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2024 Stock Market Results: Analyzing Performance and 2025 US Portfolio Picks

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2024 Stock Market Performance Review

The year 2024 brought mixed results for investors, with significant disparities between different markets and sectors. Let's dive into the performance analysis and key takeaways from the past year.

Patreon Portfolio Performance

The Patreon portfolio, which mirrors the author's personal investments, achieved a return of 14.9% in 2024. This figure is pre-tax but accounts for transaction costs. While this performance falls slightly below the author's historical average of 17.8% per year since August 2013, it still represents a solid return in absolute terms.

Benchmarking Against the S&P 500

However, when compared to major market indices, particularly the S&P 500, the Patreon portfolio's performance appears less impressive. The S&P 500, tracked by the SPY ETF, delivered a remarkable 25.3% return in 2024. This significant outperformance by the broader market highlights the challenges faced by active investors in beating index returns.

Global Market Disparities

It's crucial to note that the strong performance of the US market was not mirrored globally:

  • UK market: Up 9.5%
  • French market: Up 0.6%
  • Swedish market: Up 8.6%

These figures underscore the exceptional nature of the US market's performance in 2024 and the importance of geographical diversification in investment strategies.

Small Cap vs Large Cap Performance

A notable trend in 2024 was the significant outperformance of large-cap stocks compared to small-caps. The MSCI World Index showed a stark contrast:

  • Large-cap stocks: 19.2% return
  • Small-cap stocks: 8.7% return

This disparity had a substantial impact on portfolio performance, especially for investors focused on smaller companies.

Analyzing the 2024 US Portfolio

In contrast to the broader Patreon portfolio, a separate US-focused portfolio created at the end of 2023 performed exceptionally well. This portfolio, consisting of 10 equally-weighted US companies, achieved a 38.6% return in 2024, outperforming even the S&P 500.

Key Factors in the US Portfolio's Success

  1. Focus on US companies: The decision to concentrate solely on US-based firms proved beneficial given the strong performance of the US market.

  2. Currency exchange effect: A positive currency exchange impact of nearly 10% contributed to the overall return.

  3. Stock selection: The chosen companies outperformed the broader market, indicating effective stock picking.

Lessons Learned and Self-Reflection

Despite the strong performance of the US portfolio, the author acknowledges several investment mistakes made during 2024:

  1. Attachment to purchase price: Allowing the initial buying price to influence decision-making.

  2. Missing the forest for the trees: Focusing too much on minor details at the expense of the bigger picture.

  3. Attempting to "jump over 7-foot bars": Taking on unnecessarily difficult investment challenges.

  4. Excessive activity: Checking stock prices too frequently, leading to emotional decision-making.

  5. Confirmation bias: Seeking information that confirms pre-existing beliefs about investments.

Recognizing these mistakes provides valuable lessons for improvement in future investment strategies.

Introducing the 2025 US Portfolio

Building on the success of the 2024 US portfolio, a new selection of 10 US-based companies has been chosen for 2025. Each company represents approximately 10% of the portfolio. Let's examine each selection in detail:

1. Genuine Parts Company (GPC)

Business: Distributes automotive replacement parts

Key Metrics:

  • Consistent growth
  • Insider purchases
  • Low short interest
  • Reliable earnings (6-8% margin range)
  • Reasonable debt levels (max 5x EBIT)
  • No major regulatory or competitive issues
  • Current valuation: EV/EBIT of 15, P/E of 19

2. Heidrick & Struggles International (HSII)

Business: Hiring and consulting services

Key Metrics:

  • Cyclical but with decent growth
  • Attractive valuation: EV/EBIT of 7
  • Large net cash position
  • High return on invested capital

3. Keurig Dr Pepper (KDP)

Business: Beverage manufacturer and distributor

Key Metrics:

  • Strong market position despite competition from Coca-Cola and PepsiCo
  • Impressive growth in sales and margins
  • High return on investment
  • Current valuation: EV/EBIT of 18-19

4. Leggett & Platt (LEG)

Business: Bedding and furniture products

Key Metrics:

  • Operates in a slow-moving, commoditized industry
  • Potential for margin improvement
  • Current valuation: EV/EBIT of 13.5 at depressed margins

5. Leos (Company details not provided)

Business: IT services and consulting

Key Metrics:

  • Stable business model
  • Positive margin trends
  • High return on investment
  • Current valuation: EV/EBIT of 12, P/E of 14

6. LKQ Corporation (LKQ)

Business: Automotive replacement parts distribution

Key Metrics:

  • Strong competitive position due to distribution scale and sourcing network
  • Excellent growth
  • Decent return on investment
  • Attractive valuation compared to peers

7. ManpowerGroup (MAN)

Business: Recruiting and workforce solutions

Key Metrics:

  • Major player in the recruiting industry
  • Facing some competitive pressure from AI
  • Current valuation: EV/EBIT of 11 at depressed margins
  • Potential for revaluation if margins improve

8. Resources Connection (RGP)

Business: Consulting services

Key Metrics:

  • Lower market share in a commoditized industry
  • Attractive valuation: EV/EBIT of 11 at current low margins
  • Potential for significant upside if margins improve to historical averages

9. Ryerson Holding (RYI)

Business: Industrial metals processing

Key Metrics:

  • Capital intensive, commodity-based business
  • Attractive valuation based on historical margin averages
  • Potential EV/EBIT of 9 if sales and margins align with projections

10. United Parcel Service (UPS)

Business: Global logistics and package delivery

Key Metrics:

  • Strong competitive position due to economies of scale
  • Reliable growth and margins
  • Current valuation: EV/EBIT of 15, P/E of 17.5
  • Potential for margin improvement

Portfolio Construction and Rationale

The 2025 US portfolio has been constructed with several key principles in mind:

  1. Diversification: The portfolio spans various industries, including automotive, consulting, beverages, furniture, IT services, recruiting, metals processing, and logistics.

  2. Valuation Focus: Many of the selected companies are trading at attractive valuations relative to their historical performance or industry peers.

  3. Competitive Positioning: Several companies in the portfolio hold strong market positions or operate in industries with high barriers to entry.

  4. Potential for Improvement: Some selections, such as Leggett & Platt and ManpowerGroup, offer potential upside if they can revert to historical margin levels.

  5. Balance of Stability and Growth: The portfolio combines stable, cash-generating businesses like UPS with companies offering higher growth potential.

Investment Strategy and Outlook

The construction of this portfolio reflects a value-oriented approach, focusing on companies trading at reasonable valuations with potential catalysts for future growth or margin improvement. By diversifying across different sectors and selecting companies with varying risk-reward profiles, the portfolio aims to balance potential returns with risk management.

Key themes in the 2025 portfolio include:

  1. Recovery Plays: Companies like ManpowerGroup and Resources Connection could benefit from economic recovery and a return to historical margin levels.

  2. Stable Performers: Businesses such as Genuine Parts Company and UPS offer reliability and consistent cash flows.

  3. Market Leaders: Keurig Dr Pepper and LKQ Corporation represent strong players in their respective industries.

  4. Value Opportunities: Stocks like Ryerson Holding and Leggett & Platt are selected based on attractive valuations relative to their potential.

Conclusion

The 2025 US portfolio represents a carefully selected group of companies chosen for their potential to outperform in the coming year. While past performance, as seen in the successful 2024 US portfolio, is encouraging, it's important to remember that market conditions can change rapidly.

Investors should conduct their own research and consider their personal financial situations before making investment decisions. The stock market inherently carries risks, and diversification remains a crucial strategy for managing these risks.

As we move into 2025, monitoring these companies' performance, industry trends, and broader economic factors will be essential for understanding the portfolio's development and making any necessary adjustments.

Remember, successful investing often requires patience, continuous learning, and the ability to adapt to changing market conditions. The insights gained from analyzing the 2024 performance and constructing the 2025 portfolio provide valuable lessons for all investors, regardless of their specific investment choices.

Article created from: https://www.youtube.com/watch?v=O9wuKLWQORs

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