Stock Portfolio Review 2022
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The year is gone, and it is time to look at the performance of the stock portfolio we are tracking in the blog and see what comes in 2023.
2022 Overview
Let’s start by looking at the portfolio’s overall performance.
We started with this blog in February 2022, which is why we are reviewing only the last ten months. Here are the main takeaways:
- We got an end-of-year performance of 6.91% (blue line).
- We did much better than the market (orange line at -11.47%). Remember that the S&P500 index price represents the market. It combines the price of the main 500 US companies. In our case, our portfolio (blue line) is above the market (orange line). Woohoo!!
- It has been a very volatile year having approximately -8% to a 35% potential return.
- Ultimately we didn’t beat inflation which in the Czech Republic reached 16.2% 🙁
Overall the result is positive, considering that we just started. We haven’t achieved the goal of protecting us against inflation, but we got halfway there, especially while the whole market was in a downfall.
In any case, we should have a long-term approach and revisit our investment theses to see if they still stand. If they do, we can continue with the same portfolio moving into 2023. However, if those theses would no longer apply, we should change the strategy to follow.
Gold Mining Stocks Strategy
When we looked at the gold investment thesis, we mentioned that gold was driven by a negative real rate, which is the yield of the 10-year US treasury minus the inflation rate. Check the post to understand these concepts.
While that result remains negative, we would expect the gold price to increase eventually. That is still the case today. Below is a graph where the real rates sit at -3.53%, below the zero line (black line).
I believe that we will see a high level of inflation for several years, which we have discussed in the most recent blog post. So if that is the case, I have to expect that real rates will remain negative. Pushing the gold price up and dragging the gold mining stocks up with it. So for 2023, I would still consider this a good speculation.
Uranium Mining Stocks Strategy
In the case of Uranium, our main thesis was that the uranium demand in the long term would exceed the supply. At the same time, we established that a minimum of 65 $/lb was needed to incentivize the construction of new mines and that we needed all mines in construction at today’s date to fulfill the future demand.
So with these levels of inflation, we should expect that the minimum price to incentivize production should have moved to around 80 $/lb. On top of that, the price sits today at 48.9 $/lb. It almost has to double to fix the deficit in the market.
If you think this is not enough, the whole world is turning towards nuclear as the energy of the future. You got China, India, Korea, …and many more building new reactors. Even Japan, after shutting down most of its nuclear plants, is bringing them back to operation, which makes the future demand even higher than expected a year ago when I wrote the post explaining this thesis.
I think this is the investment of the decade, so for 2023, this is still a must in my portfolio.
VanEck Oil Services ETF Strategy
In the portfolio, we are having 25% allocation to the VanEck Oil Services ETF. The thesis to expect higher prices in oil was that there has been little investment in the ground for many years and that we were not producing enough oil.
Let’s see the data.
The oil inventories in the US (yellow line) remain at the lowest of the last five years without a sign of recovery. This means that we are still consuming more than what we produce.
As for the amount of investment in the field:
You can see the light blue area is almost at half of the peak of investment in 2014. Consider that we speak about an industry that each year increases its demand as emerging economies develop. At the same time, the oil fields shrink because they get consumed more quickly. So to keep up, new investment is necessary, and we are far from what we need. So eventually, this should add pressure to the upside.
On top of this, the Organization of Petroleum Exporting Countries (OPEC) is cutting production. This means more pressure for higher prices. Remember, the less availability of something that is needed, the higher its price.
To summarize, Oil is something to keep betting on for the long run.
The Cash Strategy
In the portfolio, we are holding a 25% cash position. This is just because we have 4 reasons to expect a crash in the near future.
Let’s review quickly the reason to see if they still apply:
1- Leverage is the highest in history. This means people are borrowing money to invest it. See the graph below.
2- The size of the US stock market is 1.58 times the US economy. We consider a value of 1 as neutral. Let’s say the market is still way too crowded and waiting for people to leave.
3- Energy crisis: We all witnessed how the energy crisis has been getting worse during 2022. This is not resolved at all, and it can still bite us with even higher prices.
4- The FED has been raising rates at the fastest pace in history. Making mortgages unaffordable for people. So We could expect a big decline in the real state market.
Let’s take a look at what the National Association of Home Buyers (NAHB) thinks about today’s market.
In the graph below, you have the NAHB housing index. It shows the sentiment of the sector in general. A value of 50 (red line) is neutral ground. Today we are 31, so it tells us that the sector is seeing things very negatively.
Since all 4 reasons are still applicable, we will keep the cash position for 2023, expecting taken advantage of potentially lower prices.
Stock Portfolio 2023
As you can see, all the investment/speculating theses we had during 2022 are still applicable. That is why I haven’t made any changes to the portfolio so far. If some of the thesis would no longer be valid, then it would be time to sell.
I continue betting on Oil, Gold, Uranium, and a Crash in the market. What do you think about it? Would you like to share your bets?
Remember that this is just purely theoretical, and it is not investment advice. I would, however, invite you to read the articles to get introduced to those ideas discussed here. Also, check them in case you don’t understand some of the concepts mentioned today.
I will continue in 2023, studying finance and investing and sharing the most important ideas with you. In the meantime, you go out there and listen to smart people such as Michael Pento, Rick Rule, or Luke Gromen and keep improving your financial literacy, so you don’t get taken advantage of 😉
Don’t forget to subscribe to the blog, and have a happy and profitable 2023!!! 🙂
