My 2024 Stock Market Results & 2025 US Stock Portfolio

Key Concepts

• 2024 Stock Market Performance: Review of personal and Patreon portfolio returns for 2024.
• Opportunity Cost: Comparison of personal portfolio returns against alternative investments like the S&P 500.
• Global vs. US Market Performance: Analysis of the divergence in returns between the US and other global markets in 2024.
• Large Cap vs. Small Cap Performance: Discussion of the outperformance of large-cap stocks over small-cap stocks in 2024.
• Investor Mistakes: Self-reflection on common investing errors committed during 2024.
• 2025 US Portfolio: Presentation and rationale for a new US-focused portfolio for 2025.
• Company Valuation Metrics: Use of EV/EBIT and P/E ratios for assessing stock prices.
• Return on Invested Capital (ROIC): A key metric for evaluating business profitability.
• Ticker: A tool used for stock analysis and screening.

2024 Stock Market Results and Analysis

The speaker provides an update on their 2024 stock market performance, acknowledging the delay in sharing these results.

Personal and Patreon Portfolio Performance

• Patreon Portfolio: Achieved a return of 14.9% in 2024 (pre-tax, after transaction costs). This portfolio is a mirror of the speaker's own, where 95% of their money is invested.
• Historical Average: The speaker's average annual return since August 2013 (approximately 11.5 years) is 17.8%. The 2024 return is slightly below this historical average.

Opportunity Cost and Market Benchmarks

The speaker highlights the concept of opportunity cost, noting that other investments performed significantly better in 2024.

• S&P 500 (SPY ETF): Delivered a return of 25.3% in 2024. This represents a significant opportunity cost for the speaker's portfolio.
• Warren Buffett Quote on Envy: The speaker references Warren Buffett's perspective on envy, suggesting that comparing oneself to others who achieve higher returns can lead to misery, unlike other "sins" which might have some upside.
• Time Investment: The speaker estimates dedicating 1,000 to 1,500 hours to the Patreon portfolio in 2024.

Reasons for Underperforming the S&P 500

The speaker offers two primary reasons for not being overly disappointed with underperforming the S&P 500:

1. US Market Strength vs. Global Underperformance:

   • The US market experienced exceptional growth in 2024, while many other regions lagged.
   • Examples of Global Performance:
     • UK: Up 9.5%
     • France: Up 0.6%
     • Sweden: Up 8.6%
   • As a global investor with exposure to Nordic and European equities, the speaker did not fully benefit from the US market's surge.
   • 2024 US-Based Portfolio: The speaker had previously created a 100% US-based portfolio for 2024, investing $3,000 across 10 companies. This portfolio achieved a return of 38.6%, which included a positive currency exchange effect of almost 10%. This US portfolio did beat the S&P 500.

2. Small Cap Underperformance:

   • In 2024, small-cap stocks significantly underperformed large-cap stocks.
   • MSCI Global Equity Benchmark Data:
     • Large Caps: 19.2% return
     • Small Caps: 8.7% return
   • The "Magnificent 7" companies, which constitute about 23% of the large-cap world index, were major contributors to this outperformance.
   • Advantage of Being a Smaller Investor: The speaker notes that being a smaller investor allows access to companies with market capitalizations as low as $50 million without impacting stock prices, offering more opportunities, especially in small-cap stocks and specialized bonds, where mispricing is considered higher.
   • Structural Disadvantage: The speaker acknowledges a structural disadvantage of over 10% in 2024 due to their strategy of investing in smaller companies.

Creating a Fairer Benchmark

To provide a more equitable comparison, the speaker attempts to create a benchmark that neutralizes the US and large-cap biases of 2024.

• Methodology:
  • Used a screener on Ticker to filter approximately 7,500 potential companies.
  • Simulated a "blindfolded dot-throwing monkey" (using Excel) to randomly select 22-stock portfolios from this list 100,000 times.
• Results:
  • The median portfolio performance was 8.9%.
  • This is significantly lower than the S&P 500's 25.3%, making the speaker's 14.9% return appear more favorable in comparison to this simulated benchmark.
• Volatility Observation: Even a diversified portfolio of 22 companies achieved a 100%+ gain in about 2% of the simulated samples, highlighting market volatility.

Self-Reflection on Investor Mistakes

The speaker admits to making several mistakes in 2024, referencing their own video on "Warren Buffett 12 mistakes every investor makes."

• Committed Mistakes:
  • Getting attached to purchase price.
  • Missing the forest for the trees.
  • Trying to jump over "7-foot bars" (taking on excessive risk).
  • Being too active and checking stock prices too often, leading to an emotional roller coaster.
  • Falling victim to confirmation bias, especially in discussions with their colleague.

2025 US Portfolio

The speaker presents their US portfolio for 2025, which is currently down slightly since its inception. The portfolio is allocated with approximately 10% of capital in each of the 10 companies.

Company Selection Criteria (Similar to 2024)

Companies had to pass a rigorous filter:

1. Sales Growth: Expected to lose no more than 5% of sales annually.
2. Insider Purchases: Evidence of insider buying.
3. Short Interest: Not excessively shorted.
4. Reliable Earnings: Consistent profit margins (e.g., maxing out at 8%, not dropping below 6% even during financial crises).
5. Debt Level: Reasonable debt, defined as a maximum of 5x EBIT.
6. Regulatory Issues: No major regulatory problems.
7. Competition: No major competitive issues.
8. Valuation: Trading below its historical average.

Individual Company Analysis

• Gendrin Parts:
  • Distributes automotive replacement parts.
  • Valuation: EV/EBIT of 15, P/E of 19. Not super cheap but not too expensive.
• Hydric and Struggles International:
  • Operates in hiring and consulting.
  • More cyclical but with acceptable growth and better pricing (EV/EBIT of 7).
  • Strong returns on invested capital (ROIC), a metric valued by Warren Buffett.
• Curie Dr Pepper:
  • Faces strong competition from Coca-Cola and PepsiCo but has a good market position.
  • Operates in a slow-moving industry with no expected major innovations.
  • Impressive growth in sales and margins.
  • Valuation: EBIT of 18-19 (not cheap).
• Leed and Plat:
  • Sells bedding products and furniture, primarily in the US.
  • Likely a price taker in a commoditized, slow-moving industry.
  • Turnaround/Reversion to Mean: Margins have hit a 20-year low (EV/EBIT of 13.5 at depressed margins).
• Leos:
  • Operates in IT services and consulting, primarily in the US.
  • Stable company with okay growth and improving margins.
  • Extremely high ROIC.
  • Valuation: EV/EBIT of 12, P/E of 14.
• LKQ:
  • Distributes automotive replacement parts, similar to Gendrin Parts.
  • Competitive advantage through distribution scale and sourcing network.
  • Excellent growth, tight margins, decent ROIC.
  • Valuation: Slightly lower than Gendrin Parts.
• Manpower Group:
  • A major player in the recruiting industry.
  • Facing competitive pressure from AI, with slightly down margins.
  • Valuation: Trades at EV/EBIT of 11 at current depressed margins, with potential for revaluation if margins revert to the mean (expected 3% operating margins, lower than 10-year average).
• Resource Connection:
  • A consulting company, the last one included to avoid overexposure to the professional services industry.
  • Considered among the weaker players competition-wise due to low market share and a commoditized product.
  • Valuation: Low price (EV/EBIT of 11 at 3% margins). If margins revert to their 2007-2023 average of 6.7%, EV/EBIT would be around 5, considered "mouthwatering."
• Ryerson Holding:
  • A processor of industrial metals.
  • A price taker in a commodity, capital-intensive business.
  • Attraction: Primarily the valuation. Average margins (2008-2024) are 3.5%. With $5 billion in sales, this could yield $175 million in EBIT, resulting in an EV/EBIT of around 9.
  • The speaker expresses the least interest in this stock among the ten.
• United Parcel Service (UPS):
  • Holds a very strong competitive position in logistics due to economies of scale.
  • Reliable growth and margins, though slightly down.
  • Analysts expect a return to historical averages around 11.5% in 2026, with potential for higher margins if management is correct.
  • Valuation: Not stretched at EV/EBIT of 15 and P/E of 17.5. Described as a "heads I win, tails I don't lose much" scenario.

Conclusion and Next Steps

The speaker concludes by emphasizing the importance of tools like Ticker for company analysis and encourages viewers to check out their Patreon for their private stock market portfolio. They also reiterate the need for continuous improvement in their investment process, acknowledging past mistakes and the ongoing nature of learning in the stock market.