GAX Capital Management

GAX Capital Management

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Reflections – Jan 2025

YearPortfolioS&P 500
2017 Jul-Dec13.8%9.2%
2018-9.96%-6.24%
201936.3%28.88%
202032.6%16.26%
202117.72%26.89%
2022-8.25%-19.44%
202380.64%24.23%
202441.96%23.31%
Cumulative Return512.94%240.23%
Compounded average Return24.49%12.46%

It’s been a while since I shared updates, and I recognize the importance of maintaining better communication moving forward. Over the years, I’ve experienced track record, achieving almost double the returns of the S&P 500. While my professional career has kept me occupied, I’ve continued to invest in the market on the side. Managing a portfolio for some time has underscored how challenging it is to consistently outperform.

Recently, my investment philosophy has shifted toward a more concentrated approach. I now prefer holding a smaller number of positions—typically one to four companies—versus the broader portfolio I managed in the past, which at one point included 14 stocks. Truth be told, it became impossible to stay informed about many of those holdings, especially since investing isn’t my primary occupation. By late 2022, I transitioned to a leaner portfolio focused on companies I believe offer a more compelling risk-reward profile.

While concentrating investments may seem risky, I hold the opposite view: with diligent research and understanding, such an approach can reduce the likelihood of errors. Of course, no amount of preparation can fully anticipate the “unknown unknowns,” but as Charlie Munger wisely reminds us, “You don’t have to be brilliant, only a little bit wiser than the other guys, on average, for a long time. Avoiding stupidity is easier than seeking brilliance.” These days, I’m far more focused on minimizing mistakes than chasing outsized wins—a strategy that, over the long term, can yield impressive results.

What drives the market rise over time is the need to be conscious, patient, and able to ignore a lot of noise. Thankfully, I have a natural tendency to block out many “investment ideas” and, thank God, never feel regret for missing out, even if they gain 5x-10x. I have my own lane and my own wavelength, and I am content on that road as long as I can see and avoid the potholes. Others may prefer the highway, but I will always choose the countryside road to reach my destination.

Recently, Bitcoin, altcoins, and the AI rally have all been in a bull market, but these trends might now be exhausted (as of Jan 27th, the market is already down based on Deepseek AI’s news). Is this the end of the recent SP500 rise? The Shiller PE ratio is almost at the same level as in 2021, when the market reversed. For the market to continue its upward momentum, it will likely require a new theme to take hold if the AI rally is indeed over. Furthermore, the SP500 earnings yield is currently below the risk-free yield of US Treasury bonds. That alone should tell you something.

Long-term focus should not be ignored, though. America is still the best place to invest in. Innovation drives growth, and America remains home to many innovations today. My overall view at the moment, in the short term, is a little worrying to me. Therefore, I recently sold almost all my equity positions and allocated more than 50% of the portfolio into bonds, with the rest sitting in cash. I am totally happy with my portfolio at the moment, but we will soon know whether it was the right call to exit the market for now or not. I am not a fan of sitting in cash for long and might need to deploy the rest either into bonds or buy back the securities I sold recently.

Being in my early thirties, I now get to experience bubbles in real life rather than just reading about historical ones in books. Time and again, I conclude there will always be hype around some idea or innovation in the USA. After all, this is what makes America great in my view. Cash is poured into an idea, many fail, but one succeeds, and that success leads to further innovations and growth down the line. As an investor, one must be ready to decide whether they want to ride the train or observe it. I prefer to watch unless I notice the hype early, get on the train, and take the best seat—with extra gear to exit before it collapses under the weight of all the passengers. So far, I am good at missing the ride.

Now, sitting at 40% cash, 60% in bonds, I am on the lookout to see how 2025 continues to play and I will publish my musings bi-weekly after a long break.