The World closed the books on a tumultuous 2022. A war started in Ukraine, inflation topped a 40-year high of 9.1% in June 2022 and averaged 8.3% through November, and Covid continues to rage. This prompted the Federal Reserve to raise interest rates and start quantitative tightening which hurt asset prices across the board. That in turn led to a steep decline in transactions for new and existing home sales and refinancings.
2022 more importantly was a reckoning for what I call the Five Horsemen of Speculative Assets: Cryptocurrencies, SPACs, NFTs, Meme Stocks, and IPOs of negative cash flow companies. These all got smashed extra hard.
Talguard beat most major indices and asset classes across the board by a substantial margin. For Talguard investors, you can see the results in the table included in your personalized Year End Report.
What Went Up For Us In 2022?
Talguard beat most major indices and asset classes across the board by a substantial margin. For Talguard investors, you can see the results in the table included in your personalized Year End Report.
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| Talguard Value Fund LP's investments in Health Care came in strong in 2022. In fact, that sector returned positive double digits. |
What Went Up For Us In 2022?
Although this was a down year, Talguard crushed the S&P 500 and Nasdaq significantly. Talguard also beat bonds in a down year which is another sign of our strength. Remember, we invest in stocks. Bonds are supposed to be the safe havens, yet we still beat them by a wide margin. Furthermore, the return on bonds is capped and most of those bonds had only a few percent of interest rates, thus for the Corporate Bonds Index to go down 17.3% is much worse then it appears. Talguard in up years beats these bonds by even more as you have seen. Our existing investments having weathered this economic storm and inflation better than major indices is proof that our strategy is working. We want to stay strong in downturns and do really well in boom years as you have seen.
How did Talguard do this? We had strength in certain sectors. Our investments in Health Care came in strong. In fact, that sector returned positive double digits. Auto Parts, Energy, and Consumer Staples were additional sources of strength.
I added to our Aerospace & Defense investments in January 2022 which proved prescient on February 24, 2022, when Russia invaded Ukraine. Much of the World thought there was no way Russia would start a full-scale war on Ukraine, yet it did. Once started, the World then thought it would be over in two weeks but Ukraine has not only survived but they have taken the fight to the Russians by reclaiming territory.
We also made investments in some beaten-down companies that fit our quality standards and were undervalued during the year. They proved profitable.
What Went Down For Us In 2022?
How did Talguard do this? We had strength in certain sectors. Our investments in Health Care came in strong. In fact, that sector returned positive double digits. Auto Parts, Energy, and Consumer Staples were additional sources of strength.
I added to our Aerospace & Defense investments in January 2022 which proved prescient on February 24, 2022, when Russia invaded Ukraine. Much of the World thought there was no way Russia would start a full-scale war on Ukraine, yet it did. Once started, the World then thought it would be over in two weeks but Ukraine has not only survived but they have taken the fight to the Russians by reclaiming territory.
We also made investments in some beaten-down companies that fit our quality standards and were undervalued during the year. They proved profitable.
What Went Down For Us In 2022?
Technology is the biggest culprit. After years of outperformance, many tech companies came into this year overvalued and they were going to see a slowdown in sales. Good thing I repositioned us to be lighter on technology at the end of last year. While many tech companies are still overvalued, the industry’s turmoil created opportunities. One of our best gainers was a tech company that we invested in the latter part of the year. We felt it was overbeaten down and it is a good example of what I mentioned above.
We also saw a drop in our Consumer Discretionary, Building Materials, and Retailers categories. Other industries were more of a neutral bag. Most notably, none of the companies we have ever invested in has gone to zero or anywhere close.
What’s Ahead?
Now it is a new year but our fundamental bottom-up investment process remains the same. We did not drop as much as the Market in this big down year and we also had bigger gains during Market up years. The key is to invest for the long run with quality companies that you buy for a good price. And to recognize when to divest when necessary. The rest will take care of itself.
Stocks may get depressed because of high inflation in the short run, but in the long run stocks of quality companies is one of the best hedges against inflation. This is because quality companies can raise prices, retain their customers and grow over the long run.
We do not evaluate investments or the Market environment on a quarterly or one year basis. Our time horizon is 5 years+, ideally forever for our investments assuming they stay dominant in their position and nothing fundamental changes. That is the only way you can achieve the power and benefits of compounding returns.
Here’s to a happy 2023 and beyond!
Best,
Dan H. Chen
President
Talguard Investments LLC
531 Main Street
Suite 1165
El Segundo, CA 90245
Tel: (310) 923-2138
Email: dan@talguard.com
Confidentiality Notice: Please note this email communication is strictly confidential, and it is intended only for the recipients named in the email. The recipient of this email is not authorized to reproduce or forward this email or any attached documents in any way. If you have received this message in error, or are not the named recipients, please immediately notify the sender dan@talguard.com and delete this email communication from your computer and email account. Thank you.
We also saw a drop in our Consumer Discretionary, Building Materials, and Retailers categories. Other industries were more of a neutral bag. Most notably, none of the companies we have ever invested in has gone to zero or anywhere close.
What’s Ahead?
Now it is a new year but our fundamental bottom-up investment process remains the same. We did not drop as much as the Market in this big down year and we also had bigger gains during Market up years. The key is to invest for the long run with quality companies that you buy for a good price. And to recognize when to divest when necessary. The rest will take care of itself.
Stocks may get depressed because of high inflation in the short run, but in the long run stocks of quality companies is one of the best hedges against inflation. This is because quality companies can raise prices, retain their customers and grow over the long run.
We do not evaluate investments or the Market environment on a quarterly or one year basis. Our time horizon is 5 years+, ideally forever for our investments assuming they stay dominant in their position and nothing fundamental changes. That is the only way you can achieve the power and benefits of compounding returns.
Here’s to a happy 2023 and beyond!
Best,
Dan H. Chen
President
Talguard Investments LLC
531 Main Street
Suite 1165
El Segundo, CA 90245
Tel: (310) 923-2138
Email: dan@talguard.com
Confidentiality Notice: Please note this email communication is strictly confidential, and it is intended only for the recipients named in the email. The recipient of this email is not authorized to reproduce or forward this email or any attached documents in any way. If you have received this message in error, or are not the named recipients, please immediately notify the sender dan@talguard.com and delete this email communication from your computer and email account. Thank you.
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