Feb ’23: taking profits

February was cold, but mercifully dry. The days are becoming a welcome bit longer. London is filling up again, post covid, though Mondays and Fridays remain subdued to put it mildly.

Market movements in February

In the markets, February started strongly, but then something clicked mid month – something I will call inflationary gloom. That inflationary gloom has tempered markets considerably. The VWRL graph below tells the story – especially when coupled with the GBP:USD yellow line – showing how the GBP dropped 2% early in the month.

We ended the month with the USD up 2%, USA stocks and AUD down significantly, FTSE up, and bonds everywhere down.

My weighted index fell 1.6%, the net result of a constant currency fall in my portfolio value of almost 3% combined with foreign currency holdings now worth 1.1% more.

My portfolio in February

Against my benchmark’s drop of 1.6%, my actual portfolio fell by exactly that too. Considering I started the month significantly leveraged, you’d have expected me to do worse.

Taking profits

I have been taking a radical prune to the complexity of my portfolio in the last two months.

One way I have done this by setting limit orders to sell certain stocks if they clip up to a target price point. And for three stocks in particular February proved rather significant.

I have set limit orders at prices that I have considered ‘decent’ on several stocks. For Shopify, Amazon and Google, these orders filled. What was notable about all three was that these trades occured outside regular trading hours. Around the earnings release, there was obviously quite a bit of activity outside regular hours and my limit orders were filled. I’m not sure if this was shorting funds closing out a short, or rumours pushing the share price up before the analysis was done, or something else – but in all three cases I benefited.

Surrending leverage, opportunistically

I’ve been significantly overleveraged for the last few months. But I’ve always been clear that too much leverage would be being forced to sell collateral. But selling collateral voluntarily is a different proposition entirely. And having some limit orders kick in that take some (short term) profits, at a price above the current market valuation, feels like a good opportunity to pay down some of that leverage. So having had three of my holdings trigger limit orders, I’m not reinvesting the proceeds – I’m paying down the margin loan.

And, as I complete this blog post almost a month after those trades filled, those traders look better than ever. World equities were up about 7% so far in 2023, around when those trades filled c. 19 February. But as of 13 March those 2023 gains have all been surrendered. So the few weeks of hindsight suggests those limit orders did me a favour.

You can see in the graph below the step change in my outstanding loans in late Feb – where a chunk got paid off my margin loan. That brought me almost bang in line with my target allocation at the moment (leverage of 25% of my net portfolio value) – having been significantly underweight cash for over 12 months.

The cost of debt

The rises in interest rates over the last 12+ months still leave my interest expenses at over 2x where I started when I bought the Coastal Folly. This is a number I can manage, but am not enjoying. Along with the cost of living increases – particularly around energy – my cashflow has taken a real knock over the last 12 months. So I wouldn’t mind some windfalls to accelerate the repayment of my margin loan. A small one is due next month, but in the meantime the wider drop in market values mean that exits from my private/angel portfolio are far rarer than they were 2-3 years ago.

As I finish this post, the month of March is already turning proving to be considerably more, erm, exciting than anything February threw at us. So I’ll wrap up here, so I can get back to the ringside seat provided by FT.com.