How I Outperformed the Market in 2024
An investing journal entry
Hey Continuous Compounders,
I had a very good year investing in 2024. I generated a +48% return in 2024, my best year of investing to date.
S&P500: +23.3%
Nikkei225: +19.2%
Topix: +17.7%
This post is not to show-off. This is simply an investing journal entry and an annual recap of my investment learnings for 2024. I took inspiration from Francois Rochon in writing this.
So you might be wondering, was my outperformance luck or was it skill?
My goal is not to persuade you any which way. I am simply celebrating having a great year investing.
My goal is to become the best investor I can become. Everything I do is with that goal in mind.
My personality is one where I would rather believe I am worse than I actually am so I can continue to improve. I still believe there is so much I can learn. I’m constantly trying to improve my circle of competence when I discover new businesses to study.
Also, it’s easy to look good in a bull market.
For all you stats people, unless I am releasing a fund, I think it’s a waste of time to calculate a Sharpe or Sortino ratio on my portfolio. My intuition is that it is likely favourable, given I mostly sidestepped the Japan stock crash in August and the Nikkei225 chart looks like this:
As long-term readers of my Substack know, I don’t see price volatility as risk, so even if my Sharpe or Sortino ratios look nice, it doesn’t really imply I am skilled. I see the valuation in the worst-case scenario as risk.
Reflecting back on 2024, I believe there were
5 main reasons for how I generated +48% last year:
1) Be concentrated on your best ideas
2) Size uncomfortably big when there is virtually no downside
3) Focus on winners
4) Avoid losers
5) Get lucky
1) Concentration
I run an exploitative strategy.
For my poker nerds out there, the S&P500 index is a GTO strategy. One should only ever deviate (exploit) from investing in the index when one believes deviating can increase returns or generate alpha.
When one has insight, conviction, and the risk/reward of a stock is superior to what the index can provide, then and only then should one deviate and stock pick.
The art and science is position sizing. Academics and practitioners will likely argue on who is right.
Obviously, in a theoretical sense, if you have 10 equally attractive opportunities, diversifying equally amongst these 10 opportunities will maximize the benefits of diversification. Adding in a bit of Ray Dalio spice into the mix, it’s even better if you can add investments that are less correlated or completely uncorrelated.
But in a practical sense, it is extremely hard to come across so many no-brainer investments in a year, and very likely when you rank order the risk/reward of each stock, they likely differ.
Munger has stated 3 stocks are enough for the purposes of diversification. I believe this is too risky for my own risk appetite. I’m comfortable with 8-10 concentrated positions.
I am way more concentrated than most investors. I'm willing to put 20-25% of my portfolio in any 1 position if I know everything about it and have conviction.
It sounds risky, but these types of positions are entered with very low downside.
Also a bit of inspiration from Druckenmiller in watching your basket very closely. I am watching my largest positions very closely.
If the thesis changes, then I can exit a 20% position instantly. So being mentally flexible if you've been proven wrong.
If you have insight on how market participants trade your stock and volatility is way higher than it should be, not promoting technical analysis, you can cash in on a stock multiple times in a year if day traders who don't do fundamental analysis want to trade a stock from undervalued to fair valued multiple times a year. I drew inspiration for doing this from a book summary on Tatsuro Kiyohara, the CIO of Tower Investment Management, who compounded 20% annually during his 25-year run.
Check out
for the detailed English book summary on an investment book currently only published in Japanese. There are a lot of gems on how one should approach investing in Japan.
This goes against conventional wisdom, but this would give you a higher return than simply a buy-and-hold strategy.
When something is stated as “conventional wisdom” it means the population tendency is to do such a thing. It also means you are in a minority if you deviate which means you have no competition if deviating is worthwhile. You capture the alpha all by yourself.
The downside of this approach is that I have sold too early on stocks that I believe are fairly valued and they get over valued. You risk this happening when you take the above approach.
I do think, for the most part, buy and hold is still the way to go, and that is the way I approach most of my stocks.
Obviously, concentration is not for the lighthearted or for those who don't have as much time to spend on researching.
I also believe the lack in willingness to size large comes from the difficulty in reversing the brainwashing from modern finance.
If poker hands were stocks, you’d size AA the largest, then KK, then QQ and so on... Let’s say you uncover what you believe to be AA, why would you size it to 5% of the portfolio and have 22 as 2% of the portfolio.
The less you know about a stock, the smaller it should be as a % weight in your portfolio. Requires a bit of self-awareness.
I do have very small starter positions I take on stocks I just read from a stock pitch. If I don’t put any additional time into researching the stock myself, I don’t let it become more than a starter position.
What I find interesting about this is a $500-2k starter position that generates 10% return, pays you $50-$200 bucks. You’re getting paid to read and expand your knowledge base. I absolutely love this. The hard part is identifying the gems from the vast sea of write-ups. I have been quite lucky in this regard.
I have to thank
, , , , and Chief Inspector for indirectly paying me to read their content.I hope to add
to this list in 2025 as I missed adding Avant Group (3836) to my portfolio. A mistake of omission.Also, a huge thanks to
, ,, and JoinYellowBrick for creating a community to discover valueable stock pitches and connect with other like minded stock pickers.2) Gunslinger Mode Activated
I had a special situation set up where I sized 100%+ of my portfolio into it because the upside was +6% and the downside was +1% (assumed -1% to be safe).
The first time I applied the Kelly Criterion in investing.
Could have sized even larger, but stock didn't have enough daily volume
First Carl Icahn/Druckenmiller moment in my investing career, and it felt great.
But you have to be 99.99% sure you got the downside figured out correctly. I went through my work on the downside like 5+ times to be sure. And did multiple scenario analyses if an outlier event happened and the downside was worse than it really was.
3/4) Focus on Winners and Avoid Losers
This is similar to the idea that mountain skiers should focus on the snow and not trees. If you focus on trees, you will hit a tree.
If I were to take a screenshot of my portfolio, the bottom portion of my portfolio is where the most red colour resides. The top half is mostly green.
I have a rule in place adopted from Michael Burry where if a position drops below a 52-week low, you sell.
Once a stock drops below its 52-week low, it can become a dropping knife.
Another rule I have adopted from Carl Icahn is that any position that drops 20% I sell. I assume that I have made a mistake or there is something I overlooked.
This is very similar to the idea that Francois Rochon has on watering your flowers instead of your weeds.
Prior to 2024, some of my biggest losses were from watering weeds. I have completely avoided having any large losses in 2024.
I've found mentally looking at my portfolio to be way more enjoyable when your screen is filled with green and those being your biggest positions.
Not a momentum investor, but likely some momentum investing variables at play here.
Another thing I’ve kind of gotten better at in 2024 is adding onto my winners.
This approach has allowed me to cycle out of my losers and into more winners.
I know Buffett says if the price drops, he’s happy to buy more. Again, some of my biggest losses were from watering weeds. Maybe this is the part where the lack of skill comes in, or I have the right dose of humility.
My skill nor my ego is high enough where I will say for certain I am right on a stock when it goes down and I am long.
Jeremy Raper, when recapping his Tesla short, stated that the market can stay irrational longer than you can stay solvent. I believe the same lesson applies to longs. Maybe I am right, but…
-do I really want the mental drag that comes with having a losing position in my portfolio? Seeing the -20 to -50% in your portfolio is the market saying to you on a daily basis you are wrong. My research says I’m right. Am I prioritizing being right over maximizing returns?
-the position, due to negative sentiment, can stay at depressed levels longer, leading to a drag on your portfolio performance relative to your benchmark. The longer it takes price to reflect value, your annual return on the stock also declines.
-are there really no investment alternatives where I can redeploy capital?
Or I am wrong.
What I like about the systematic approach I have to taking losses is that my downside per stock is limited and the upside is unlimited. This prevents me from making big blunders.
5) Luck
Last year I made a lucky read/guess (who knows) that the JP market could tank further on the first day of the crash. I fortunately sold some big positions leading up to and on the 1st day of the crash. Sold more on the 2nd day. 3rd/4th day of the crash (valuations just looked too cheap) I rebought mostly everything back. And then soon after, the JP market rebounded.
I guess a little skill was showcased when I created a basket of stocks I felt were lagging the rebound and would eventually rebound. Taking inspiration from Kiyohara who sometimes invests in stocks before having done extensive research on a stock, the Aug crash was a unique opportunity where speed was key. There was no chance you could perform indepth analysis on every stock. Hence I used diversification in a basket approach to capitalize on stocks that were lagging the rebound.
Could I repeat timing the JP market crash that well? Probably not. This luck factor would inaccurately make my Sharpe and Sortino ratio higher if normalized for repeating 2024 100 times. Obviously, some fund managers will use this fortunate event as marketing for skill.
I only try to impress myself. This fortunate event is not what impresses me. I am way more impressed with myself when I am I right through displaying evidence of truly rational judgement and logical deduction.
Summary:
I genuinely believe if you know the majority of what is knowable about a stock, and the setup is high reward/low risk, you are doing your returns a disservice by sizing small.
I've spent 100-200 hours researching my best ideas. How many 200 hours do you have in a year?
In poker, it is easier to play loose and dial it back to play tight, but very hard to teach a tight player to play loose (expand their range).
In 2024, I decided to attempt honing my gunslinger instincts. Luckily, I exercised this in 2024, where the markets I invested in did well.
Am I skilled? In poker there is something called leaks, which are mistakes that hurt and decrease your EV (expected value). I try to patch up the investing equivalent of leaks and let the upside handle itself.
Well… not exactly after further contemplation. In poker, there is something called a value bet. Which is a bet that gets you paid for when you believe you have a better hand than your opponent. It is part art and part science of what exactly is the optimal sizing that gets you optimally paid by your opponent while balancing the frequency at which you are wrong.
What is the optimal portfolio sizing of a single stock to maximize the positive impact it can have on portfolio returns?
I like to think that 2024 was a year that I was trying to get maximally paid for the conviction I had on the stocks I knew very well that I believed had great upside potential.
Improvements for 2025:
1) Improve research output
If I were to be completely honest with myself, I definitely could have done more research and found more high-conviction investments.
I don’t believe in diversification for the sake of diversification. I do believe in the merits of diversification when you have lots of great high-conviction ideas at your disposal. So if I can find 10 great ideas, I could size them at 5-15% instead of 25%.
The hard part is finding these great ideas, as there are so few.
This is something I will be working to improve in 2025. Sometimes the stock reaches fair value and I don’t enjoy writing about fairly valued stocks. Sometimes I’ll start the research and the speed from undervalued to fair valued closes so fast I don’t have time to even finish writing about it. And this year, I wanted to get better at YouTube. Some ideas have also been written by others and I don’t like repeating research I think others have done a good job at. I enjoy writing when I think I have something important to add to the investment conversation. Probably making some excuses here.
2) Expand Circle of Competence
Another area for growth is expanding my circle of competence. I felt I did a good job of expanding my knowledge in the area of anime and anime beneficiary businesses like Round1 (4680), SK Japan, Furyu and others.
I feel I need to step outside my comfort zone of consumer companies which tend to be easier for me to understand given I can put myself in the shoes of both merchants and customers.
There is nothing wrong with specialization, but the area for further growth for me is to increase my understanding of more industries.
Closing Remarks:
I want to thank all my readers (Continouous Compounders) and friends for supporting me in this journey.
I also want to thank all the following fintwit and Substack accounts that have assisted in the growth of my following in 2024. The support I have received is nothing short of amazing. I am truly blessed to have you in my corner.
*Apologies if I left anyone out, hard to keep track of exactly everyone.
Thank you!
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Nice to see all your hard work paying off Alan :) Fighting!
Very interesting retrospective. I will try to incorporate some of your ideas / opinion into my investment journey going forward.
Up and onwards, mate !