2022 Year in Review: Learning by Doing
Welcome to my 2022 year in review. This is the third edition of looking back and evaluating my performance, what has happened in the markets, and all that I have learned over the past 12 months. 2022 has been uniquely different from any prior year for me as an investor, but has at the very least, taught me a lot. This time I will also share the beginnings of a new change in strategy for 2023.
If you are not interested in reading or rereading my full lookback for 2020 or 2021 they essentially boil down to this:
In 2020 my portfolio returned 144%, my best year ever, and I began the process of reallocating some of my gains into dividend-paying companies to create a source of passive income as I started University.
In 2021 I returned 55% in my Growth Portfolio and nearly 30% in my Dividend Portfolio, with global markets tracking just 17%. I received a total dividend income of $1272 and learned to better divert from market euphoria to focus on quality companies.
Growth Portfolio
Let us begin with an overview of my Growth Portfolio. This portfolio consists of companies I follow closely day-to-day in my career & passion for technology and digital interactivity. While I still consider this my main portfolio, it now makes up just 80% of my overall holdings compared to over 90% prior. 2 new companies have made it into my Growth Portfolio this year, while 3 have left it.
My full Growth Portfolio as of the end of 2022. Unlabeled on the chart is Adobe (1.0%).
The companies that have left the portfolio are Xiaomi (1810), Nvidia (NVDA), and Coinbase (COIN). All of which I still hold in high regard, unlike previous exits of last year, and all of which may potentially join the portfolio at some point again in the future. The most likely being Coinbase - which I still consider the best way to gain the 1% exposure toward crypto/blockchain I am looking for. New in the portfolio are Alphabet (GOOGL) and Adobe (ADBE) with the latter being dependent on the outcome of its ongoing acquisition of Figma to determine the length of its stay.
It is no secret that 2022 has been a particularly challenging year for stocks of this category, so let us just get this year’s Growth Stock performance out of the way first:
My Growth Portfolio lost an insurmountable 50.81% of its total value from January 1st to December 31st, 2022.
There it is. Half of my portfolio value has been wiped out in 2022. All of the prior year’s market-beating returns of 55% and then some have been completely erased. It started out great in January with TSMC (TSM) reaching all-time highs, while Tesla (TSLA) stock continued to defy the odds as the markets quickly turned sour. Under an inflationary environment, Unity (U) stock was crushed after delivering Q1 earnings disclosing an error in its software stack. Amazon (AMZN), Microsoft (MSFT), and most others in big tech were bent to the will of the Fed as interest rates were hiked in response to rising inflation. Whereas in 2021, volatile macroeconomics had turned out as an advantage for my holdings, in 2022 it dominated all and everything. Good, great, and groundbreaking news was buried by headlines of war in Europe, crashing real estate markets, and fears of a looming recession.
Markets were still volatile as my portfolio recovered again in both April and August. As I thought the worst was behind us with the lasting impacts of the Chinese crackdown, forcing me to sell out of my position in Xiaomi, things took a turn for the worse. Crypto winter came in full effect and Coinbase’s stock was obliterated as other leading crypto exchanges and platforms, Celcius and FTX filed for bankruptcy. Perception of Tesla’s success story in China rapidly shifted resulting in my biggest holding bleeding heavily in the final few months of the year. Musk’s acquisition of Twitter and dealings kicked off what would be the worst selloff the stock has ever faced.
So in these final few months of the year, I decided to consolidate my holdings. I let go of my shares in Nvidia, at a time less desirable than could have been, and doubled down on my main semiconductor play of TSMC. Thankfully this move was soon rewarded, as right after I had averaged down and increased the size of this position, Warren Buffett’s Berkshire Hathaway (BRK) disclosed a first-time and rather massive investment into this great company, instantly making it to one of their top 10 holdings and boosting the stock price quite heavily. My sale of Nvidia also funded further purchases of Unity stock, which I had been a buyer of all year. The story here is twofold and really what I have been spending most of the year telling you about:
On one hand, I was incredibly fortunate to let go of a few shares of Tesla at just the right time to fund this venture. In January I sold around a 3% stake in my Tesla holdings, comparable to my entire original investment in the company at an average price of a little over $1000 per share (what is now around $330 split-adjusted). This allowed me to increase my stake in Unity, which this early in the year had me excited to be nearing the $100 per share mark again - for which I myself had deemed it a reasonable purchase. I purchased shares of Unity in two big chunks of approximately $115 per share here and again in March after selling a few shares of Microsoft also. A changing macroeconomic environment quickly drove the share price down to the mid $70s, where I made two smaller purchases of the stock. And this is where the story gets dire: As alluded to earlier, Unity’s Q1 earnings disclosed a grave error in its software stack, which impacted its ability to drive profits off its Unity Monetization services for developers. The following day, the stock was trading in the $30s. I listened closely to the earnings call, made my own evaluation of the situation, and geared up for what became the longest buying spree of a single stock I have ever done. Nearly every single month of 2022, I have shot nearly everything I have had into Unity stock. My average is now just shy of $55 and the size of my position is over 20x the size of what it was at IPO. Unity stock now has dropped even lower - but despite it all, I am still pleased to have been able to grow my stake in this company. Management has guided for a profitable 2023 and as things are looking right now, that might be a stretch. If Q1 of 2023 and beyond turn out to support a story of success, I may continue to average down - otherwise, my position is locked at this size for the next 5-10 years. Unity is uniquely positioned for incredible success long term, but I now desperately desire reassurance that management is looking to share in this success with its shareholders.
By the end of the year, I let go of my small stake in Coinbase. But despite being my worst performer of all time (down nearly 90% since going public) I still like the company. I sold it to optimize my tax bill, but do not be surprised to see it come back at some point in the future. As for new positions, I picked up Alphabet (Google) as a long-term holding. This company is currently trading a decade-low Price to Earnings, and while I recognize there to be some things to consider about this stock, particularly after the public release of ChatGPT, I still believe a mid-teens P/E for one of the single highest quality businesses in the world is simply too low. I hope Google continues to optimize through 2023 and waver off competition, but all in all, consider this a safe bet for the future. The last addition to my Growth Portfolio is Adobe, which while I like overall, I only plan to keep ahold of long-term if they manage to convince regulators to let them overtake Figma. From someone professionally familiar with both Figma and the Adobe suite, I can say for certain that Figma is the only real competitive threat Adobe has faced for years. Without it, I have little interest in the company. With it, I believe they are stronger than ever.
2022 ends my 8-year streak of beating the market with an immense underperformance.
Dividend Portfolio
The remaining 20% of my holdings (outside of a small stake in some private equity) is dedicated to reliable dividend-paying companies. This portfolio is made up of titans of their industries - hugely successful, cash flow-positive entities, well established in their categories as well as an index fund tracking all Danish companies. This portfolio was started in 2020 as a way to protect my wealth and funnel previous gains into stable investments providing passive income for eventual financial freedom.
My full Dividend Portfolio as of the end of 2022.
Regarding the performance of my Dividend Portfolio, the story is much different than in Growth. While its performance this year certainly is not something to write home about - it is decisively market-beating. The index I compare myself to is the Danish OMXC25 which is down 13.49% in 2022, while the American S&P500 is down 19.44%.
My Dividend Portfolio lost a miniscule 0.27% of its total value from January 1st to December 31st, 2022.
Last year, I described my Dividend Portfolio as something to hold onto in times of volatility - my rock. This year, it was much more than that - it was the one thing that went well. That being said, it has not been all smooth sailing.
You may notice a huge indent at the very beginning of the year - this is actually related to a technical issue, rather than an reflected performance. But still, this event turned out important. Federal Realty Investment Trust (FRT) was the very first position I purchased in this portfolio. A quality REIT with a long track record, which had been beaten down by the pandemic freakout in 2020. But at the time alluded to in the graph above, the company was reclassified in regard to American tax law. This is what caused the issue - and what later forced me to sell out of this position in November of 2022. I received a letter from my brokerage that this type of investment would no longer be supported by the platform going forward and that I needed to sell off before year's end. While I was disappointed having to again break with my strategy of buy-and-hold forever, I took home a return of 54.40%.
As exposure in my portfolio to the real estate sector remains through Realty Income (O) I decided to put funds of the sale into gaining exposure to the financial sector instead. Over two instances in late 2022, I have purchased shares in Bank of Nova Scotia (BNS). This bank stock is part of the so-called “Big Five” Canadian banks, dominating their home market. In an instant, this stock has become my fourth largest dividend payer across my portfolios. I have previously burned myself on high-yielding assets (+5% yield), like with AT&T (T) which I definitively sold out of in March of 2022, as the first instance of breaking with the buy-and-hold forever strategy. But this time I have done my due diligence and I have high hope for its future.
The other purchase I have made in this portfolio in 2022 was Starbucks (SBUX), which my exit of AT&T funded. This has been an overall success story, despite a quick and sudden change in leadership right after I became a shareholder. The stock is up over 30% since my purchase in March. Obviously, this makes me very happy, but at the same time, the stock’s quick rise has prevented me from building the size of position I originally wanted.
I also managed to stick to my goal and buy shares in Danske Invest Denmark Index (DKIDKIX) every single month this year. This holding usually pays out huge dividends once a year in February, but as 2022 marks the first year I have held it through a market downturn, I am interested to see how this affects the payout ratio (researching this has proven difficult). Depending on the outcome of this I may end up breaking this investment into individual companies in 2023 - or not. Regardless, I am pleased to have consistently added to this all year long, as it is one of the few ways I can make smaller investments without paying brokerage fees.
AbbVie (ABBV) and Broadcom (AVGO) have both faired fairly neutrally this year, which I consider a tremendous win under current circumstances. I have grown to become extremely pleased with these two positions in particular and consider them a cornerstone of my Dividend Portfolio alongside Realty Income. Broadcom has an interesting year ahead as regulators will need to take a closer look at their $61 billion deal to acquire VMware - one of the largest public deals of all time, completely obscured by all the doom and gloom being discussed in the investment sphere over the past 12 months.
3M (MMM) is the only one who fared below average in this portfolio in 2022. A massive lawsuit to the extent of which I was not aware of when I started my position has dragged this stock way down. In July this issue appeared to have cleared up a little, as management announced a partial bankruptcy and spin-off of the particular business unit affected to deal with the lawsuit. But only a month later this decision was overruled in court. This is unfortunate for 3M as a company and has forced me to take a closer look at my investment. I hope for management to find a solution soon that everyone can live with - but it is not all coincidence that two industrial sector stocks now pride my Dividend Portfolio Watch List.
Like in 2021, I have reported on the dividends paid out to me each month - so here is the full list of the dividends I have received in 2022:
| Month | Amount (USD) |
| January | $54.87 |
| February | $522.40 |
| March | $132.32 |
| April | $91.47 |
| May | $71.63 |
| June | $120.74 |
| July | $94.93 |
| August | $69.15 |
| September | $118.83 |
| October | $91.67 |
| November | $71.31 |
| December | $131.93 |
| Total 2022 | $1571.25 |
$1571.25 in received dividends is an increase of 23.53% compared to 2021, which was $1271.99. This is a pretty nice increase over the previous year, but it is also much easier to grow while the number is small. In the future, this number will need to grow just as much if I am ever to realistically reach my goal of financial independence.
The all-things-considered modest increase this year, however, can be excused. All throughout 2021 I held AT&T which at the time traded as a dividend aristocrat with a yield nearing 8%. Taking this position out of my portfolio lowered my dividend income dramatically. Secondly, I made my final sale of Microsoft this year. Despite its low yield, the sheer size of this position still makes it the largest single contributor to my dividends, and this sale likewise impacted the income I receive. On top of that the general market downturn has lowered the overall value of my portfolio, which for some positions like TSMC plays a role in the amount they eventually decide to pay out to their shareholders.
Learnings
Last year, I reflected upon the error of letting go of quality positions like Novo Nordisk (NOVO B) and getting caught in market euphoria. This year, while egregious, has taught me much more. I have learned a tremendous amount about macroeconomics and general market conditions. I have also gained much respect for more conservative traditional-type investors, concerned with quantitative fundamentals over qualitative analysis.
The reason I hold two very different types of portfolios is that I see advantages to both approaches. But 2022 has taught me that while qualitative aspects like market positioning, innovative trends, and brand perception all matter a great deal, shareholders will suffer under tough market conditions if the fundamentals tell a different story. Unity is a prime example of this as I have rarely, if ever, seen a company so well-positioned as to benefit from anticipated and predictable trends. At the same time, Unity stock suffers from massive dilution of shares as a way to sustain the business while it remains unprofitable. I fear less for a company like Tesla, where despite the turmoil, the fundamentals clearly reflect a quality business with high margins, growing scale, and low debt. The numbers support the vision I have for Tesla one day being the most valuable company in the world.
While I have no way of knowing what the future might hold, I suspect it will be a while before we will see optimism surrounding the kind of growth plays I usually dabble in and find most exciting. The good thing is that competition happens on even ground: Now that cash/debt is harder to come by, it is so for everyone. As investors value positive cash flow higher, companies will finally have a chance to compete driving profitable and sustainable practices. Talent acquisition, marketing, and R&D spending have undoubtedly come down and so it has become easier to compete fairly. I believe the startup, scale-up and particular moonshot high-risk ventures will struggle, while established entities might fare better as it becomes cheaper to stay competitive.
Change in strategy
With new learnings, also comes a change in strategy. Building also on learnings from earlier years of investing, here are some of the changes I am making:
Going forward I aim only to invest in cash flow-positive, preferably profitable businesses.
For example, Unity will have to prove they are so to me, before I consider investing further in the business.
Sustainable, growing dividends are the best sign to look for. It means a company has the cash to spare.
Going forward I aim to diversify my portfolio evenly against all business sectors.
My dividend portfolio stands as a good example of an attempt to do this, although it is not there yet.
By business sectors, I refer to the overarching categories of Technology, Real Estate, Utilities, and such.
Going forward I aim to utilize my knowledge and interest in technology for more short-term trades.
This will be a supplement to, not a replacement for my strategy of being a long-term investor.
I recognize a lot of the time I spend following news and looking into trends is “wasted” without it.
Over time the goal is to create a single cohesive investment portfolio encompassing all these aspects.
I plan to combine the best of both worlds - quantitative fundamentals with qualitative analysis.
While ensuring even business sector exposure over time I can mix and match different types of stocks.
Do not be surprised if in 2023 you see me do more short-term trades, such as what I might end up happening with Adobe, what I have previously discussed as an opportunity with Activision Blizzard, or trading in and out of volatile holdings like Coinbase. My time researching these things is never really wasted, as they are of great interest to me, but I hope to be able to take better advantage of the insights and understanding that I have of tech.
My new strategy also means a goodbye to the formal concept of buying companies to hold forever. As proven in 2½ short years in my Dividend Portfolio, this is easier said than done. You never know what may happen - it could be any number of things, like a company being acquired or changing its strategy drastically, stock recategorization, lawsuits, or simply running up in valuation much faster than anticipated. The idea is, however, still for my portfolios to provide me with a growing passive income, and for that reason give me little reason to ever sell.
I am working now on an investment framework for others to copy, but for now, it exists only as initial thoughts in my head and in my digital notebook. I will not disclose a performance target for 2023, as this year has ended my market-beating track record and therefore any predictability with it, but I do hope I move a little bit closer to these goals in the coming 12 months. Thanks for reading and best of luck in 2023.
Disclaimer: I am not a financial advisor, the opinions expressed in this article are entirely my own – always invest at your own risk.
