PLTR - Yes 2022 Was 'Challenging'

Summary

• Let's face it, 2022 was a challenging year.
• Major market averages and popular stocks tanked (some much more than others).
• While Q4 was an average quarter for my All-Weather Portfolio, full-year results outperformed major market averages significantly.
• Diversification, rotation, adjustments around substantial peaks and troughs, and effective hedging enabled the AWP to outperform the market last year.
• Looking forward to 2023, I see enormous opportunities approaching.

2022 was "challenging." The S&P 500/SPX ( SP500 ) lost about 1,000 points, roughly 20% of its value, throughout this challenging phase. Moreover, the crucial stock market index dropped by as much as 28% from peak to trough in 2022. However, other major stock indexes performed even worse. Invesco's Nasdaq QQQ Trust ETF ( QQQ ) crashed by nearly 40% during the height of the 2022 bear market and ended the year down by about 33%.

Major Average ETFs - Some Crashed More Than Others

Many widely held individual stocks performed even worse, with many prominent names dropping by 50-70% or more during this disastrous period.

Popular Stocks Tanked in 2022

Excessive and unhedged exposure to popular tech stocks inflicted significant damage on many portfolios, and of course, even my All-Weather Portfolio ("AWP") felt some pain last year. Let's step back and look at what worked, what didn't, what could have worked better, and what will likely work as we advance in the new year.

AWP - Q4 Highlights

Technology Segment's Q4 Rollercoaster Ride

I've always been fascinated with technology, and tech has continuously been among the top holdings in my All-Weather Portfolio. While I began Q4 with about a 16% stake in technology, the tech segment ballooned to about 26% of portfolio holdings by year-end. I increased positions around the dips and hedged considerably during steep declines. The bottom line is that there are too many compelling opportunities to pass up in technology.

By the end of Q4, my top tech holdings included Amazon ( AMZN ), Alphabet ( GOOG ) ( GOOGL ), Meta ( META ), Palantir ( PLTR ), Tesla ( TSLA ), and several others. While the Nasdaq declined by about 1% in Q4, the AWP's technology segment appreciated by approximately 4% in the quarter (including hedging premiums). Due to the volatility and high options premiums, technology is the primary segment I implemented collar hedges throughout 2022.

China Stocks - Q4's Top Performer

Yes, I invest in Chinese companies, and with a 23% gain, China was the AWP's best-performing segment last quarter. I came into the quarter with about a 7% allocation and ended the quarter with roughly the same stake. However, I traded around the peaks and troughs, as there was significant volatility and substantial buying opportunities due to panic selling last quarter. Top performers included XPeng ( XPEV ), JD.com ( JD ), Pinduoduo ( PDD ), and Baidu ( BIDU ).

The Defense and Aerospace Segment

The defense sector was a significant segment in the AWP last quarter. Defense stocks accounted for about 9% of portfolio holdings when the year ended and returned about 16% in the fourth quarter. Notable outperforms included Lockheed Martin ( LMT ), Boeing ( BA ), and Spirit AeroSystems ( SPR ).

Gold, Silver, Miners "GSMs"

Gold, silver, and mining stocks remained a pillar of the AWP in the fourth quarter. The segment accounted for 26% of portfolio holdings at the end of 2022, with around 6% in physical metals and 20% in gold and silver-related mining stocks and ETFs. The segment appreciated by 15%, and top-performing positions included physical silver, Agnico Eagle Mines ( AEM ), Fortuna Silver ( FSM ), Pan American Silver ( PAAS ), and others.

The Cryptocurrency Basket

While Bitcoin and other cryptocurrencies represented a relatively small portion of AWP holdings (under 10%) in Q4, the basket delivered a 17% return in the quarter. Several successful trades accounted for most of the income, including a more than 70% rise in Dogecoin ( DOGE-USD ) in just several sessions.

Other Segments

Other segments like healthcare, energy, and financials also brought significant returns. Staples increased by around 5% in the quarter, and the underperforming sector last quarter was the AWP's materials space. Bond instruments also showed a slight loss for the quarter.

Overall Q4 Performance

Overall, The AWP returned approximately 13% in the fourth quarter. The cryptocurrency basket appreciated by 17%, and the GSM segment increased by 15% in the quarter. While stocks and ETFs (non-GSM) appreciated by only 3%, the total return equated to 11% after hedges and dividends got factored in. In comparison, the Nasdaq lost 1% in Q4, and the SPX appreciated by 7% in the quarter. The NYSE also appreciated by roughly 13%, and the DJIA outperformed with a 15% gain in the fourth quarter.

However, for the full year 2022, all major averages showed a loss. The SPX declined by 20%, the Nasdaq 100 dropped by about 33%, the Russell 2000 gave up around 21%, and the DJIA fell by roughly 8% on the year. Despite the significant negative headwinds, the AWP delivered a positive return of 16.7% for the whole year. Diversification, rotation, adjustments around substantial peaks and troughs, and effective hedging enabled the AWP to outperform the market last year in a highly challenging environment.

Looking Forward to 2023

2023 promises to be an exciting new year. However, it should be much different than in 2022. While we could see more volatility in Q1, the stock market should bottom in the first half of the year. Moreover, significantly oversold quality tech companies may have bottomed already. If not, the downside is likely minimal as we advance. Additionally, we should get compelling hedging opportunities as stocks attempt to find a bottom in 2023.

I have several core positions, including Amazon, Alphabet, Palantir, Alibaba, Baidu, Meta, and Tesla. These seven holdings account for nearly 20% of the All-Weather Portfolio's weight going into the new year. Moreover, I'm entering the new year with a significant GSM position equivalent to approximately 26.5% of the AWP's weight. The defense sector accounts for around 10% of portfolio holdings, and energy accounts for about 7.5%. Materials are at 6%, bond instruments are at 3.5%, and the cryptocurrency basket accounts for roughly 7.5% of portfolio holdings to start the year.

Yes, 2022 was challenging, but we turned it into a positive year. 2023 is not going to be a picnic. However, we should see another big year, especially as the market comes off the lows and the economy recovers in Q2 and the second half. My 2023 year-end target for the S&P 500 is 4,500, representing an 18% upside from current levels.

For further details see: