My top gains and losses of 2019.
Updates on several investment themes which played out through the year.
Positioning for a market with potentially lower future returns.
I spent much of last year's portfolio update covering my allocation rules and how they helped me to buy low during the late 2018 selloff. Since all of those rules remain in place today, I'll keep this year's update more interesting by focusing on my biggest gains, losses and trades of the year, and what I learned from them. I'll examine the factors that went into my portfolio's 21.8% return for 2019, from overall investment style down to individual stock picks.
Buying Low, Selling High
As shown below, my asset allocation's gotten more conservative since late 2018, when rock-bottom stock prices led me to buy as much stock as my rules would allow (my current rules allow up to 85% stock, but I'm choosing not to take advantage of that). Today it's almost a mirror image of my allocation at the end of 2017, when I had similarly heightened valuation concerns.
Image source: the author; data from public sources.
On Morningstar's style box, my stocks land in the dead center of the value/growth axis, equally weighted to growth and value.  72% of them are mutual funds or ETFs. Geographically, I'm roughly three-quarters weighted to the US. The graph below shows the industry sectors where I'm overweight or underweight. My biggest overweights are communication and industrials (each 15% of total stocks), while my biggest underweight is technology (still a respectable 10%, versus the benchmark's hefty 19%). 
Image source: the author; data from public sources.
Tale of the Long Tail
Next up are my individual holdings across all asset classes. The top 10 make up 68% of the portfolio. The long tail is largely a result of zealous (and at times exotic) diversification, including a foot-in-the-door approach to mutual funds since numerous funds on my watchlist are closed to new investors. The portfolio includes nine single stocks, fifteen funds, two commodities and a foreign currency.
Image source: the author; data from public sources.
The Screen Is Greener on the Other Side
My portfolio returned 21.8% in 2019, significantly lagging the 26.2% return of a comparable benchmark.   A key detractor was my single stock portfolio, which returned 16.5% according to the portfolio tracker in my Morningstar account.
Before diving into the single stocks, I should mention that in 2018, after seven years of lackluster performance, I made a pivotal decision to admit overconfidence and liquidate most of my single stocks in order to buy mutual funds. In 2019 I doubled down on my decision to be a more passive investor, bringing single stocks down from 34% of total stocks to 28% (my rules currently limit single stocks to 31%). I also reduced the number of single stock holdings from twelve to nine. The resulting concentration may explain much of their underperformance.
My single worst-performing asset in dollar terms was Burford Capital (OTC:BRFRF), which ended the year down 62% from the price I paid when I initiated the holding in March. Burford shares were crushed in August by Muddy Waters' well-publicized short attack. In light of this, I created a rule limiting single stock purchases to 0.5% of my portfolio value per year, unless the stock meets some institutional ownership criteria (it must be a top 10 mutual fund holding for multiple US asset managers with at least $100 billion AUM each, and the asset value of the funds in question must be at least $2 billion each). I have no plans to exit Burford, though, as it retains numerous attractive qualities, including a leading position in a largely untapped litigation market worth several hundred billion dollars.
Other detractors from my overall performance included large positions in Berkshire Hathaway (BRK.B), Wells Fargo (WFC), and Sun Hung Kai Properties (OTCPK:SUHJY). The political unrest in Hong Kong has certainly been value-destructive for Sun Hung Kai, but I remain bullish on this long-standing leader of a highly-consolidated real estate industry, especially given its near-40% discount to book value and 6.2% dividend yield. I also remain bullish on Berkshire Hathaway, which trades at a historically low 1.4 price/book, and whose returns stand out on a risk-adjusted basis given its large cash balance.
My investment theses for railroads and telecoms are largely unchanged from a year ago (I've detailed them in a previous article). Alphabet (GOOG) and Amazon (AMZN), needless to say, remain stalwart industry leaders with enormous growth runways in their respective markets. Interestingly, Comcast (CMCSA) and Union Pacific (UNP) were my top-performing stocks of the year, returning 35% and 34% respectively.
Burford was my only new single stock in 2019. The four I exited were Allergan (AGN), due to the AbbVie acquisition, General Electric (GE), due to fundamentals deterioration, Tencent (OTCPK:TCEHY) on valuation concerns, and Wells Fargo (WFC) after mutual fund purchases pushed my financial sector exposure uncomfortably high. I continue to view a modest single stock allocation as useful for reducing price correlations and management fees in my portfolio, as well as giving me a quality tilt (minus Burford) that I believe would be difficult to achieve through funds and ETFs. Of the quality factor screens I've seen so far in the fund world, my impression is that they tend to cast too wide a net.
On the fund side, I got mixed results from Virtus KAR Small-Cap Growth (PSGAX), which did well early in the year but lagged significantly after I greatly increased my position in May. Timing aside, though, the fund's 40% return made it the best-performing fund I owned in 2019. One clear performance drag came unsurprisingly from Treasury Inflation-Protected Securities. Other than that, fund performance was solid: my top five fund holdings at the beginning of the year all returned 24% or better. I was especially glad to see patience pay off with my portfolio's biggest holding, TIAA-CREF Large-Cap Value Index (TILVX), which posted by far its best annual return (26%) in the four years I've owned it.
Keeping It Real
While I wasn't very active in single stocks, I was certainly active on the inflation protection front. TIPS increased to 7.7% of my portfolio, up from 1.1% in 2018, due to purchases of the Vanguard Inflation-Protected Securities Fund (VIPSX). Precious metals increased to 5.6%, up from 2.5%, mainly due to gold purchases (I ended the year with 7 times as much gold as I had in 2018). Ron Paul would be proud.
Though I've been wary of inflation for most of my investing career, a few things I learned in 2019 convinced me that it was time to put this piece of my late-cycle plan into action. The most important lesson came from this chart of the S&P 500's historical real returns, which have been flat or minimal over several multi-decade periods. For the first time, I realized that TIPS have a good chance of outperforming stocks over the long term, especially with this late in the cycle as a starting point. Other materials that made a big impression on me were the books The Accidental Superpower by Peter Zeihan and The Next 100 Years by George Friedman, as well as the article "Paradigm Shifts" by Ray Dalio.
I unfortunately missed the January-August TIPS rally, so I built my VIPSX position cautiously over the last four months of the year, with less than one fifth of shares purchased during the August-September market top. I'll probably bring TIPS above 10% of my portfolio in early 2020, but I don't expect to meaningfully exceed that unless the 30-year real yield goes back above 1%.
Other Than That
I owe an apology for failing to post performance data a year ago. My overall portfolio returned -7.7% in 2018, and the single stock component returned -3.6%. My comparable benchmark, meanwhile, returned -5.8%. 
One of the biggest contributors to my 2018 underperformance was the selloff in cryptocurrencies. Although I'd sold most of my cryptos before the bubble popped (I began 2018 with only 2.6% of my portfolio in cryptos), the portfolio was still meaningfully impacted since cryptos lost most of their value that year.
As I mentioned earlier, I've become a much more passive investor in the past two years. I owe this partly to single stock underperformance, but also to my life getting much busier during that time. At minimum, I expect to continue posting these annual updates, since they help me to stay disciplined with my investment process. As always, I appreciate my readers' time, and the accountability you all provide.
 My end-of-year growth/value weight is partially based on outdated mutual fund data, since most funds last reported on September 30. If the data were current, my portfolio would likely show a slight value tilt. I'm fairly valuation-conscious, so my allocation rules require me to maintain a value tilt at least 4 percentage points above the S&P 500's.
 The benchmark I use for sector weights is the average of the Vanguard Total Stock Market ETF (VTI) and Vanguard Total World Stock ETF (VT), since I aim for a similar composition by geography and market cap.
 I own TIAA funds through a defined contribution plan.
 TIPS purchased individually (0.125% coupon, April 2022 maturity).
 My personal return is calculated by summing up all realized and unrealized gains, dividends and interest for 2019, then dividing the sum by the average of my end-of-2019 and end-of-2018 portfolio balances. I wish I could report a true time-weighted return, but my assets are scattered across many accounts, and I've had bad luck with portfolio tracking software. (I recently tried Personal Capital, but discovered that when I transferred assets between two accounts, their website would report a capital loss on the former account without a corresponding capital gain on the latter account.)
 Based on my average asset allocation throughout 2019, I use a benchmark composed of 70% Vanguard Total Stock Market ETF (VTI), 15% Vanguard Total International Stock ETF (VXUS), and 15% Vanguard Total Bond Market ETF (BND).
Disclosure: I am/we are long ALL ASSETS, UNLESS OTHERWISE STATED. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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