2023 Portfolio review

I’ve had some good ideas this year and plenty of good luck. My taxable account ended the year +53.96% while my self-managed super fund (Australian retirement account) ended +41.8%. These sorts of results are unlikely to be repeated. They are also much less impressive when you take into account the poor results of 2022 (-15.5% for the taxable account and +0.65% for the SMSF).

As I’m based in Australia, I calculate my returns in AUD and I use the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt) as a long-term benchmark. This index was up 14.19% for the year.

Since inception, my taxable portfolio's CAGR is 17.09% while my SMSF's is 16.71%. While the results are pleasing, I'm a much better investor than I was a few years ago and I've set myself a goal of pushing the CAGR up to at least 20% for both accounts.

My PA's track record

My SMSF's track record

A few quick notes on the numbers: I do not account for cash in my PA, but I do in my SMSF. Historically, I have nearly always been fully invested in the PA. My SMSF is audited each year, but the numbers here are unaudited and are calculated net of all expenses and realised taxes (but not unrealised taxes).

The year of the busted biotech

After a poor 2022, I focused on special situations in 2023 as I had short-term tax losses. In particular, I focused on biotech net-nets.

My biggest winner was Cyteir Therapeutics (NASDAQ:CYT). I bought Cyteir as it was trading at a big discount to cash and winding down its research activity. In March, when I published my write up on Substack, the stock was trading around $1.62. On June 30, Cyteir announced it would discontinue development and liquidate to return cash to shareholders. I bought more shares following the announcement in the $2.40-$2.50 range. In October, Cyteir released a proxy showing a $2.92-$3.31 range of projected liquidation proceeds. Cyteir currently trades at $3.04, which is below the midpoint and also doesn’t take into account any potential proceeds from the possible sale of Cyteir’s IP (which seems unlikely but not impossible). I sold out of my Cyteir position in my SMSF, which has a low tax rate, to redeploy into THRX. I still hold my shares in my taxable account. It seems likely to me that the liquidation proceeds will land in the higher end of the range; I’m also hoping to sell my shares after a one-year holding period to reduce my tax bill.

Another big winner was Jounce Therapeutics (NASDAQ:JNCE). I first started purchasing Jounce shares in March. Shortly after my purchases, activist investor Kevin Tang offered to buy the company at $1.85 per share plus a CVR. I bought a reasonable stake at around $1 prior to the announcement, and added much more after Tang disclosed his interest in a 13D filing. I didn't expect Tang to make an offer, however I did realise that Jounce's deal with RedX Pharma was unlikely to close. My thinking was that shareholders would vote against the RedX deal and that could lead to a potential liquidation. The Tang deal ended up closing and I made good money.

Theseus Pharmaceuticals (NASDAQ:THRX) was a similar story. After the company announced it would search for strategic alternatives, I (and others) bought shares while the company was still trading at a significant discount to liquidation value. I wrote up THRX in November when it was trading around $3.25. Shortly before the end of the year, Kevin Tang entered an agreement to purchase all shares for up to $4.05 in cash plus a CVR, which also includes a pay-out for potential cost savings. I had a large position in THRX, but I trimmed it by about a third prior to Tang + Orbimed/Foresite expressing interest in taking the company private. I bought some more shares at $3.70 shortly before the Tang deal was announced. I recently sold my entire position for $4.05. I made 40-50% returns on my initial purchases in around 40 days, so the idea worked out very well.

I also had a large position in Aptinyx, which was another biotech in liquidation. I traded APTX poorly. However, the liquidation proceeds were at the top of the company’s estimated range, which meant that my position ended up in a decent profit. I don’t like to rely on luck though, so I don’t feel great about this one regardless of the outcome.

My other large position during the year was CEL Corporation (5078.T). I wrote up CEL last December when the stock was trading at ¥2,109 per share. CEL started 2023 at ¥2,420 and closed at ¥3,210 (+32.64%). The company also paid a ¥80 dividend during the year. The gains were offset somewhat by the yen, which weakened during the year against the AUD. Despite CEL’s run up, it’s still incredibly cheap, however there has been no improvement in capital allocation. It remains one of my largest positions.

I did not have any major losers in 2023. I had some small losses on special situations and a couple of my Hong Kong stocks, which have very small weightings in the portfolio.

I don’t have a many great ideas going into 2024, and between THRX, CYT and APTX I have about 50% of the portfolio coming back shortly in cash. Thankfully, I have some time off work in the new year, so I’m hoping I can find some new ideas. But the outlook is not looking great. I’m hoping to stay patient until I find good ideas rather than rushing quickly to put the money to work.

Finally, I want to say thanks to everyone who has left comments on the Substack, interacted with me on Twitter or shared their ideas. I’ve also benefitted a lot from talking with my good friend Chris, who is a better investor than me, and has helped a lot on some of the most profitable trades this year. If you don’t have an investment buddy, I can’t recommend it highly enough.

Happy new year and good luck in 2024.