As 2023 comes to an end, the third year of the FiveTwenty portfolio experiment is now complete. It’s a moment to review the portfolio’s performance against the easy-peasy benchmark and contemplate any newfound insights.
By the numbers
While 2023 witnessed a robust performance in the overall stock market, it posed significant challenges for the FiveTwenty portfolio. The initial 12% overperformance against the easy-peasy portfolio at the close of 2022 was reduced to 6% by the end of January 2023 and eventually transformed into a 4% underperformance by the end of May 2023. Ultimately, the FiveTwenty portfolio concluded the year trailing the benchmark easy-peasy portfolio by 9%.
In 2023, the FiveTwenty portfolio encountered a new development. It marked the inaugural year in which we exited positions as a result of dividend cuts or company spinoffs. Throughout the year, we closed our positions in INTC and VFC due to dividend cuts, while the positions in KNF and WBD were closed because these two spinoff companies do not distribute dividends.
Overall, as of the end of 12/29/2023, the last trading day of 2023, the FiveTwenty portfolio had a net loss since inception of (2.73)%. 17 active and 1 closed position increased in value while 18 active and 3 closed positions decreased in value.
Regarding dividend payouts, the FiveTwenty portfolio consistently exceeded the easy-peasy benchmark in each quarter for the third consecutive year. However, when compared to the quarterly dividend targets specified in the strategy description, the dividend payouts for the FiveTwenty portfolio were slightly below expectations. Over the year, the FiveTwenty portfolio accumulated $9,673.48 in dividends, and the easy-peasy benchmark yielded $6,354.16, while the expected value from our strategy estimates was $9,772. Furthermore, the portfolio concluded the year with a TTM (Trailing Twelve Months) yield on the current value of 3.40% and a TTM yield on cost of 3.31%.
Some “fun” portfolio facts as of 12/29/2023:
| for a position | highest | lowest |
|---|---|---|
| Value change | 65.31% | (37.11)% |
| TTM dividend yield (on current value) | 7.35% | 1.22% |
| TTM dividend yield (on cost) | 7.00% | 0.76% |
| TTM dividend payout | $720.62 | $8.32 |
| % of portfolio | 10.06%* | 0.21% |
Takeaways
Timing the market: Resisting the temptation to time the market is hard. From the inception of the FiveTwenty experiment, we established a rule-based strategy to eradicate market timing tendencies. Nevertheless, over the initial three years of the experiment, market timing behaviors persisted. They influenced our decisions regarding when to purchase shares, either before or after earnings reports, ahead of ex-dividend dates. They played a role when determining the optimal timing to exit a position following a dividend cut or a spinoff. It was only when we began deploying FiveTwenty capital into VIG and VIGI that we successfully eliminated market timing entirely from the experiment.
Overly simplistic expectations: Staying abreast of developments across the entire universe of dividend-paying stocks has proven more time-consuming than initially expected. The multitude of variables impacting a company, coupled with the limitations of our strategy’s rules in simplifying qualitative analysis, leaves too much complexity. The underlying idea of selecting individual stocks rather than investing in an index fund is based on the premise that we can identify “good” companies and avoid the “bad” ones. However, our track record has been a mixed bag – encompassing both successful picks (e.g., CAT, ABBV, GD) and notable underperformers (e.g., VFC, WBA, T). The time invested in handpicking individual stocks has not yielded a positive return. The decision in the latter half of 2023 to channel virtually all new capital into VIG and VIGI reflects the acknowledgment of our failure to establish a distinct advantage in stock selection.