As 2023 is coming to an end and with the calmer Christmas holidays approaching, I thought it would be a good occasion to take a look back on the passing year. What topics did I write about, where did I nail it and where have I been completely wrong? Going deeply inside myself, what am I taking home?

Summary and key takeaways from today’s Weekly
– All in all and looking back, I can say that the year 2023 was a good one. On average, my stock ideas have outperformed the benchmarks.
– I was right on some topics, even though not everything materialized so dramatically. But avoiding uncertainties can also be a win.
– Clearly, I underestimated the strength of the broader markets as well as especially the big tech stocks. Also I have seen less prominent dividend cuts than I expected initially.

From what I have heard from other people, it was rather surprising for the majority that the year 2023 not only showed such a strong performance (all numbers YTD until the close of 18 December 2023: Dow Jones +13.3%, S&P 500: +22.5%, NASDAQ Composite: +39.2%) – more or less exactly the opposite of 2022.

Also the fact that we would see new all-time or at least multi-year highs in many of the important European indexes was certainly not a no-brainer.

Yes, not just the USA. The British FTSE crossed the 8,000 barrier for the first time in early 2023 and the French CAC40 also is flying in new dimensions. The Italian FTSE MIB at least managed to achieve a new 15-year (post-2008 crisis) high. The German DAX (the mostly presented total return index) is on a new high, too, however, not the price index (slightly below its 2021 high; all others are also price indexes).

Not only was the year before, 2022, exhausting for many with its temporary bear market (with the exception of the energy sector), paired with almost unprecedented inflation rates, especially for those being younger than at least 50, if not even 60.

In case you remember, in March of this year, for a brief period of time, there was even a small banking panic in the USA due to duration mismatches on some balance sheets (see here, if you are interested in more details).

However, the question “who’s next” was put rather quickly under the carpet.

The markets first rebounded and then continued pressing higher, only quickly paused by the correction in fall which, however, saw a pretty quick turnaround to the upside and later to the before mentioned all-time highs.

I must confess, I have also been a bit surprised, maybe because I care much about fundamentals and valuations. The good thing is, I do not have to care about the broader markets directly.

As the big rally seems to prove those right who prefer investing in ETFs, covering the broader markets, I will continue to be a strong proponent of stock picking.

It is unlikely to have such strong years, every year. If this were the case, we’d be dealing with other issues – just ask the people in Argentina or Simbabwe. Also everyone should know by now that the big tech stocks have been the main drivers of the US markets, reaching historically very unhealthy dimensions (weightings). Am I disappointed or even frustrated that I did not touch any of the Big Tech stocks?

Definitely not. I see rather increasing risks in owning them, especially when thinking more mid- to longer term.

Also, I continue to be reluctant when it comes to carry around all the garbage inside of these indexes. No-growth companies with huge debt loads and maybe even structural problems? No, thank you. Not interested in this di-worse-ifiction.

The proof that there’s no need to be sitting sadly in the corner is that my best stock ideas, which I published exclusively for my members, have on average done better than the S&P 500 as well as the iShares MSCI World Index – my benchmarks and the ones where ETF investors prefer to put their money into.

But first, let’s have a look back – which are the topics worth to be put on the table again?

What conclusions and learnings can we all take home from them?

The average total return of my best stock ideas is +15.7%, beating the S&P500 and the iShares MSCI World ETF.

^{as per 20 December 2023 market close}

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Key topics and learnings of 2023

One area to which I have devoted a lot of time is clearly dividends.

I do not want to count and discuss all my articles again, but rather write from my memory from a bird’s eye view. You can also see among my most popular weeklies that the topic of dividends has been clicked many times.

One of the reasons for me to grumble was that from time to time I have felt provoked by several post on Twitter / X and YouTube where dividend investors discussed their favorite ideas.

The key point for me was that often did I see people making recommendations or arguing in favor of certain stocks just based on

• a lower stock price
• a high dividend yield
• the history of the company
• a title like dividend aristocrat or king

Every time I thought, how reckless this was.

Obviously, investing is based on the future and stocks do price in future developments, don’t they? I tend to even believe that many of these folks would even say so, too.

But when it is about dividends, the past strangely seems to have a higher, if not even the only, weighting. For me personally, it is absolutely irrelevant what obscure title a company holds or for how many years in a row it has been raising its dividends.

Even though I am clearly advocating to learn from the past, the past is by no means to be simply extrapolated into the future.

There are cycles. And it seems that we have entered a new era since 2022.

Interest rates, anyone?

What has happened in the past can work again, for sure. But with a completely new investment environment, it has become unlikely.

Not only has a 40-year period of falling interest rates come to an end which on a stand-alone basis is a crucial development. Also, falling corporate tax rates, unfavorable demographics, public pension issues and re-shoring / the likely end of low-cost labor are other factors that should be considered – likely not only short lived countertrends.

So, how can one make a call that because a company has raised their dividend say 40 or even 50 times in a row, it will continue to do so – as if nothing has changed?

By the way, most dividend series were built during times of tailwinds, i.e. when the above mentioned factors were supportive.

Of course, this does not mean that every company will cut their dividend immediately.

This was not even my core message.

I wanted to highlight that headwinds have increased, depending on the business model and the leverage, possibly even dramatically. The result is, every decision should be double-checked and every stock – no matter its history – be questioned as if its history didn’t exist.

In 2022, I have called out Intel (ISIN: US4581401001, Ticker: INTC) to be a candidate for a dividend cut which then happened in 2023. Today’s Intel is certainly a different one than even ten years ago, not to mention three decades ago.

While it was not a genius announcement, many were surprised nonetheless as they before cheered the then 6% yield, because since the early 1990’s and through all the ups and downs of the business cycle, Intel managed to at least keep its payout steady.

Many others I picked haven’t cut their dividends, yet.

Companies like 3M (ISIN: US88579Y1010, Ticker: MMM) continue to keep their distributions steady or even increase them symbolically like Verizon (ISIN: US92343V1044, Ticker: VZ), but I still think that they will have issues, especially 3M as soon as they will have to pay their agreed-to penalty of almost a billion USD yearly way into the next decade starting from 2024.

However, there were two prominent and significant dividend cuts which I – unfortunately – did not write about beforehand: V.F. Corp (ISIN: US9182041080, Ticker: VFC) as well as W.P. Carey (ISIN: US92936U1097, Ticker: WPC).

The former, a prior dividend king with 50 consecutive hikes even cut the dividend twice during 2023. WPC is a REIT and was a young dividend aristocrat. It too had to face reality due to its unfavorable debt maturity profile. Of course, almost everyone of those calling every drop of the sock a new buying opportunity to “lock in the high yield” was surprised.

When we combine this topic with my first article of the year, namely “THE DOGS OF THE DOW – TOP DIVIDEND STOCKS FOR 2023?” (see here), this strategy would have led rather to disappointments.

Here again, I see it rather as a nice-sounding gimmick, because many of the companies which qualified for this top 10 list, weren’t great picks, confirming what I’ve found out – this strategy most of the time does not beat the Dow itself.

To make it short, the higher the dividend yield was, the more questionable an investment was, too.

We discussed Intel and 3M above. I see Walgreens (ISIN: US9314271084, Ticker: WBA) as the next in line from the list for a painful cut.

When discussing dividends, we also have a few misleading thoughts and perspectives.

Many dividend investors celebrate their yield on cost, i.e. their “personal dividend yield” in relation to the average purchase price.

However, I showed with some simple calculations that this figure is complete nonsense (see here). The reason is, the higher the capital gains, the more passive money you have not working. Or in other words, if you sold a stock with a huge gain, you’d only need to put it to work at a way lower “new” dividend yield, because you now have a bigger stake to deploy.

For example, 10% on 1,000 USD is the same yield like 5% on 2,000 USD – somehow, many do not want to understand this, defending their stand.

I also showed why dividend growth likely takes much longer and more patience than high-yield investing.

Last sub topic is the tobacco sector where I have the gut feeling that the party is slowly over.

The recipe for success of the last 20-25 years, not to mention more than three decades, simply does not work anymore. These companies not only have relatively high debt, they also are facing a never before seen change in their industry. And mathematics prove that volumes have been declining too fast – or reached a point of no return, where price hikes become harder and harder, just to stabilize sales.

With this, I’m closing the dividend chapter.

Learnings / confirmation: never invest solely on what happened in the past. Face reality and understand basic figures and context, instead of blindly following the crowd who has to learn their lesson first.

The next topic is clearly the one of index weightings, ETFs, sector rotations and lost decades. You can find a few of those articles here, here, here, here, here or here.

In a nutshell, it is highly questionable and highly unlikely, that today’s pulling horses, namely the Big Techs, will remain in their spot forever. Not even towards the turn of the next decade.

Besides technological leadership, the power to invent, disruption and the fact that pioneers of new trends seldom have even made it to the finish line (I wouldn’t bet the farm on the current names in AI) – all have the power to change the dynamics – there’s also the problem of valuations and index weightings.

Sectors never have a constant weighting, they’re fluctuating. As we have a situation that is rather at the top end of historical exaggerations with Big Tech stocks having a weighting of around 35% in the S&P 500, there will come a time, when the hot air squeezes out of the balloon. Of course, one can enjoy the ride, trying to squeeze out the final juice. But I prefer cases with limited downside and way more upside.

As a consequence, such let-the-air-out phases have led to – at best – long and stretched sideways moves of the broader markets. I am not only referring to the 1970’s. Think about the early 1900’s, the bust of 1929 or also the period after the Dotcom bubble. And depending on your personal sector exposure, it can take more than two decades – just think of Japanese stocks or many emerging markets, but also stocks of precious metals.

It is of course entirely possible that I will be able to copy and past these passages next year for my then review, because nothing has happened or changed.

But I will not bet against history and when the odds are not in my favor. Everyone is free to do that. However, we’re talking then about gambling, not investing.

A good sign of first cracks is Apple (ISIN: US0378331005, Ticker: AAPL).

Even though its stock reached new highs recently, there are worrisome developments inside the company – I am saying this as someone who types on a MacBook and who’d prefer to write my blog on paper by hand and let someone upload the sheets than to sit in front of a Windows computer again (I grew up with it).

Many long-time companions of Steve Jobs have been leaving for years now.

Almost the whole team of Jony Ive, including Ive himself who left in 2019 – the famous and genius designer, responsible for the smooth experience of Apple products – isn’t there anymore.

Maybe some of you have also heard about the clever heads behind the development of Apple’s M-Series chips, enabling them to finally ditch Intel?

They not only left Apple to found an own company, called Nuvia – they were in the meantime acquired by Qualcomm (ISIN: US7475251036, Ticker: QCOM), a company Apple had patent disputes with in the past, but it is also a key supplier for modems and also a chip designer itself (Snapdragon, often used in Android phones, but will also be in Windows laptops).

Also, the company is barely growing – but valued at an insane multiple of around 30x.

I even philosophize about the coming Apple Vision Pro to maybe be a better investment than the stock (see here). It becomes harder and harder to grow at a certain size. The weak economical environment isn’t helpful, either. If Apple, as the juggernaut, tilts…

We should also not forget that the other techies have rather cyclical business models. And in the case of Nvidia (ISIN: US67066G1040, Ticker: NVDA), the semiconductor sector is really brutal in bear markets.

Learnings / confirmation: Trends can be unnerving or confirming for way longer than one thinks – depending on which side of the table you are. But nothing lasts forever, so that counting on a continuation is foolish – just based on history. I clearly prefer not to bet against history by trying to limit the downside.

Another big topic with several weeklies were commodities and resources (e.g. here).

Besides rather basic articles like the one about why it’s crucial to pick the low cost producers from a low-risk perspective (see here), I often wrote about supply and demand. Especially that supply is what determines longer term trends, as it cannot be switched on and off instantaneously.

While the mainstream often cities “demand concerns” or “booming demand” – forget this stuff. Judge commodities by supply. Demand can be adjusted with the wimp of an eye and also be artificially named higher or lower, depending on what political goals are pursued. Peak oil, anyone?

Demand is guessing, supply is actually doing. Period.

Many commodities, also in part due to ESG policies, are either in short supply or compared to historical norms not even close to be over-supplied.

In the past, commodity producers increased their capacities in good times, only to be caught on the wrong foot and sent into a brutal bear market. This time… it seems different, because on one side the companies are more cautious, preferring higher shareholder returns.

But lower grades and higher costs are also a reason. Not every project is feasible. Think of silver (see here), where the industry is coping with high production costs and decreasing reserves.

Below, you can see a freshly updated chart which I showed in my second silver article with the then available data. Nothing has changed, most silver miners underperform spot silver – even though pundits claim that silver and gold miners alike are leveraging your returns several times.

The prices of the metals have risen. Most of those stocks not so much. If at all…

My silver stock pick for Premium Members, for comparison, is up by 30.9% (per 18 December 2023 closing) since I published my research report.

For reference, Pan American Silver (ISIN: CA6979001089, Ticker: PAAS), one of the household names, during the same period is down by 7% (without counting the symbolic dividend). The US’ biggest silver producer, Hecla Mining (ISIN: US4227041062, Ticker: HL) wasn’t able to keep pace, either, even though it is slightly in the green.

In times when the price of silver is more or less where it was before.

Stock picking is irrelevant, ETFs will do it? Think twice.

It is no different with gold and gold miners – Barrick Gold (ISIN: CA0679011084, Ticker: GOLD), a darling of many – is a pure disappointment and nothing else (see here).

I am also skeptical about the proclaimed “safe copper bet” (see here) – there are different reasons, but the most obvious is that the politically granted (but not necessarily supported by the people) subsidies of financially unsustainable projects, has only proved to be a graveyard for tax payer money.

You can see it in the respective stocks, but also in written down offshore projects. In UK, recently there was even a round without a single bid for new wind projects.

What I rather believe is that we’ll see a massive oversupply of copper, as the mainstream thesis is, copper supply grows, but not fast enough to balance massively growing demand. But when demand falls off a cliff or at least does not meet the expected numbers (and mining projects have been started in many places already) – good night.

Learnings / confirmation: Do not get fooled by mainstream views like in the case of copper. When everyone sees it this way, it is either already priced for perfection or the outcome will likely be different. There’s no free lunch. Besides, always look at the lowest cost producers (and supply) to have enough margin of safety, should prices come down.

This part shall be bundled as “special situations” and broader trends, no matter the direction.

With these, I am referring to cases like Argentina (see here) having a positive catalyst.

But also Big Pharma stocks (see here) as a negative case where I wrote about the likely coming wave of expensive takeovers and thus lots of shareholder value to be destroyed. The dividend crowd cheered and bought every dip, I stayed away from this mess.

There was also a very interesting setup in the office REIT sector (see here) – one of the most hated sub-sectors in an anyhow disliked area, as REITs have been suffering tremendously in the rising interest rate environment.

My pick where I also wrote a research report for my Premium Members about, is benefitting, not suffering, as there is a huge wave of migrating people in the USA from the predominantly blue states to red sunbelt states. This huge tailwind paired with a strong balance sheet so far is up by 17.3% (as per 18 December 2023 close).

I think there is more to come as the company is still trading below its net asset value – and again, it is a beneficiary, unlike many of its peers in New England or the Westcoast so that huge write downs are rather unlikely.

The last sub topic are banks. I first released a research report about an exotic bank for my Premium Members already in 2022, but shortly before the banking crisis hit in the US, I cautiously closed this chapter. In this article here, I explained what went wrong with the affected banks. All in all, I have never felt comfortable with banks.

I also think that it is now clearly evident that the claims of “higher interest rates are good for banks” shall be taken with a huge grain of salt. I really depends, but with this, it makes the cases more complex. I dislike complexity and prefer the one foot bars to step over.

Learnings / confirmation: While financials and especially banks are clearly not my home court (I will likely stay away from), I am convinced that it is necessary to watch out for special situations and trends that are somewhat under the radar or too exotic. Without sacrificing the quality of the companies and their fundamentals, one can find really interesting setups.

So the last one: where have I been wrong?

I have clearly underestimated the force with which the broader markets have pulled through the year, however that did not stop me to prove that stock picking is not only worth it, but that it allows to outperform, even. I was also surprised that the big tech stocks had such an impressive run, some of them more than doubling.

Nonetheless, I am certainly not getting nervous.

I do not know anyone who is only invested in the Big Tech stocks and nothing else. Anyway, my mission with this blog is to show that stock picking works, can beat the markets if applied properly and that ETFs are primarily for the finance industry to make the big buck. Huge fees (in absolute terms) for doing nothing.

Below, you can see the performance of my picks against the benchmarks. The numbers are year-to-date until the closing of yesterday.

Likewise, I was a bit to pessimistic about the stability of many dividend paying companies. However, this does not change the fact, that they remain uninvestable for me. I do continue to expect more cuts, also from the corner of “safe dividends”. It can take somewhat longer to materialize, especially when companies want to hold up a series or break a new barrier, before a new management team can be blamed for a cut.

These are the big two, where I did not nail it. I have no problem to admit to it.

But I still think that both themes won’t be the best choices from a risk and reward perspective. As my longer time readers know, especially the former, the risk part, is key to me.

As a last point, I do not want to hide that a few of my picks have not delivered so far. Or in other words, I chose them wrongly.

While only one case, albeit from 2022, was sold at a 10% loss due to the original thesis not holding up anymore (it was up temporarily by c. 20%), there is still one stock with a decline of almost 20% that is a bit frustrating. While I still see the potential for the company to grow organically, but also to remain a takeover target for a bigger competitor, the performance so far has been disappointing.

Even more so compared to the benchmarks where the difference is around 30% since publication. The first reason that comes to my mind is rather that my valuation assumptions could have been a bit too optimistic. I even wrote in my report that it is more a fairly valued growth story than a dirt-cheap pick. Valuation matters, I had to go through it.

I am learning and I won’t stop learning.

Conclusion

All in all and looking back, I can say that the year 2023 was a good one. On average, my stock ideas have outperformed the benchmarks.

I was right on some topics, even though not everything materialized so dramatically. But avoiding uncertainties can also be a win.

Clearly, I underestimated the strength of the broader markets as well as especially the big tech stocks. Also I have seen less prominent dividend cuts than I expected initially.

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