Swan Select Portfolio - Month 1 Update (+8.26% YTD)

Reflections on the past month, learnings and reminders

Dear readers, when I initiated the Swan Select Portfolio at the beginning of this year, market sentiment was much like it is today. As a quick reminder, uncertainty is nothing new. These were the words we said when we started the Swan Select Portfolio a month ago:

It’s a particularly interesting time to start a new portfolio with markets at frothy valuation levels and with Goldman Sachs predicting an annualized return of only 3% in the S&P500 over the next decade. Increasingly, we’re seeing questions on whether it’s better to sit out and wait for a pullback. At times like this, I’m reminded of the words of billionaire investor, Kenneth Fisher, who said “Time in the market beats timing the market”. In fact, in times like this, when the bull market is no longer assured, it’s even more important that we are disciplined and choose individual stocks carefully.

Today, concerns on market valuation, unknown outcomes as a result of new AI developments from China, questions on the impact of tariffs and trade wars all remain unanswered.

Importantly though, these are not reasons to sit out the market. In just the month of January, our Swan Select Portfolio returned a whopping 8.26%. Even if you had just stuck with the S&P 500, you would have returned 2.70% in this month which is far better than sitting out.

As an aside, if you want to stay on top of these and other investment opportunities, consider adding your support to be a paying subscriber. Some updates and position changes related to the Swan Select Portfolio will be paid only posts moving forward. For those that are already paying subscribers, take a look at this exclusive new investment I reviewed on Friday as well. Thank you again for your support.

A Hidden gem - Turning market fear into opportunity

Alright, let’s review some details about our portfolio this month.

First an overview

January this year was a great start for us. Let’s first visually review how we did:

In aggregate, the Swan Select Portfolio returned 8.26% as compared to 2.70% from the S&P500 and 1.64% from the NASDAQ. Although we celebrate this win, its important to remind the reader that we are long term investors. Our goal is to outperform the indexes over a 2-5 year span. This means finding good value in great individual stocks. Sometimes, it will take years for the market to recognize that value. Other times, this may happen much faster. As individual investments approach overvaluation from our perspective, we may rotate to other more promising investments for this portfolio.

Disciplined Individual Stock Selection Matters!

9 out of our 10 stocks delivered better returns than the S&P500. The only stock that underperformed relative to the S&P500 was CB 0.00%↑ which reported a -1.60% for the month. Considering the scale of the L.A. wildfires that happened this month, this is well within reason.

I will note we do not expect this level of outperformance every month. Over the long term however, I believe our approach should result in consistently beating the S&P500 in aggregate. We stick to our approach of finding areas of investments where the risk/reward profile is skewed in our favor. What does this mean?

I think BABA 0.00%↑ provides an excellent example. Could the increased tariffs, the trade wars, and the overall Chinese economy result in a poor results on this single investment over even an extended period of time? Of course! But the valuation is such that the downside is severely limited. On the flipside though, any positive sentiment will cause such an underlying investment to rapidly rise since it is significantly below market fair valuation.

We observe it in this month’s results for example. When sentiment was poor, BABA grossly underperformed earlier in the month. In fact, this type of underperformance could go on for months or years. This type of price action will change rapidly should market sentiment change even slightly as we saw towards the end of the month. However, trying to time the turnaround is highly difficult due to the speed of the market reaction.

Diversification

This now brings us to diversification. One of the key aspects of the Swan Select Portfolio is “concentrated diversification”. We wanted to maximize the impact of each carefully selected stock by choosing the small number of stocks possible while still maintaining appropriate diversification. From our original post at the beginning of the year:

Even though we’ve concentrated to only 10 stocks, the selection of these 10 were made with many consideration to perform as a unit diversifying across sectors, market cap, and includes international exposure.

Looking at the day to day performance in the graph, I believe we achieved this. Despite some dramatic day to day movements in individual stocks in this portfolio, our overall portfolio movements largely track the S&P 500 on a day to day basis while outperforming.

We could go into CAPM models and Alpha and Beta calculations but I think the visual view here accomplishes this far more clearly.

Future outlook

The outlook for the year is still highly unclear. Many are concerned with the AI changes resulting from Deepseek v3. Others are worried about the new tariffs imposed this weekend by Trump from the US on Canada, Mexico, and China. Still others are wondering whether specific members of the US cabinet will be confirmed by the Senate which could dramatically change the outlook of certain industries. And that’s just the news coming out of the US! I won’t go into details on the overall global situation but suffice it to say there is a fair share of concerns.

Despite all this, I remain invested. As you can see in the shared portfolio above, the cash balance is $28.74. January actually outlines the exact dangers of not being invested as those waiting on the sidelines would have missed this recent market run-up. This in turn would require them to wait for that much larger of a drop before they can buy in. That opportunity may never come.

What happens by the end of the year? Noone can say. But what happens in 5+ years? I believe we have much better clarity.

That’s it for this monthly update. Stay tuned for our next portfolio review later this year.

If this was interesting, consider stopping by the BlackSwan Investor Chat channel to discuss more about this or other investing topics.

Disclaimer: Any information contained here is not intended as, and shall not be understood or construed as, financial advice. I am not a financial advisor and this is only a documentation of my personal investment journey and decisions. It should be noted the author may own positions in the stocks discussed in this blog which could create a conflict of interest. You should always do your own research before making any final decision on investments.