Year 2024 Portfolio Performance
It has been a rather busy month in January (from our speaking engagements, workshops, travels and not forgetting CNY 🧧) and hence putting this up only in early February 2025.
The U.S. stock market in 2024 was a year marked by resilience, volatility, and transformative shifts across key sectors. Despite lingering concerns over inflation and interest rates, the Federal Reserve's measured approach to monetary policy provided a stabilizing force, allowing markets to navigate economic uncertainties.
The S&P 500 and Nasdaq Composite posted solid gains, driven by a resurgence in technology stocks, particularly those tied to artificial intelligence, cloud computing, and renewable energy. However, the year was not without its challenges, as geopolitical tensions and the supply chain disruptions created periodic headwinds. Investors remained cautiously optimistic, balancing growth opportunities with defensive strategies in a rapidly evolving economic landscape.
One of the defining themes of 2024 was the continued dominance of the "Magnificent Seven" tech giants, which expanded their influence across industries through innovation and strategic acquisitions. Meanwhile, the rise of generative AI technologies fueled a wave of investment in startups and established players alike, reshaping sectors from healthcare to finance.
Looking ahead, the 2024 market performance set the stage for a dynamic 2025, with investors closely monitoring the Federal Reserve's policy trajectory and the potential impact of the Trump’s tariff policies. As investors reflect on 2024, the lessons learned will likely shape strategies for navigating the opportunities and risks of the years to come.
Portfolio Performance
Our Moneyball Investing portfolio went up by about 27% in 2024, slightly outperforming the S&P 500 which was up by about 23%. In blue, is our portfolio returns while in green is the S&P 500 returns.
You can see that while we strive to achieve better risk-adjusted returns, the portfolio has also demonstrated resilience by keeping pace with the SPY during market pullbacks. This highlights an important principle: higher potential returns on the upside do not always equate to an equal magnitude of downside risk during periods of heightened market volatility, provided the approach is executed prudently.
At the start of the year, the portfolio experienced slight underperformance, primarily due to being underweight in some of the AI-related tech stocks that drove early market gains. However, as the year progressed, the portfolio managed to catch up and deliver strong performance in the latter part of the year. For investment strategies that prioritize strong risk-adjusted returns, short-term underperformance during strong bull markets is not uncommon and should be expected, as these strategies often avoid overexposure to overheated sectors.
When viewed collectively in the chart, this dynamic illustrates what we term asymmetrical returns—where the portfolio captures a significant portion of the upside during favorable market conditions while mitigating losses during downturns. This balance allows for a more stable and sustainable growth trajectory over time, aligning with the goal of achieving long-term wealth accumulation in a measured and risk-conscious manner.
As we wrap up the 2024 performance review, here’s a year-on-year comparison of our Moneyball Investing Portfolio, represented in green, against the S&P 500, shown in yellow. Over the years, our portfolio has generally outperformed, delivering stronger results in most periods.
However, the notable drawdowns in 2021 and 2022 were primarily driven by the underperformance of Chinese equities within our portfolio. These challenges highlighted the impact of China-specific risks, but the overall trajectory of our strategy has remained resilient for the most part. And a key part of how we achieve this is our understanding of the relationship between risk and return.
Risk-return relationship
At this point, it’s timely to revisit the concept of risk and return, which we believe is going to be a central theme for investing this year—though it’s often misrepresented by mainstream financial media.
To make more prudent and informed investment decisions, it’s essential to understand how the relationship between risk and return operates, particularly from a risk-to-reward perspective. This understanding allows investors to align their strategies with their financial goals and risk tolerance.
If you look at most online resources, you’ll often find a graphical representation of risk and return, where moving from left to right indicates an increase in expected risk, accompanied by a corresponding rise in expected return. While this linear relationship serves as a foundational principle, real-world investing is far more nuanced.
Or maybe a more sophisticated one like the efficient frontier model, which is the set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return.
A key finding of this concept was the benefit of diversification resulting from the curvature of the efficient frontier. The curvature is integral in revealing how diversification improves the portfolio's risk/reward profile. It also reveals that there is a diminishing marginal return to risk.
We've always found that the way risk is shown in both graphs being too over-simplified. The straight-line relationship makes it look like higher risk will definitely lead to higher returns, which isn’t really the case.
In practice a better representation is to add bell-shaped curves to represent probability distributions turned sideways. This shows that returns from riskier assets are more uncertain.
Risk isn’t just about the range of possible outcomes—it’s also about how likely each one is. A portfolio that consists of more stocks like 90% stocks 10% bonds will have a wider range of anticipated outcomes both on the upside and downside. On the other hand, a portfolio with only 50% stocks and 50% bonds have an outcome that is more contained.
In practice, this is how the relationship between risk and returns works.
Now, we see that as the thing called “risk” increases (that is, as we move from left to right on the graph by having a portfolio of more stocks, or stocks with higher beta), not only does the expected return increase, but the range of possible outcomes becomes wider and the bad outcomes can also become worse.
Someone who believes in “more risk, more return” as portrayed in the first diagram will logically adopt a high-risk posture. But if they understand the real implications of increased risk, as suggested by the later representations, then it could be sensible that they might opt for something more moderate at times.
So to sum up, the problem is that most investors often only focus on the returns narrative. Investors usually understand returns. And the financial media focuses on that as well.
If you are interested to learn more, this recent video below by Coach Hazelle explains further on how investors can manage risks and uncertainty in their portfolio.
Selecting an appropriate risk posture – defense or offense
To summarize, which brings us to our next point, we believe that investing and portfolio management fundamentally revolve around selecting a specific "risk posture"—the ideal balance between aggressiveness and defensiveness. At its core, investing is about deciding how much emphasis to place on capital preservation versus growth, a decision that shapes the entire strategy.
For Singapore REITs and Chinese equities, we remain optimistic about their potential upside in 2025. However, for U.S. equities, we adopt a selectively bullish stance, tempered with a higher degree of caution.
When portfolio construction is viewed as a pursuit of the right balance between offense and defense, the goal shifts from mere maximization to thoughtful optimization. It’s not just about chasing wealth, but about achieving it in a deliberate and intentional way, tailored to the investor’s unique goals and needs.
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