Letter to the copiers from eToro Popular Investor @IlMatematico — Q3 2023
I’m the investor IlMatematico and I’m a Popular Investor on eToro.com . Welcome to my quarter report, where we will review my performance in Q3 2023. This report is written as a report intended for those who copy me using eToro copytrading, but it can be an informative read for anyone trying to learn this fascinating but complex world.
In this report, along the lines of the quarterly reports of listed companies, we will provide a summary of what happened in the last quarter and more generally in 2023, further analysis from the point of view of my copiers, financial education advice and finally, we will imagine possible scenarios for the next quarters based on the limited information available.
Due to the size and aesthetics of the document I am presenting to you, I felt the need to provide you with a more complete document than a simple eToro post, for this reason I opted for a post on another more flexible platform which I will probably also publish in PDF format.
Extracts of this report will also be published on my eToro profile from time to time, so please make sure to follow me to stay updated on my latest insights and market analysis.
Disclosure for advanced investors: this document is written primarily with inexperienced investors in mind. If you are an advanced investor, I hope you will forgive me for a few too many explanations.
If you are an eToro user but you don’t follow me yet, I invite you to add me to your list of followed people by clicking on this link:
https://www.eToro.com/people/ilmatematico
I’m on Twitter, now: https://twitter.com/il_matematico
If you are not a user of eToro and you are undecided whether to become one, try to register for free and take advantage of the possibility of experimenting with the virtual account that will allow you to follow me and try to invest without risking real money, using this link:
https://etoro.tw/3XuhXrK
… and, of course, try to copy me to discover how works the copytrading.
𝐁𝐈𝐎
Born and raised in Italy, I am a fundamental analysis enthusiast. As an Information Engineer, I bring a unique perspective to understanding tech stocks, but my analysis spans various sectors.
My investment journey began in 2016, focusing on single stocks and stock picking, preferring them to index investing. My goal is to share my insights on both U.S. and European stocks.
𝗣𝗘𝗥𝗙𝗢𝗥𝗠𝗔𝗡𝗖𝗘
On eToro I tracking my performance since 2017 and I’m a Popular Investor since 2018. My average annual return is over 34.11% per year, 725% 𝐢𝐧 𝟔 and 3/4 𝐲𝐞𝐚𝐫𝐬! (numbers @ October 1st, 2023).
All data included in this report, except where otherwise specified, is as of October 1, 2023.
𝗦𝗧𝗥𝗔𝗧𝗘𝗚𝗬
I’m an 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿, not a trader. This is an advantage for you because with an average of 1–2 trades per week, you have fewer risks and fewer commissions.
I have 3 investment areas:
· Growth stocks (35%);
· ETFs, Value stocks and Dividend stocks (35%);
· Cryptocurrencies (30%).
Invest for dummies
Investing means exposing our capital to greater risk than inactivity, with the aim of earning a “risk premium”.
The aim of investors is to use their capital in investments whose risk is overvalued by the markets in such a way as to have premiums higher than the actual risk incurred, in the long run.
This premium is the return on investment.
I invest for the long term. So I consider myself an investor, not a trader.
To find out the difference between the two terms you can read this post of mine: https://etoro.tw/3CcE65c
Usually, a trading platform allows you to invest in foreign currencies (forex), shares, ETFs, funds, and other assets that allow you to have an economic return. In addition, eToro.com is a social community where you can learn to invest by following other investors. Finally, you can activate an automation feature where you simply choose an investor to copy, and when they trade, so do you.
If you do not want to invest by exposing your capital to risk, you will instead be certain that your capital will lose value at approximately the speed indicated by this graph:
What you see in the graph is the speed with which the dollar has lost value in the past. It is not certain that it will happen at the same speed in the future, but what has happened in recent months is not comforting.
On the other hand, the graph of my performance, and the graphs of the reference benchmarks, present gains achieved in the past which are not guaranteed to recur in the future. After all, as mentioned above, the profitability of an investment is the premium for the risk to which one agrees to submit.
Performance Q3 2023
In Q3 I achieved a -3.23%, with a good July (+3.27%) and then a negative August (-4.76%) and September (-1.61%). Here are my performance results compared to some benchmark markets:
Q3 2023 (dividends excluded)
IlMatematico: -3.23%
Nasdaq100: -2.01%
SPX500: -3.35%
Total Cryptocurrency Market Cap (by Coinmarketcap): -10.00%
The performance was better than the benchmark ( $SPX500 ) but still lower than the performance of the Nasdaq; we basically remained aligned to the $NSDQ100 with an underperformance due to -10% of our cryptocurrencies. But before we delve deeper, let’s take a look at the details, month by month:
In these 9 months, if we see our portfolio in dollars, we have had a growth of 17.95% (dividends excluded). But since I am Italian, for me and all my European copiers, I have also included the % performances calculated in euros. Here we are also doing slightly better with a total capital growth of 19.63% (dividends excluded) obtained thanks to favorable movements in the exchange rate between the two currencies.
Dividends
The performances indicated in the paragraph above are to be understood as excluding Dividends, which we will talk about in this paragraph. For accounting reasons, eToro does not include dividends in its performance reports, so we will do so now.
But what are dividends?
Stock dividends are cash or stock payments made by a company to its shareholders. These payments represent a portion of the company’s profits and are distributed proportionally to the number of shares owned by each shareholder.
Why dividend stock?
In view of the current market turbulence, and to control the risk score, I decided to set up our portfolio with a portion of dividend stocks.
The advantages of dividend stocks are that in general they are less subject to volatility and that in most cases the dividend distributed is not too affected by the ups and downs of the market.
You can learn more about this topic by reading the following post:
WHY I AM BUYING DIVIDEND SHARES
My dividend in 2023
In this graph, you can see the evolution of the dividends in my account. The blue value, month by month, indicates the quantity of dividends (in % of capital) paid in the month. The brown value indicates the amount of dividends collected in the last 12 months compared to the indicated month.
I find the method of analyzing the last 12 months of dividends (LTM) particularly explanatory because it allows you to clearly “visualize” the trend of dividends regardless of the seasonality of payments.
In September the value of dividends collected in the 12 LTMs reached 1.57% of the entire portfolio.
In September the value of dividends collected YTD reached 1.30% of the entire portfolio.
This means that if you had started copying me on January 1st with $1000, you would now have another $13 in your liquidity resulting from the dividends of the stocks I selected. I remind you that on eToro the dividends arrive directly into your liquidity without passing through the copy amount.
This value must then be added to the portfolio growth indicated in the previous paragraph:
eToro Risk Score
In eToro the Risk Score indicates how sharply the value of that investment changes over time. The sharper the deviation, up or down, the more volatile the investment and the riskier it may be considered.
eToro encourages Popular Investors as me and the other investors to keep their risk score low, so one of the few limitations of being Popular Investors is the constant need to deal with the RISK SCORE.
The consequence of keeping the risk score under control is having to keep the volatility of the portfolio low. To achieve this goal, 35% of my portfolio is dedicated to ETFs, Value stocks and Dividend stocks which notoriously make the portfolio less volatile than Crypto and growth stocks.
In this graph you can see how over the last year I have consistently hovered around a risk score of 4.
I also think I did an excellent job on the drawdown, lowering it to around 9% per year (much better than 90% of ETFs).
Finally, in this screen, you can see the risk distribution on my assets.
Long Period Performance
Indeed, the performance of the last quarter was not exciting, but for a long-term investor like me, what matters is the long-term performance.
And in the long run here’s how it’s going:
From Jan 2017 to Sep 2023
IlMatematico: +725.0%
Nasdaq100: +264.2%
SPX500: +188.4%
In this graph, you can see my performance starting from January 2017 until june 2023 (included). On the x-axis, we have months as the unit of measurement, and on the y-axis, we have capital: 1 indicates the initial capital, 2 indicates a doubling of the capital, and so on. The highest point was reached in August 2021 with a 10x increase compared to the January 2017 capital, while September 2023 ended at 7.25x, thus a +725% increase compared to the January 2017 capital.
I take this opportunity to remind you of the importance of not rushing to copy eToro users with a too-short history. I always suggest only copying traders with at least a couple of years of proven experience.
In general, the more experience an eToro user has, the more likely (but not certain) that their future performance, in the long term, will reflect their past performance.
In this regard, I invite you to read a short post where I remind you how in the long term, ending a month positively or negatively is totally irrelevant as it is often precisely in the “red” moments that those operations are carried out which in the long term allow for “green” results. If you are interested this is the post:
Performance of my copiers
The fact that I am making money does not always guarantee that my copiers will be making money. In this section we will analyze the performance of my copiers and to do this we will start from the graph of my performances:
The meaning of this graph is the following:
- If you had started copying me in the “green zone” before January 2021, you would definitely be profitable;
- If you started copying me in the “green zone” after March 2022 or in the little window in May 2023, you’d be profitable;
- If you started copying me in the “pink zone” you would most likely still be in the red.
From this graph, the meaning of “investing in the long term” is very clear. As you can see, in my case, anyone who invested before January 2021 (therefore before about two and a half years) is largely profitable.
My investments & my numbers
Here we are, taking a look at the numbers.
At this moment my portfolio is currently allocated with 10% in cash and 90% invested. The invested portion is distributed as follows:
- Stocks: 68%
- Cryptocurrencies + gold : 32%
In the Q2 i reduced $GLD to a little quote and reinforced some my top shares.
The following graph is the distribution of my portfolio with the most significant positions updated as of September 30, 2023.
Since my 2nd quarter, I have reduced my portfolio from 24 to 21 positions. Removed the CFDs, I also limited the crypto to Bitcoin and Ethereum only with finally a small stake in Solana. For the others, honestly, I don’t see a great future.
A full breakdown of my stocks, across industries, reveal this performance:
Self-Assessment of Stocks Performance
How to evaluate stocks in our portfolio?
Assessing the quality of our choices, especially when our portfolio contains a diverse range of investments as in our case, is not always straightforward. So, today we will evaluate the long-term effectiveness of our choices, focusing solely on our equity investments. We will undertake a self-assessment to determine if our stock choices have truly outperformed the market. This self-assessment will help you better evaluate me and will help me understand areas for improvement.
We will analyze my stock choices, dividing them into two groups:
✅ Choices related to my “safe” stocks: The aim of these stocks is to reduce the volatility of my portfolio without sacrificing too much performance, and at the same time, to help maintain a low Risk-Score. These stocks will be compared to the performance of the $SPX500.
✅ Choices related to my “growth” stocks: The aim of these stocks is to outperform the $NSDQ100 (used as a benchmark) and to provide that “above-average” boost we expect from these securities.
Let’s evaluate these stocks in the following image. For each stock, we will see the percentage difference compared to its respective benchmark from the time of the first purchase of the stock until August 31, 2023. For example, if the MSFT stock grew by 23.40% from its first purchase until August 31, and the $NSDQ100 grew by 20% in the same period, then the MSFT stock would have grown by 3.40% compared to the benchmark.
RESULTS OF GROWTH STOCKS COMPARED TO $NSDQ100 👍
Looking at these securities (green section of the image), we can proudly observe that almost all purchased stocks have outperformed the benchmark (in this case, the NASDAQ). Only BABA and SCHW slightly underperformed our expectations, performing adequately but less than the NASDAQ. This outcome is truly gratifying for me as it indicates that I can genuinely outperform the benchmark in my high-growth STOCK PICKING activity.
RESULTS OF DEFENSIVE STOCKS COMPARED TO $SPX500 😐
Looking at these securities (yellow section of the image), things haven’t gone as well. While remembering that the purpose of these stocks was to reduce our portfolio’s volatility, only Berkshire Hathaway (BRK.B) exceeded expectations, outperforming the SPX500 in the considered period. The other two “chosen” stocks (Samsung and the European Ternium), although both are significantly positive (and both pay a good dividend), failed to outperform the benchmark in the considered period. As far as I’m concerned, this outcome will put these two stocks under scrutiny, necessitating a review to determine whether to continue holding these two stocks in the portfolio or to replace them with stocks that better align with our low volatility and growth-above-benchmark objectives.
My Portfolio management criteria
In general, if you are already copying my portfolio or considering copying it, you can expect the composition of my portfolio to look like this:
· 30% Growth Stocks
· 30% Value stocks, Dividend Stocks or ETF
· 25% Crypto
· 15% Fiat or Gold
Regarding any purchase operation, it is done by purchasing assets in a minimum amount of 1% of the portfolio, up to a maximum of 5% in the first purchase. Subsequent purchases are typically 1%.
However, no asset is purchased in an amount greater than 10% of the portfolio. If, however, as a result of value changes, an asset exceeds 10%, it is usually not rebalanced until it reaches its fair value.
In general, the following guidelines apply to the criteria used to purchase or sell assets:
· Stock Value or dividend-paying assets: These are typically held indefinitely or occasionally sold if fundamentals change.
· Growth Stocks and Cryptocurrencies: These are typically held in the portfolio until they reach their target value and then sold.
In addition, we also keep a close eye on the economic and political landscape to make informed decisions about the direction of the markets. We also maintain a diversified portfolio to mitigate risk and capitalize on market opportunities.
Finally, it is worth noting that I use Tax Harvesting whenever it is deemed appropriate (but in any case rather rarely), which will therefore translate into sales of assets at heavy losses, to be repurchased after having accounted for the losses.
To defend the portfolio from the uncertain markets of the recent period, I have slightly modified my portfolio by giving it a defensive structure mainly focusing on dividend stocks that I believe are undervalued.
I already talked about it earlier in my post: https://etoro.tw/3oQc9x5
Read it if you are interested!
That’s all folks!
In conclusion, it can be said that this Q3 2023 was rather interlocutory. The immediate future looks really interesting:
Several analysts think that in Q4 we will see a rather positive end of the year on the stock markets.
In 2024, however, I expect a rather complex year with the emergence of all the economic and geopolitical problems that we continually hear about.
As for Bitcoin, however, expectations are very high in view of the 2024 Halving and the authorization to open BTC spot ETFs in the United States, which will most likely occur during 2024.
In practice, next year is expected to be the decisive year to understand whether Bitcoin will truly be “the future” of money or whether its race has come to an end.
As Usual, I will keep you informed of any new developments and opportunities in the market, and I will always be available to answer any questions you may have.
Always stay updated with my posts by following me on my profile! I’ll wait for you on my profile:
https://www.eToro.com/people/ilmatematico
This content is not intended to be investment advice. The following is for educational purposes only. Investments in securities and other financial instruments always involve the possibility of losing capital. Past performance does not guarantee future returns. The content of this article is not intended in any way to constitute a solicitation of public savings or investment advice in shares or any other financial instrument.
Originally published at https://medium.com on October 13, 2023.
