Is your market outlook valid?

The first half of 2023 has ended. At the beginning of the year, I discussed investment thoughts and mentioned Kostolany. I wondered if Kostolany would have actively invested in stocks earlier this year. Kostolany pointed out that central banks typically lower the stock market by implementing high-interest rate policies to control inflation. We have already experienced significant stock market declines due to interest rate hikes last year. Kostolany advised against participating in the stock market during such a trend.

 

I, too, have been continously warning about the adverse effects of increased funding costs on the economy and have refrained from making additional stock purchases. Instead, I have increased my bond holdings this year and plan to condinue doing so. However, as of the mid-year point, how is the current stock market doing? The forecasts have completely missed the mark. I use a website called 'Seeking Alpha' to gather information on U.S stocks. At the beginning of this year, the average forecast from analysts on 'Seeking Alpha' was that the S&P500 index would experience a slight decline throughtout 2023 compared to the start of the year. This experience has taught me once again how difficult is to predict the market, and I will take some time to reassess my investment thoughts.

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Investment Summary for June

As of now, at the end of the first half of the year, the NASDAQ in the US has risen by a remarkable 31.73%. In June, the continued rise of big tech companies, particulary led by Nvidia, contributed to NASDAQ's additional 6.65% increase. However, my U.S stock portfolio only achieved a modest 2.53% gain, falling behind the overall market performance. 

 

During the first half of the year, my U.S stocks recorded a 22.82% increase, which is lower than the NASDAQ but higher than the S&P 500's growth rate.

 

On the other hand, my Korean stock portfolio's performance hasn't been favorable. With only a few holdings, the underperformance of one particular stock significantly impacted the overall return. The KOSPI, during same period, rose by 14.66%, while my Korean portfoli increased by 5.8%, and the pension account saw a 10.28% gain, both showing relatively lower performances compared to the market.

 

It seems like my U.S. stock have outperformed my Korean holdings so far, benefiting from the strong performance of big tech companies driving the NASDAQ's growth. However, my Korean portfolio struggled to match the overall market returns due to the underperformance of some individual holdings. As we enter the second half of the year, I will carefully reassess my investment strategy and consider diversifying my Korean portfolio to achieve more balanced returns.

 

2023-06-30

The stock portfoli's most significant holding in the Korean market is Wemade. It has been a truly tumultuous company this year, continually making headlines in the political arena, adding to the sense of unease. Recently, news emerged that the CEO, Jang Hyun-guk, was under investigation for alleged fraud, embezzlement, and breach of trust due to lawsuits filed by Wemade investors. While on the surface, there haven't been indications of wrongdoing by Wemade in conducting its buisness, the fact that the prosecutors carried out a search and seizure operation suggests that there might be something worth investigating. 

 

Personally, I believed it was a promising business and invested in Wemade. However, it turned out to be a highly volatile stock. The decline in this particular stock has negatively impacted the overall performance of my Korean stock portfolio.

2023-06-30

The allocation of my pension porfolio remains unchanged. The semiconductor sector holds a portion, along with a high allocation to U.S REITs, government bonds, and cash. At the moment, I have no plans to make any adjustments to the portfolio in the near future.

This is my main portfolio, U.S stock portfolio. It has shown a positive performance of approximately 23% during the first half of the year, which I consider to be decent compared to the market. The rise of Meta and Palantir, linked to the AI theme, has been favorable. However, I believe Palantir may have slightly overshot its potential at this point, so I decided to sell half of my holdings. If Meta continues to rise, I plan to consider selling a portion as well.

 

I recently made a new purchase in EPR, a company with a significant focus on leasing properties to theater chains. Due to the recent bankruptcy process of Regal Cinemas, the second-largest theater chain in the U.S, there is increased uncertainty regarding leased real estate, leading to a decline in prices. Although there are risks involved, I found EPR to be trading at an attractive price given these uncertainties. I turst that the management will effectively handle the risks, which is why I decided to make the purchase.

 

Joby Aviation, a UAM(Urban Air Mobility) company, has received approval for test flight operations in the U.S., resulting in a significant increase its stock price. As Joby Aviation aims for commercialization by 2025, I plan to closely monitor its progress and maintain a keen interest in the company going forward.

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"Taking the Temperature"

Before we enter a swimming pool or the sea, we usually check whether the water temperature is cold or warm by dipping our hand in it. Most of us perform such actions before getting into the water. Howard Marks, the founder and chairman of Okatree Capital, a specialized distressed debt fund, is famous for writing memos that consistently deliver valuable insights to investors, including Warren Buffet, who reads them regularly. In July, Howard Marks titled his memo "Taking the temperature."

 

In this memo, Howard Marks demonstrates his decision-making process at important inflection points in investments, allowing us to understand his investment approach and philosophy. Investors can be influenced by excessive pessimism or optimism when making investment decions. However, Howard Marks values taking a neutral stance in any situation. He belives that getting caught up in extreme pessimism or optimism can lead to abandoning the fundamental principles of investing. Howard Marks also emphasizes that he does not base his investment decisions on macroeconomic predictions. While he considers macroeconomic factors that impact the market, he acknowledges that mking such predictions is pratically impossible and thus adopts a neutral assumption. Market timing and macroeconomics are not within the realm of predictions, according to him.

 

In his recent memo, Howard Marks emphasizes the importance of a humble approach to investing and the significance of neutral assumptions. He also emphasizes to investors the importance of adhering to fundamental principles for long-term successful investing. His advice aligns with Warren Buffet's message to investors. Rather than trying to time the market through macroanalysis, Howard Marks values focusing on micro predictions regarding individual companies and industries. He suggests making investment decisions based on neutral assumptions and taking a margin of safety, rather than placing bets on whether prices will go up or down.

 

Just as we check the water temperature before getting into the water to avoid suprises, investors should adopt a similar approach before entering the market by objectively analyzing whether the current market sentiment is excessively optimistic or pessimistic. Getting swayed by such extreme optimism or pessimism can lead to missing objective decision-making opportunities. Even Howard Marks, who has achieved success in investing, always acknowledges the possibility of losses and stresses the need for a humble approach and neutral assumptions.

 

This year, Howard, Marks' memo served as a humbling reminder for me as well. My attempts to predict the macroeconimic outlook were proven incorrect, as they usually are. Thankfully, having a well-constructed portfolio allowed for decent overall returns. However, I now realize the importance of shifting my focus to micro anlysis rather than market predictions. Going forward, I will strive to put more effort into analyzing individual factors and making sound investment decisions.

 

I have decided to change my investment review from monthly to quarterly. I believe focusing on analyzing companies and industries during that time will be more beneficial than constantly evaluating my investment thoughts on a monthly basis. I want to express my gratitude to everyone who has read my messages so far and wish for successful investments.

 

Thank you.