Risk, Performance and My Portfolio YTD

I've been thinking a lot about the performance of my portfolio this year (not even a year into investing). The more I see how the market moves things, the more I realize how easily one could be swayed into believing they have the "above" average abilities in the market due to the outcome of their decisions (portfolio goes up).

My portfolio is up 32% since I began investing in April. I'm very happy with it, but there are caveats.

1. My investment thesis for multiple holdings has yet to play out, which is the catalyst to increasing value.

2. Earnings are flat in many of my holdings yet the prices have gone up significantly in a few of them.

In both of these situations I'm up, yet value unlocking hasn't occurred yet, and earnings are flat (meaning other investors are paying a higher multiple). I'm not in investing to speculate when people will make stupid decisions and drive up the prices of my holdings. I'm starting to understand more and more why Buffett says he doesn't even want companies he's trying to acquire to go up so he can keep gobbling up shares (although in his case it's because he might want to drop a few billion in, and that takes a lot of time).

I have cash waiting to increase my position sizes, but because the market has driven prices up so high, I can't even do that without feeling like a complete knob who is overpaying. So I sit in cash and wait for the market to swing the other way or find new ideas. I digress...

I've read and am now listening to The Most Important Thing by Howard Marks and I just got through some of his chapters on risk. He was telling an interesting story saying something along the lines of 'if you bought a ski hill in Miami, and it dumped snow one winter, would that be a good decision and would it be a low-risk move?'

Clearly, this is a risky move that would have a very, very high probability of failure. But if your sample size is that small, and you don't understand the risk at all, it can seem like the person who made that decision is a genius (which he or she most definitely is not). I thought this was a brilliant way of looking at the interplay of performance and risk.

As I look at how different portfolios have performed this year it's quite obvious that there is a theme in high-performing vs. lower-performing portfolios. To simplify it as much as possible, if you had tech stocks making up a decent percentage of your portfolio you would have easily outperformed someone with a large holding of value stocks.

As Marks points out, this doesn't mean you are a better investor. It means that you may have taken more risk to realize your performance. This is an attribute that should largely be avoided. It's impossible to be risk-averse and risk tolerable at the same time, there has to be a happy medium that fits your personality.

When it comes to my performance I'm happy it's up, but to tell you truth I think it's shot up very quickly and would not be surprised to see pullbacks in the future (who knows when tho). I'd actually be happy if some of my holdings came down in price so I could buy more

In the meantime, I'll keep researching risk and learning more on how to reduce my risk while finding opportunities in the market to find more multi-baggers!