’
This was true given the value of the S&P 500 at 19 times earnings.
I was clearly wrong, as some individual stocks, including those mentioned above, were trading at less than their fair value.
I also wrote:
I do not see any advantage in deploying capital into stocks at this time and possibly into 2023.
This was based on rising interest rates, the US being in a technical recession, rising interest rates, and the invasion of Ukraine by Russia.
This led to a mistaken belief that stocks were headed lower in 2023.
I placed far too much reliance on global macroeconomic events, and not enough on individual instances of large caps experiencing a temporary period of unpopularity.
Another glaring mistake was making predictions about the future, as if deploying cash was something forbidden in the context of the prevailing macro narrative.
Prompted by stoic self-reflection, I’ve begun addressing these and a few other issues that have prevented me from making sound investment decisions.
The remedy
The investor’s chief problem – and even his worst enemy – is likely to be himself
Benjamin Graham, The Intelligent Investor
Several texts on the psychological aspects of successful value investing have already been devoured.
Most notably James Montier’s The Little Book of Behavioural Investing and my own notes from The Intelligent Investor.
I’ve also consulted writings by Buffett, Lowenstein, Munger, Dorsey, Hagstrom, and a handful of others.
My Amazon wish list grows by the day and is choc full of some of the most respected and intelligent writing on the thorny subject of behavioural finance.
The revelations have been eye-opening.
Benjamin Graham’s stoicism, Charlie Munger’s rationality, or Warren Buffett’s ability to pull the trigger without reference to anyone except himself (and certainly not the market) about the merits of an investment – they are all attributes to admire and emulate.
It’s the last of these that have proven most troublesome and where the focus of investment operations will concentrate.