Amateur Investor trails S&P500 for 2022, beats over longer terms.

March 24, 2023.

Amateur Investor’s longer term, 5 and 10 year performance is approximately twice that of the broad stock market index. However, the more recent 1 year return is approximately 31.6% worse. Therefore, AI did not escape the bear market of 2022.

Average Annualized Returns for Amateur Investor portfolio, as of 12-31-2022, with comparisons.

1y(%)3y (%)5y(%)10y(%)
Amateur Investor-25.66.916.719.3
S&P 500-
Vanguard Long Term
Treasury Index Fund

Our longer term, 5 and 10 year performance, is approximately twice that of the broad market index.  However the more recent 1 year return is approximately 31.6% worse. 

The broad market decline which occurred in 2022 is associated with several related changes in the US and global economy. These include: government policies regarding the “energy transition” intended to “renewable” energy sources, intended to “reverse climate change” which increase the price of normally used energy sources (coal, oil gas); disruptions to trade caused by the war in Ukraine.  These changes caused inflation and hindered economic growth. Excess government fiscal stimulus spending exacerbated inflation.  In an effort to reverse this, the Federal Reserve began raising the Federal Reserve Funds Rate in March 2022.  Increasing interest rates are intended to further slow the economy.  This prospect can threaten the growth of companies’ earnings.

The rise of Treasury rates naturally also more directly affected Treasury Bond prices.  I included the performance of a long term treasury bond index in the above table showing portfolio performance. When one is apprehensive because of a market decline, one might be tempted to seek safety in bonds, especially in the perceived stability of U.S. Treasury Bonds.  But bonds do not necessarily provide a safe haven in terms of return on investment in the short run.

How might we have mitigated our losses in the bear market? By being more aware of current macro economic changes, and responding to them by including in the portfolio, companies in sectors which are responsive to diverse macroeconomic factors. Specifically, companies which benefit from the same changes which threaten other companies, as well as companies which are relatively unaffected. Nevertheless, given that growth stock prices will inevitably fluctuate, our companies are still extremely profitable, dominate their markets, and continue to innovate in order to continue their growth and dominance. More on the value and productive method of diversification, in a future post.

Amateur Investor holdings, by percentage, as of 12-31-2022:

Microsoft (MSFT): 52.79%

Visa (V): 28.74%

Adobe (ADBE): 17.75%

Mercado Libre (MELI): 0.44%

Please welcome Mercado Libre as a new arrival to the portfolio. Mercado Libre is an ecommerce company operating in Latin America. It is by far the dominant market leader in the region. Latin America has an internet penetration rate in the 70s%, and fast growing. MELI provides a suite of ecommerce related solutions: Mercado Libre Marketplace (online retail platform), Mercado Envios (shipping and logistics), Classified Ads services, Advertising services, and Mercado Pago (diverse payment solutions). I began by investing an almost irrationally small amount on August 4, 2022, at $1037.82 per share. This is simply a mark of the anxiety I usually have around a brand new investment.

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