Last July, we wrote a mid-year piece commenting on all the doom and gloom in the financial press. We constantly saw headlines saying 2022 was the worst first half for stock and/or bond markets since decades ago. We responded at the time that we had told DKI subscribers to short the market the first week of January and that we told DKI subscribers to get long oil and energy in November of 2021.
Those were our two huge positions for the year and they were also the only two major trades that worked for the market. We continue to remind investors to be flexible, and this is especially important in years like 2020 and 2022 where we had massive market moves based on factors unrelated to company fundamentals. There is no rule that says you have to maintain a 60/40 stock/bond portfolio, or a rule that says you have to be 100% long all the time, or a rule that prevents you from using short positions to hedge your equity exposure during these challenging times.
Deep Knowledge Investing spent all of 2022 showing our subscribers not only why the sell-side and big banks were wrong, but more importantly, exactly how to make money from their errors. Our intention is to continue doing the same in 2023.
This is our performance from 2022:
Market Shorts (approximately 40% of capital):
Short S&P 500 – Index down 19% meaning DKI subscribers made 19% (outperformance of 38%)
Short NASDAQ – Index down 33% meaning DKI subscribers made 33% (outperformance of 66%).
Long LVS: up 28% (outperforms S&P 500 by 47%). It’s taken longer than we expected, but Macau is starting to reopen and Singapore is starting to put up big gross gaming revenue numbers again.
Long ENVA: down 6% (outperforms S&P 500 by 13%). The stock has been taken down by a weak market and concerns that a recession will affect the ability of customers to repay loans. Fundamental performance has been spectacular with record loan originations every quarter combined with excellent credit quality that remains well above pre-pandemic levels.
Long COUR: down 51% (underperforms NASDAQ by 18%). Fundamental performance has been excellent and the company continues to grow revenue despite concerns that 2020 stay-at-home learners would be a one-time phenomenon. The stock has gotten crushed with the long-duration tech market and poor performance from competitors. While we continue to believe that online education will have a prominent place in our future, we’ve gotten this stock wrong. Worst performer in DKI history.
Long Oil/Energy: This was another 30% – 40% of capital position for us all year. Names shifted throughout the year, so it’s difficult to calculate exact performance, but this was by far the best sector to be invested in all year with large profits on a huge capital allocation.
Inflation Hedges (Smaller Positions):
Long GLD: down 1%. Outperformed the market, but underperformed the dollar.
Long SLV: up 2%. Outperformed the market, but underperformed the dollar.
Long Bitcoin: down 65%. Terrible performance as low-quality cryptocurrencies and exchange collapses took down the entire sector. Higher interest rates, shrinking money supply, and general “risk-off” trends also contributed to losses here.
To sum up: Massive wins in our huge market short and long oil/energy positions, a couple of good smaller stock picks offset by bad performance from COUR, good on metals, bad on Bitcoin this year.
The key aspect to performance is short positions more than offset individual stock losses ensuring huge outperformance for DKI subscribers. As always, IR@DeepKnowledgeInvesting.com with any questions. We’re here for you.
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