Recently, I took a close look at my investment portfolio, as I always do at the end of every quarter. It’s fair to say the numbers weren’t pretty. For the first half of 2022, my portfolio delivered a return of -22%.
So why has my portfolio taken such a big hit this year? And, more importantly, what’s the best move now?
My investment approach
Before I look at why my portfolio tanked, it’s worth discussing my investment strategy. Essentially, my approach is a mix of ‘growth’, ‘quality’, and ‘thematic’ styles. Most of my capital is invested in highly-profitable, dominant businesses that are poised to benefit from long-term trends. However, I have allocated a bit of capital to more speculative growth stocks. I’m convinced this approach can help me achieve my goal (retiring early).
It’s worth pointing out that I’m very much a long-term investor. When I buy a stock, I’m happy to hold it for five years, or more.
Why my investment portfolio tanked
As for why my investment portfolio has taken a hit this year, one reason is my largest holdings are US-listed mega-cap technology stocks – Apple, Microsoft, Alphabet, and Amazon. This year, these have all fallen significantly as investors have moved out of growth stocks and into defensive stocks, due to the high level of economic uncertainty. Alphabet, for example, fell 24% in the first half the year, after several years of strong performance (see chart below).
I’ve also got plenty of exposure to smaller UK growth companies and a lot of these stocks have fallen significantly in 2022 too, as investors have gravitated towards safety. One example here is tech company Kainos (chart below). In H1, its share price fell around 42%.
Finally, I own a number of growth-focused funds and investment trusts and these have produced disappointing returns too. For example, Scottish Mortgage Investment Trust, which provides me with exposure to smaller, more speculative growth stocks, fell 47% in the first half of the year after a monster run over the last five years (chart below).
So, overall, I’ve been hurt significantly by the shift out of growth stocks.
What I’m doing now
As for what I’m going to do now, I’m going to stay calm and stick with my strategy. I’ve invested in the stocks I own for a reason. And that is because I expect the underlying companies to get much bigger over the long run.
The mega-cap tech stocks are a great example here. I’m very confident Apple and Alphabet are going to get much bigger over the next decade, due to their exposure to growth industries such as cloud computing, electronic payments, and artificial intelligence. So I expect their share prices to recover. As a growth investor with a 20-year horizon, I see these stocks as great core holdings for my portfolio.
So I’m going to hold on to these stocks, along with my UK growth shares and my funds and investment trusts. I’m also going to take advantage of lower share prices on offer and add to my holdings. This should help boost my returns in the long run.
We could see further share price weakness in the near term. However, longer-term, these stocks and funds should power my investment portfolio higher.