DLC’s core portfolio at its one-year birthday has returned 3.2% in excess of the market S&P 500 total return index1One year through July 28, 2022, and a return of -3.3% compared to the S&P 500 Total Return of -6.5%.. First laps don’t tell much but we feel good about it given the economic challenges. We did it through slow, but deliberate activity. This means lots of learning, reading, and sitting still. Our clients’ portfolios of course will have different inception dates and slight drifts in performance but we’re on the same ship, regardless of when each passenger gets on.
We’re committed to our investment philosophy. Longer holding periods, annual letters (not quarterly) and patience compound as investment advantages. It can be very challenging to not panic. We don’t know what the macro environment will exactly bring but we have prepared the portfolio in a way we believe will likely outpace the S&P, with bets on the cloud, e-commerce, market volatility, search, annuities, inflation, insurance, electronics, entertainment, and healthcare. In orthodox diversification circles, this still counts as being highly concentrated. Concentration in life abounds: at any given time most people have one job, one spouse, and one house. We invest in 8-12 different businesses (stocks) we feel we know, and understand, with solid prospects. That’s enough diversification for us.
One of our values in life and investing is that there’s no substitute for doing. We learn to ride a bike by riding a bike, not by reading about the physics or history of bike riding. We’ve invested personally for over two decades but doing it for others creates new challenges. One year on, we’ve learned and begun to hone our skills in compliance, client onboarding, processes, fees, portfolio monitoring, pitching, annual letter writing, and research, all in a more formal, real way. This builds callouses, figurative muscle memory, and patience. We’re working with imperfect information but we strive to be decisive and step forward.
We’ve deepened our relationship with Optum and Charles Schwab on the HSA and investment management sides. HSAs are more than hedging future healthcare costs and current tax savings2to capture out-of-pocket tax savings without one you must reach healthcare expenses of at least 7.5% of AGI in, which few do, while you can reduce your taxable income by up to $3,650 by contributing to one.. Modest chunks of money, invested periodically can work wonders in setting up our future selves to offset healthcare costs in retirement. We’ve positioned the portfolio accordingly. One may have low costs now but the human depreciation curve steepens quite a bit after 60. Our tools help plan for it, help job switchers assess their core health insurance package, and negotiate off of that. Thousands of dollars are often at stake since some packages are Yugos and some Teslas. This is a truly unique service with which we will continue to help many people.
While not all of our investors have sizable portfolios, the benefits of HSA tools and concentrated portfolios apply to any investment amount. It’s often that small, incremental changes provide massive benefits with one caveat–time. The difference in future expected value changes dramatically when you combine consistent periodic contributions (dollar-cost averaging), compound interest, and patience.
We’re excited to continue investing alongside you.
Photo by Adi Goldstein on Unsplash