Reflecting on a +123% Year: Lessons from 2024
What I learned from an extraordinary year
Disclaimer: This is not investment advice and meant for entertainment purposes only, I hold a position in the discussed companies and therefore may be biased in my opinion. Please be aware that this is an illiquid Microcap, please only buy and sell with a limit-order. I also may trade around the mentioned positions.
What a year it has been. I remember when I wrote the last annual report a year ago. A lot has changed since then - fortunately for the better. I am happy to report that my portfolio performance in 2024 was +123.6%.
I don't know how much of that was luck and how much was skill. I will never know. It is unlikely that I will ever have a year like this again in terms of returns. A year like this comes maybe once in a lifetime, or in a very lucky life, maybe once in a decade. Market sentiment has been very positive this year - driven by that sentiment, I have been lucky not to put a foot wrong this year.
In years that are either extremely good or extremely bad, it is easy to lose focus on what really matters. The work itself. Researching companies is the goal. Writing about them is the goal. The process is more important than the outcome. We can only stack the odds in our favor, but we can never control the outcome. Therefore, we should never lose our discipline and work ethic in the bad years and especially not in the good years. The attitude has to stay the same. I'm excited to see my year-to-date (YTD) performance reset to zero on January 1. It's a fresh start and a new challenge: Can I repeat my success? Was this year just a fluke? How will I adapt when the tides inevitably turn? The drive to answer these questions-and the lessons I learn along the way-is what keeps me motivated.
Two learnings from 2024
One year in Microcap land is like seven years in blue chips. This year was no exception. We saw three popular FinTwit names go through a complete discovery and business cycle, all within one year!
On Inflection investing
In my half-year post, I mentioned inflection investing and used my investment in Spar Group as an example. In a nutshell, it means investing in a stock at the point where a positive change is taking place. This could be the sale of a business, a new contract, or any other change that is likely to result in higher earnings per share.
Usually the day of the news, the stock reacts very positively and if you have a small portfolio and do not mind a tight order book, you can place an order when the market opens. The same day or a few days later, you are usually significantly in the green. This year we have had a very positive market environment, so the market has almost always reacted very positively to almost any kind of news. So I think it is easy to draw the wrong conclusion from this year.
I would distinguish between two types of inflection points (or catalysts), one is a sustainable catalyst - a change that will truly improve the business for the next 5 years. Take Innovative Food Holdings (IVFH) as an example, when Bill Bennett took over and changed the capital allocation from e-commerce to the professional chef business, it is a change that will transform IVFH for the long term. These opportunities are rare. But when you get one, you should bet big.
The second type of catalyst is what I call "riding the wave" - the business has not fundamentally changed, but for some reason demand is increasing (temporarily). Usually these are cyclical companies that have just come out of an economic trough. In 2024, it didn't matter how sustainable a catalyst was. The stock went up. I have my doubts that this was a product of market euphoria rather than intelligent investing. So I will probably pay more attention to the following question:
"Does this news make this a fundamentally better business in the medium term, or is it just a temporary increase in demand?"
On Management teams
As I showed in my example of Innovative Food Holdings, the change in management was the reason for a sustainable improvement in the business. Innovative Food Holdings also showed me the importance of great management. In every situation we have known and unknown unknowns. The difference between lousy management and great management is that these unknowns are usually positive surprises rather than negative ones.
I'll give you an example. When I invested in IVFH in February this year, I did not know that nine months later they would be supplying cheese to retail chains. That was not part of the thesis, and it was impossible to know in February. But Bill Bennett and his team were able to create a new, multi-million dollar business out of thin air. While most companies (especially Microcaps) are going to have a lot of negative surprises for us as investors, great management is like a hedge against bad news.
And even if they do, they will not exacerbate them through poor communication. Again, taking IVFH as an example, it was communicated that Q2 would be a tough quarter. So when it happened, the market was already prepared.
Also, a stock always attracts the shareholder base it deserves, and stocks run by shareholder-friendly management teams tend to attract more informed, more sticky investors who will not panic sell after a bad quarter. As you can see, having a good management team has far more positive second and third order consequences than it might seem at first glance.
The tricky part is recognizing a good management team. For me personally, the biggest green flag is consistent behavior and clear, good communication with shareholders. This is why I am a fan of following a stock for a handful of quarters before building a large position, so that we have more data points to evaluate whether management's actions match their words.
2024 for the blog
This year, I have profiled 9 companies. I am happy to report that none of the companies are down. Two are up more than 100% and the worst performer is flat. You can see an overview here: For 2025, my goal is to profile 5–10 companies again.
As always, I choose quality over quantity. If you are looking for a new idea every week, you are definitely wrong here. I will also always focus on downside protection rather than a moonshot.
Portfolio commentary
You will now find a snapshot of my portfolio every month under the "Portfolio" tab - I will inform each paying subscriber via chat when I sell or trim a position.