The Paper Portfolio returned -5.68% during September vs -4.66% for the S&P500. This brings YTD returns to 9.90% for the Paper Portfolio vs 15.91% for the S&P500.
September saw a number of extraordinary and unexpected events. While Capital Flywheels anticipated some volatility around the potential announcement of Fed taper (check), Capital Flywheels did not foresee an energy shortage in China that is now feeding investor concerns around further supply chain stress and potential inflationary impact. This chaos is further compounded by other smaller events that add to the noise, including last minute negotiations around US debt ceiling, Evergrande default, and more.
The Paper Portfolio performed well throughout most of the month until the past week when the events mentioned above all more-or-less exploded into the open. At one point, the Paper Portfolio was outperforming the index by almost 6% for the month, only to give all that back and then some within the past week.
While that is a bit disappointing, it is all a very reasonable part of the game.
Not much to call out in terms of individual stock performance.
The lone callout would be Uber (+14.5%). However, Uber is simply rebounding from a very challenging selloff over the last two months.
For the October rebalancing, most of the weights will stay the same with just a few adjustments at the margin.
Capital Flywheel continues to think it makes sense to take a somewhat conservative stance while some of the macro and political uncertainties play out near-term. We live in a non-linear world. And not only do we live in a non-linear world, we live in a multiplicative world. The more things you have going on, the wider the potential range of outcomes. It’s one thing to predict the effect of one variable (e.g. Fed taper). It’s wholly more complicated to try to predict multiple variables and its cross effects (e.g. Fed taper while Evergrande defaults while China faces an energy shortage, etc).
To honor our preference for a more conservative stance, we will further raise cash slightly to 4.25% (vs 4% last month, and 2% two months ago).
Let’s see what October brings.
Disclosures: I own shares in NET, SE, PINS, MRNA, SDGR, U, PLAN, UBER, AYX. I have no intention to transact in any shares mentioned in the next 48 hours.