Q2 2023 Portfolio Update
Top Posts From Q2 2023:
Markel: "A Long-Term Mentality"
Portfolio Changes, Q2 2023:
The first half of 2023 was favorable for a handful of my larger positions, resulting in a ~26% year to date gain for the portfolio. As we look ahead, I think that this comment from the Q1 2023 Portfolio Update is still a good summary of where my head is at: “As always, these short-term results should be given their proper consideration (not much). On the other hand, the underlying decisions that some of the portfolio / watchlist companies have made as of late does strike me as a noteworthy development that may materially impact their normalized profitability over time.”
Meta is a notable example; as I discussed in “Phase Change” and “When It All Matters”, the “Year Of Efficiency” is resulting in a very significant change in the cost structure of the FoA business. With the benefit of hindsight, my assessment of the investment implications in the February post was right on the mark - the only problem is that instead of taking meaningful action, I sat around sucking my thumb. Another example from the portfolio is Liberty Broadband (Charter), where the company is aggressively pursuing their converged connectivity strategy - and which, in my view, is leading to outsized results relative to Comcast. In both cases, management has made sensible changes that will put them on firmer footing in the years ahead.
At Meta, Mr. Market has responded favorably to these developments (the stock is up >130% YTD), which brings us to the most difficult question for long-term investors: when you own a great business in the hands of a great management team, how do you react to (much) higher stock prices? As I’ve written previously, my view is that when you find that elusive combination of a truly great business and management team, you should do all you can to hold on for dear life. Of course, even for diehard “buy and hold” investors, there is still some logical limit to that way of thinking. The sweet spot is those rare occasions when you can have your cake and eat it too (for example, Netflix in mid-2022; thankfully, unlike Meta, I didn’t fumble that one).
Between new ideas (companies like TKO / EDR and TSCO), the watchlist, and current holdings, the ideal outcome would be one where you’re able to add incremental exposure to positions that give you the best of both worlds - with the primary filters, in my view, being business quality and your level of certainty / the likelihood of being correct. At the same time, I’ve learned the hard way that this shouldn’t lead to reflexively buying more simply because the stock is down (something I did earlier in my career and which led to my fair share of value traps). As they say, this is simple but not easy. Bringing it back to the portfolio, I’m trying to be sensible on when to press and how aggressively - if at all - on positions like LBRDA and DG (actions speak louder than words, but I’m not fully convinced their recent underperformance is indicative of their future prospects). This remains a work in progress; hopefully it’s a part of the game that I can continue to get better at over time.
Here's the portfolio allocation and trailing returns as of Friday’s close: