#9 – 2023 year end review and portfolio changes

Hello to all investors. In this newsletter edition you will be able to read how my portfolio evolved in 2023, how our family income and entrepreneurship ideas evolved in 2023, our risky home renovation, the companies that are no longer part of my portfolio as well the new entrants in the portfolio. Lastly, we will discuss changes around this small investment community and communication going forward.

As explained in an earlier newsletter, 4 years ago I started keeping notes that are now an Excel file with my net worth, a complete overview of my assets and liabilities and the events that influence them. Here is the up to date chart of my net worth:

The good news is that due to the rebound in valuations in the stocks I own, the optimism around Bitcoin and the recognition of two weird assets owned in our family that I previously ignored plus the increase in value of our main home following a big renovation, our net worth has finally surpassed 1 million Euro, something I’ve been looking forward to since the November 2021 peak. Although calling yourself a millionaire when half of your million is in illiquid real-estate is a bit of a stretch.

Despite good news on the surface, under the hood the trends are negative. Instead of investing continuously every month, the problem I faced in 2022 (when I purchased a car) repeated itself in 2023: a large home renovation popped up hindering any investing. This home renovation started a bit risky with a 16.000E heat pump that was supposed to make the house so much cheaper to heat in the middle of the gas supply crisis (Daikin Altherma 3R heat pump). However after installing it I quickly realised I needed underfloor heating to deal with the low temperature produced by the heat pump, thus new floors, redoing the entire bathroom, toilets, all-electric induction stove to make the house entirely natural gas free. The entire renovation cost an eye watering 42.000E of which 21.000E was loaned or subsidised by the government (so by taxes we pay). The unexpected costs severely limited our ability to invest this year. Fortunately this significantly increased the value of house by my estimates.

Another aspect and lesson of our 2023 finances is that my contract (I work as a freelance engineer for various companies) ended in October. This means I spent the last 2.5 months of the year not working, and thus lost around 20% of my yearly income. To further compound the problem the job market seems to have frozen and so finding a new contract, although I’m looking for 5 months already, seems impossible. Luckily I had saved up a significant amount of cash in my companies’ bank account. I now fully understand people who choose full time employment over entrepreneurship/freelancing. Initially I had a tough time accepting this reality in the first weeks without a job, but I have learned to adapt and overcome in 2023, so my mind is relaxed and I’m open to any outcome, hopefully a positive one. One thing i’ve learned is that I need to invest in my career and knowledge a lot more since it’s my main source of cash flow. I also just love doing it – and have been ignoring it for a while, luckily no longer the case.

The home renovation and the job conundrum have worked together to not just prevent further investing but to actively encourage me to take profits here and there, to the tune of 15.000E withdrawn from my investment account.

Of course things are not as bad as they look, there is a chance I will get a new contract soon, my company’s profits are significant, so that should be provide a healthy boost of cash once I pay it out to myself and lastly, my portfolio is not smaller in terms of number of shares owned. So despite withdrawing some profits from it I was able to not reduce the stock ownership. Touching the investment portfolio in the initial years is a big no-no in the FIRE community but it’s something I have no problem with as I navigate my financial life and adapt to various opportunities. That said I’m still unhappy with the fact that I’m withdrawing small amounts from it the second year in a row and I’m looking forward to investing more in 2024.

Speaking about the investment portfolio, the following changes occurred in 2023:
❌ APPL was entirely removed from my portfolio as it’s revenue and earnings stagnated and I no longer see outsized return potential from the stock, nor is its 29 PE ratio justified in my view given the negative growth. The stock has run it’s course(120$ to 180$) and I have no positive view on APPL going forward.
⬆️ BRK.B (Berkshire Hathaway) position was increased significantly as the company continued performing and there were moments when the stock price was underpriced (330$/share) and I needed to invest money from APPL.
↘️ TSLA position was slightly decreased (not meaningfully) after their earnings continued to disappoint due to compressing margins significantly underperforming our excel modelling.
➡️ Bitcoin held steady, no changes, waiting for the 2024 halving cycle and imminent ETF approval.

In regards to the new entrants in the portfolio that have not established themselves and are under “probation”:
GOOGL as a new entrant was removed due to it’s aggressive stock based compensation (SBC) and inability to provide an adequate response to AI tools.
NFLX was reintroduced after their free cash flow surged, invalidating an earlier fear I had that their profits are just on paper. I will continue adding to this position when the price is right (at around 400$/share).
Constellation Software (CSU.TSE) – was newly introduced – it’s a conglomerate company traded on the Toronto stock exchange that has grown incredibly and has great leadership and continues to grow earnings through acquisitions using their own free cash flow. This is a new company that I’ve been researching, monitoring and allocating a modest 3% of the portfolio to (already up 33%). Whether constellation makes it as one of the core positions of my portfolio remains to be seen as I now tend to take more than a year before recommending an investment to my audience.

One of the things I’m happy about in 2023, is the fact that I had no shortage of new stock picks, from GOOGL, to reintroducing NFLX into my portfolio to discovering Constellation Software, it’s been a very productive year for my research, and so no shortage of ideas for outsized returns. Keep in mind that the core of the portfolio (TSLA, Berskhire, Bitcoin) has barely changed and it was only around the edges that some trimming happened or new seeds were planted.

Lastly I’ve done a lot of soul searching in regards to what the future of the small community around this newsletter and the associated Youtube podcast holds:

First, with the benefit of hindsight it seems that launching this newsletter in Romanian was not ideal and it needed to be English, the lingua franca of finance, especially since financial content translates easily across borders. This is not final, just my current thinking – I would love to hear from you on this.

Second, the Youtube podcast hosted by me and Gheorghe is not coming back. Problems with it were the lack of indexation of video content thus making it hard to reference things said or recommended in the past. Also the fact that it was in Romanian on Youtube was simply a wrong choice given how large the English speaking audience is. It was a good first try and I enjoyed doing it – with modest success. And while I do have ideas for a new type of podcast, and I can envision it working well, this avenue is ending for now.

Third, this newsletter and the associated Telegram groups will continue to live as a way to keep in touch and communicate news. In many ways I’m deconstructing the whole back to it’s components and letting each platform shine on it’s own.

What about me and our family in 2023? Perhaps the tone of this newsletter is less enthusiastic but we’re doing great, our baby is going to start school very soon, reaching 4 years old and we’re enjoying every moment of family life, the vacations we took together through in 2023(which are plenty) and the free time I had over the past months has been very relaxing. I’m preparing to learn how to Ski, which is a rather expensive sport, but a common passion here in rainy Netherlands where we drive to Austria/Italy for beautiful alpine ski slopes. The car bought in 2022 being incredibly comfortable on long distance trips helps driving to the Alps and I have no plans to change the car anytime soon – nor the financial capacity to do so. There is a potential plan to buy another car for my wife in 2024, but not if it gets in the way of investing again. With a little bit of luck the investments in home renovations from the past couple of years should yield a very high return when selling the house or refinancing, thus propelling us forward into the next stage of our financial life. Until then I savour every moment, because the journey towards financial independence is just as interesting as the destination itself.

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