Monday 1 January 2024

2023 Review

Performance & Holdings

2023 proved a positive year for most equity markets. My ISA share portfolio finished up a pleasing +19.11%. A few comparators: my original benchmark the FTSE Allshare finished up +7.92%, the S&P 500 finished up nominally around +24.23% but in sterling terms approx. +19.30%. Warren Buffett's Berkshire Hathaway was up +16.10%, Fundsmith Equity +11.30%, Lindsell Train Global +6.30% & the Nasdaq 100 an eye popping +53.8%.

Performance in 2023 depended to a large extent on how much exposure one had to American tech stocks as these mostly rebounded sharply during the year. Handily my portfolio contained quite a few such holdings that were up over 50%. 

Top 5 performers were: Meta Platforms +186.76%, Restaurant Group +107.40% (take over), Intel +87.99%, Adobe +77.83%, Amazon +77.04%.

Bottom 5 performers were: Estee Lauder -41.84%, Future Plc -40.14%, British American Tobacco -31.28%,  Diageo -20.75% & PayPal -17.66%.

Current holdings breakdown below:

My pension which is a mix of active and passive funds delivered a relatively disappointing return of 11.76%. The active funds generally did not merit paying their extra fees. Also being relatively underweight the US (c. 40% of portfolio vs 70% for the MSCI World) was a drag on returns. I do have a fully passive model available that I could switch to that broadly tracks the MSCI world index, but switching to this now would mean increasing the concentration in some highly rated US tech stocks which I mention later in this post. 

New Positions & Takeovers

During the year I took advantage of favourable valuations and instigated new positions in YouGov & Adyen, both of which are up significantly since purchase. Unfortunately I didn't get a chance to build a meaningful stake in either before their share prices rebounded.    

Activision Blizzard and Restaurant Group were both bought out during 2023. I made a tidy profit on the Activision holding but didn't fare so well with Restaurant Group. Although it was up considerably during the year I lost around 33% on my average purchase price. 

Apparently the bid for Restaurant Group had 93.5% shareholder approval, I enquired how I could vote against it through my broker but they were incredibly unhelpful and as a consequence I did not get to cast that vote. To my mind the Wagamama brand alone was worth considerably more than the amount paid. The buyers, Apollo Global Management, stand to make a fortune from this purchase as they continue to execute the global rollout of Wagamama.

A few points to note regards the Restaurant Group holding - 1. Management had minimal skin in the game (less than 1% of shares). 2. They were clueless from a capital allocation perspective. After reading one annual report I wrote to them enquiring why, if earning 40% estimated ROIC from a new Wagamama restaurant and 20% estimated ROIC from a new pub, did they bother to fund any of the latter? Surely all capital should be diverted to the Wagamama brand which was the only one they had with global potential. Their reply was nonsensical. 3. The company had excessive debt after the Wagamama purchase & was hit for six by Covid 4. Dubious managerial track record - Andy Hornby was at the helm of HBOS before they collapsed during the credit crisis. To summarise, plenty of red flags here and I should have known better!  

Valuation Concerns

I am concerned about the valuations of some of my US stocks after their amazing run in 2023. Costco has a forward PE ratio of 42.2x, the shares are up 104% since I bought my holding in 2021, earnings are up too, but by nowhere near as much the share price growth. Adobe = 33.3x, Apple = 29.3x, Microsoft = 33.6x, Amazon = 56.5x, Netflix 39.8x. These holdings also look expensive through the lens of free cash flow yield. Adyen now looks expensive too after shooting up 68.5% since purchase only a few months ago.

I would not consider topping up any of the above holdings at these valuations despite reasonable long term underlying earnings growth prospects for most of them. The question is, should I sell any? I have a buy checklist that contains valuation ceilings. When I bought these holdings they all met my valuation criteria, but now none of them do. I'm quite comfortable with my purchase discipline, but need to work on defining my hold and sell strategies. As a rule of thumb I prefer to buy and hold for the long term, so I allow reasonable headroom even when stocks start to look expensive, but if valuations get too ridiculous and holding ceases to make sense I should have a definitive exit strategy, which I'm currently lacking. If anyone reading has any views on this topic, feedback is always appreciated. I'll leave my twitter handle and email at the bottom of this post.

Fortunately, unlike in late 2021 when everything seemed expensive, there are plenty of areas of the market which still look appealing. Consumer brand companies such as PepsiCo, Diageo, Unilever & Starbucks seem reasonably priced. Also many areas of the UK market seem cheap, with a few decent business trading at single digit forward PE ratios including British American Tobacco = 6.1x, IG Group = 8x and Future PLC = 6.6x, thus there are still opportunities to deploy cash. 

Paying Dividends

Some of the dividend yields within the portfolio have become mouth-watering. British American Tobacco has a forecast dividend yield of 10.2% which is well covered by earnings, Imperial Brands = 8.4%,  Legal & General = 8.3%, IG Group = 6.1%, Philip Morris = 5.4%, = 4.3%, Unilever  =3.9%, Diageo 2.9%, PepsiCo = 2.9%. 

All of these businesses have a good long term track record of growing earnings per share and dividend payments, and have the capability to keep growing said earnings and dividends over the longer term at least in line with inflation.

I do enjoy receiving dividends, but when analysing businesses they are of secondary concern. It's worth noting that some of the growth stocks I hold could ultimately become good dividend payers too when they finally run out of reinvestment runway. Alphabet and Meta for instance both trade at a forecast free cash flow yield of 5% for 2024. They could both pay a sizable dividend now if they wanted to, but they both have plenty of avenues to reinvest for growth and I am more than happy for them to chase those before distributing capital. My Alphabet shares are up +492% since purchase showing that while it is nice receiving a dividend, the best businesses are often ones that don't pay them.    


I tried to open up an options trading account during the final months of 2022. The rationale was to buy some long dated, out of the money Meta Platforms call options as the stock was trading at what I thought was a bargain valuation at the time (11% fc free cash flow yield in November 2022). Unfortunately the account took a long time to set up and the share price had rebounded quite a bit by the time I was able to buy, so I failed to place the trade. A shame as those options would have made a huge profit, potentially doubling my return during 2023 from a relatively modest premium. Luckily I did top up on Meta shares at the time and have benefitted, but not to the same extent as I would have if I'd purchased the options.

Options are probably the closest thing to traditional betting available on the stock market. If you buy call options and they don't hit the strike price determined at outset you lose all of your initial premium (stake), hence they should be viewed as gambling rather than investing. Notably though, a few prominent investors have been known to use options to enhance their returns, including Joel Greenblatt and Warren Buffett himself. They both argue that the Black-Scholes options pricing model that is used to determine option prices is flawed, especially for longer dated options. Below is a transcript of Buffett talking at Berkshire's 2003 annual meeting:-  

"Black-Scholes is an attempt to measure the market value of options, and it cranks in certain variables. But the most important variable it cranks in that might be subject -- well, might be a case where if you had differing views you could make some money -- but it's based upon the past volatility of the asset involved. And past volatilities are not the best judge of value."

As Buffett explained, this "mechanical system" for pricing options, which fails to consider some essential variables, can lead to some "silly results," especially over long periods. This can offer opportunities for those investors who're prepared to wait:

"We made one -- as I mentioned last year -- we made one large commitment that basically was -- had somebody on the other side of it using Black-Scholes and using market prices -- took the other side of it and we made $120 million last year. And we love the idea of other people using mechanistic formulas to price things, because they may be right 99 times out of 100 but we don't have to play those 99 times. We just play the one time when we have a differing view." 

I have now purchased a few long dated call options in PayPal and Disney as an initial experiment, with differing expiry dates. So far the options in aggregate are in profit but not to a huge extent. I will comment on these again next year. 

I do not intend to use options to hedge at all (hedging is one of their uses), instead I will just use them occasionally to try and boost returns when I think that one of my holdings is looking ludicrously cheap and I am expecting a surge in the stock price. Initially while I am experimenting with them I will only fund premiums from new savings/income and will keep records separately from my investment portfolio. I expect over half of these contracts to expire out of the money, but if I can occasionally realise the return Meta options would have achieved this year (a circa. 20-1 return) then dabbling may prove worth the effort.  


As always I have no idea what the year ahead has in store for us, but I think the levelling off of interest rates is a positive factor, as are the stabilisation of oil, gas and electricity prices. It is possible we may see interest rate cuts during 2024. I would welcome cuts to some degree but believe it would be foolish for central banks to revert to the near zero interest rate policies we've experienced in recent past.  

All the best for 2024, if anyone has any queries, please contact me via twitter @mattbird55 or via the comments section of the blog or at   







Tuesday 3 January 2023

2022 Investment Review

2022 proved a painful year from an investment perspective. My ISA which mostly holds direct equities fell -13.19%. In nominal terms the portfolio fell more than my day job's net earnings for the year, a sobering thought. I don't have good data prior to 2011 but this has to be the worst year I've had since the credit crisis (2007/2008) both in nominal and relative terms. The FTSE Allshare Total return which has been my benchmark did a much better job at preserving capital, putting in a positive return of +0.34%. Its high weighting in natural resource companies helped the index to stay in positive territory.

The US S&P 500 index wasn't so good losing -18.11%. Warren Buffett's Berkshire Hathaway finished up c. +3.17% for the year. The Nasdaq index delivered a woeful     -32.54%. Terry Smith's Fundsmith Equity fund fell -13.8%.

Last year I commented that irrational optimism seemed to be gripping the market, mentioning speculation in high beta stocks as well as cryptocurrencies and SPACs etc as signs that things were getting rather frothy. These areas have certainly all come down with a bump during 2022 in the face of inflation, war in Europe & rising interest rates, neatly demonstrated via a graph of Cathie Wood's popular ARK Innovation ETF plotted against Berkshire Hathaway. Rationality has returned, the tortoise vanquishes the hare.    

Last year's portfolio metrics were - weighted average EV/Ebit= 22.7x. The weighted average Free Cash Flow Yield = 4.2% and weighted average forecast EPS growth = 26.82%. weighted average ROCE = 20.08%. Weighted average forecast dividend yield = 1.82%.

Current portfolio metrics are - weighted average EV/Ebit= 17.5x. The weighted average Free Cash Flow Yield = 5.6% and weighted average forecast EPS growth = 8.4%. weighted average ROCE = 21.72%. Weighted average forecast dividend yield = 2.23%. These figures exclude Rightmove and Berkshire as they significantly skew the ROCE and EPS growth figures upwards.

Notably the portfolio looks cheaper from a valuation perspective than last year, but growth expectations have significantly reduced.  

Current holdings/weightings are:





Berkshire Hathaway Inc


Fidelity China Special Situations




IG Group


Starbucks Corp


British American Tobacco


Imperial Brands








Microsoft Corp




Philip Morris Inc


Legal & General


Meta Platforms




Walt Disney Co


Domino's Pizza Inc








Games Workshop


Activision Blizzard




Altria Group


Warner Brothers Discovery


Visa Inc


Intercontinental Hotel Group








Money Supermarket


Electronic Arts




Intel Corp


Paypal Holdings Inc


Restaurant Group




IG Design Group


Take-Two Interactive




Car Gurus




Estee Lauder







Long term performance - 



Portfolio Return

Allshare TR


















































12yr Total Return




12 year average p.a.




The consumer staple holdings and Berkshire held up well during the year but most other areas suffered.

It's worth mentioning that the portfolio has meaningful reliance on advertising income. For Alphabet, Meta Platforms & Future it forms the core of their revenue. For Amazon and the media businesses (Disney, Warner Bros. Discovery & Netflix) it forms a reasonable part of income.    

Most of these businesses' share prices have been hit hard facing the prospect of recession and subsequent trimming of marketing budgets. Alphabet (Google) is down -39.15% over the year. Meta Platforms (Facebook/Instagram/WhatsApp) is down -64.45%, Future plc is down -65.59% during the year. Amazon -50.7%, Disney -44.58%, Warner Bros. Discovery -62.82% & Netflix -50.64%.

With the power of hindsight, I should have trimmed some of these positions whilst I top sliced Apple last year (NB I didn't own Netflix or Warner Bros at the time - these are new positions bought during the year). Valuations were looking very stretched and the pullback that we have experienced was possibly inevitable. That said I had no idea that interest rates were going to rise as fast or as high as they did, and valuations did make some sense in the near zero interest rate environment that we faced at the time. Inflation and the war in Ukraine have thrown a spanner in the works. I now believe that all the aforementioned businesses look decent value and are probably worth topping up.

Furthermore, the portfolio's low margin businesses (e.g. Amazon, Boohoo & International Greetings) have seen their profits largely vaporised in the face of inflation and rapidly rising costs. Terry Smith's letter to shareholders at the beginning of 2022 citing the importance of high margins as protection against inflation was prescient.

On the plus side, last year my cash level was sitting at 4.86% due to a dearth of investment opportunities on account of relatively expensive valuations at the time. Now that we seem to be in a "risk off" environment I have had a chance to deploy that cash as valuations appear a lot more sensible. During the course of the year, I have instigated new positions in Netflix, Warner Brothers Discovery, Estee Lauder, Intuit, Adobe & Microsoft and have topped up several existing holdings and finish the year more or less fully invested. I exited Domino's Pizza Eurasia quite early in the year as the Russia/Ukraine war started to look more likely. I have also exited Murray International Trust as I saw better opportunities elsewhere and the Fundsmith Emerging Equities Trust (FEET) was liquidated which is probably a blessing as performance has not been good. Notably when FEET listed, its holdings were very highly rated which should have been a warning sign that returns could be lacklustre. They also seemed to be repeatedly affected by adverse macroeconomic events which demonstrates some of the issues surrounding emerging market investments.

There currently appears to be a lot of negativity surrounding media businesses that are engaged in DTC streaming. Streaming seems to be viewed as an inferior business model to the pre-existing set up wherein content creators would mostly produce content for third parties that would be aired on cable channels and satellite tv etc. It is certainly true that increased content spend has put a serious near-term dent in the profitability of these businesses, but it is my view that streaming will prove to be a boon in the long run. I imagine that in 10 years' time advertising will be as prominent on the streaming services as it was on cable & satellite and the content spend will moderate relative to subscription income. Subscription prices will rise faster than inflation and there will be a clampdown on account sharing, all of which should juice profitability. Piracy is one potential risk with the growing use of "chipped" devices that negate the need to pay for such services.

My Chinese investments look increasingly precarious given president Xi's slide towards dictatorship and his government's backwards stance on COVID and increasing aggression towards Taiwan. A Chinese invasion of Taiwan is a significant risk for global markets. I am currently considering selling my holdings in Fidelity China, Alibaba & Tencent but will wait to see how things progress.

It will be interesting to see how higher rates affect the residential property market in the UK this year. Most people with mortgages are currently on either 2 or 5 year fixed rate deals and when their current mortgage product ends they will be faced will significantly higher mortgage repayments which will reduce their disposable incomes. It's hard to see house prices rising in this environment despite the ongoing supply shortage.

As a side note my funds-based pension is down -12.04%. I hold a UK tracker within it that helped buoy performance a little. Also because sterling performed poorly during the year the US tracker I hold didn't lose that much value in sterling terms. Lindsell Train Global put in an okay performance only losing -4.4%. Some of the smaller cap funds I hold did quite poorly and dragged down the average.

Looking forward to 2023 I think inflation and interest rates will prove pivotal to market performance. I am dubious of the merit of further rate rises and hope they may have peaked. Inflation does currently seem to be falling from its highs in the US at least. Once the market thinks that rates have peaked, we could see a resurgence in stock and bond prices. If I am wrong and rates continue to rise because of stubborn inflation, then we could well be faced with another difficult year.

All the best for 2023, if anyone has any queries, please contact me via twitter @mattbird55 or via the comments section of the blog or at