2024 was a strong year for the markets. Our portfolios performed well, though not quite as well as the headline indices. We didn’t keep up with the S&P 500 or the Nasdaq, though our core portfolios nudged just ahead of the Russell 2000.

One of the things worth reflecting on each year is big mistakes and things we got right. A year is an artificial frame – some of these situations are not final, and some reflect decisions made before 2023. But the year is also a useful time to reflect and take a snapshot.

In this 2024 investing review, I review two mistakes I made this year, as well as two success stories. These are not the same as my biggest winners and losers, though there is overlap. For my first full year running Middle Coast Investing, I focused as much on portfolio management decisions as pure analysis. I already discussed my analysis mistakes with Eventbrite, for example. More of the lessons I’ve learned this year have had to do with how to manage separate accounts for new and old clients.

For each mistake and each good decision, I’ve tried to extract a lesson that I hope to apply going forward. I’ll also share examples where I’m applying them, as relevant.

Photo by Aleks Marinkovic on Unsplash

Mistake: Not adding Progressive to all new accounts as soon as possible

Progressive (PGR) was one of our biggest winners this year, and has been a positive returner every year since I first bought shares in late 2019. So when I say managing our position is among my biggest mistakes, I promise I am not using this as a ‘my only flaw is my perfectionism’ type mistake.

When I started onboarding new clients at the beginning of the year, I had two thoughts. One was that I wouldn’t add my full-priced existing picks to their portfolios, and the other was that I would set each account up with its own independent, rational portfolio. If I own ~30-35 stocks across all accounts, each account would own 8-10 of those 30+, for a reasonable diversification without spreading too thin.

But a value-oriented approach might not immediately resonate with new clients. I tend to buy stocks when they go on sale. Stocks on the downswing often see that momentum carry for another quarter or two, even in best cases. If they’re on sale, that means the market is skeptical, and the market doesn’t always change its mind quickly. That means we often build new portfolios with short-term losers.

Another thing I discounted is that it doesn’t feel great to see a stock like PGR – one I know well, I know is not crazily overvalued in my view, and that is set up for positive operating momentum for another 12-18 months at least – go up while not having added it to newer accounts. Winners should be shared.

Related to all this is momentum investing. I don’t subscribe to that as an investment philosophy, and view it as the opposite of value investing. But I’m gaining a respect for the concept of momentum. Not so much as a way to identify stocks, but as a way to manage a portfolio. That is, the ideal is to buy when a stock of a strong company is at a discount for whatever reason, hold while the discount closes, and then ride the company’s operating momentum in the future. This momentum can end up delivering returns.

That doesn’t mean trying to jump on new trains. But opening positions, even small ones, in trains we’re already riding is something I think will make sense. Of course, we finally added Progressive to remaining accounts at $245, and the stock is slightly down from that point. We’ll see whether this is joining the train too late.

The lesson – make sure accounts we manage all share the widest reflection of our work and stock analysis (with adjustments of course based on individual client’s financial goals or worldviews).

Putting this in practice – We made sure to add Dallas News (DALN) to all of our accounts even after it started to rise. The positions were small, reflecting its potentially riskier situation and the chance I missed the move. But the success so far has been shared: it was one of our top winners in Q4.

Worked out: Managing M&A related plays in 2024

Merger arbitrage is siren for me in the market, a seductive way to earn ‘non-market-correlated’ returns. No matter what happens to the stock market, the theory goes, a merger deal should still go through.

That’s not always true – market downturns coincide with deals failing. And like the sirens Odysseus faced, merger arbitrage can lure the unsuspecting investor into perilous waters. In the Biden Administration, antitrust and scrutiny of merger deals was especially heightened. But even in other times, the juice is often not worth the squeeze.

At the same time, the biggest mistake I made in 2023 was to sell VMW shares before Broadcom (AVGO) shares took off. We owned VMW on its own merits, and the stock was still reasonably priced on its own merits, and I decided the upside wasn’t worth the squeeze. But I discounted the stock component in the merger, and when Broadcom took off, only a couple of our accounts benefited.

This year, we at least had good luck with merger arbitrage or ‘pre-merger’ situations, i.e. potential deals.

Discover Financial (DFS) was one of our largest positions when it agreed to a merger with Capital One Financial (COF) in February. We held onto most of our shares throughout the year, and added in a couple accounts at an opportune point in September. The shares have risen a ton mostly because of the election, and the promise of less scrutiny on the merger.¹ But Discover was a fairly valued stock at $125 deal or no deal. At $175, that’s a little harder case to make, but that’s for 2025 to deal with.

We invested in one other pure merger arbitrage case, Matterport (MTTR). The spread was wide enough and the risk of the administration blocking such a small deal seemed low enough to invest in. We invested more after the election. But we also sold the whole position shy of closing, as the spread had narrowed to under 10%. In this case, neither Matterport nor its buyer, CSGP, were attractive values on their own. I’m happy we made out with a small gain and am eying this in case the spread blows out again.

And we invested small positions in three ‘pre-merger’ cases where good reporting and logic pointed to a potential deal. Our record is 1-1-1 here.

Win: Vimeo’s (VMEO) deal never came together, but the stock was cheap and its operating momentum good, and it ended up 20% higher than where it was after deal rumors came out (and 80% higher than where it bottomed after the rumors proved false).

Lose: Dynamic Global (BOOM) should have taken an offer on the table that would have given shareholders a 32% return, but did not. I’ve held on to a small part of this position because the corporate governance has been such a mess, and there are a couple good businesses here, so it seems like there’s hope here. But it’s not been good so far.

Draw: Trimas (TRS) is a healthier version of Dynamic Global, in healthier markets. So far, the stock is about flat from where we bought it. Our position is small, and we’ll see where we go with it.

All told, there are times where ‘special situations’ offer us an opportunity. These situations are not just about the pure value of the company, but also something happening at a corporate level. They work best when we have a solid base of value in case things go wrong to make the risk/reward better. And in small doses.

Mistake: Riding Down Cycles

This item features our biggest losers of the year. Axcelis (ACLS) and Atkore (ATKR) echo each other. Both operate in a narrow market. Axcelis sells ion implant machines to semiconductor companies, competing primarily with Applied Materials. Atkore sells construction materials, especially piping, and has a strong market position amongst a few competitors. Both saw surges in demand during the pandemic and post pandemic period, due to pricing circumstances, supply chain needs, and government initiatives. Both were big winners for us in 2023, and Axcelis especially has generated a lot of wealth in accounts I run.

What has hurt us is not so much missing a chance to leave at peak prices. Of course, you want to nail the top. We sold some ACLS shares in 2023 at $200, close to peak, and we should have sold it all, in hindsight. But, for a company that I thought (and think) has a solid business and a strong balance sheet, that seemed rash.

The bigger issue is that with both companies clearly in the down cycle leg, both in market perception and in their actual performance, I’ve at least so far misjudged handling them. Once operating momentum turns, it’s a question of when the stock and the company hits bottom, or where ‘normal’ resets. In Axcelis’s case, the management team has punted on 2025 growth. We added about 25% of our position in Axcelis, on a share basis, over the course of this year, from the $90s to the $110s. That has certainly been early. What happens in 2026 and beyond determines whether it is wrong.

Atkore has some additional complicating factors – a lawsuit accusing it of collusion, trade issues. Most of its rise in profits can be attributed to pricing of PVC piping, which is not exactly a secret sauce. Atkore also at least appears to be closer to bottom. That is not 100% certain, and we’ve sold more shares of Atkore than we’ve bought this year.

The common issues are the need to do better analysis to understand cycles. It’s easy to get sucked by solid earnings growth over a period of 2-3 years. Over that timeline in industrials, the growth can feel sustainable. But I haven’t done a good enough job of appreciating where the growth is coming from and whether it can continue. That’s where we have to work going forward. Progressive in some sense fits this characterization of cyclical over earnings. I believe I understand well enough why this is the case and what will / won’t be sustainable.

I mentioned in the Progressive mistake how I have gained a healthier appreciation for momentum. It is worth respecting momentum, both in a stock price and especially at the business level. If things at a company are going to get worse than the rest of the market expects, the stock will go down, no matter how good things look later. That’s something I intend to recognize better going forward.

Worked out: Sticking to our beliefs on the right positions

All market lessons and mistakes and successes come with caveats. Sticking to my conviction has worked so far on the following stocks; of course, it didn’t in 2024 for ATKR and ACLS.

Perhaps the stocks I mention here are just lucky winners, then. All of our top 8 returners this year were in big tech (Amazon, Apple, Broadcom, Taiwan Semiconductor, Booking Holdings) or finance (Progressive, Discover, and First Citizens National). I could just say I had enough stocks in the right sectors.

But First Citizens National (FCNCA) was not an investment I usually make. It more than doubled in 2023 based on its bargain basement purchase of Silicon Valley Bank. That usually scares me off – what else could there be to gain? I found enough to like at the end of 2023, though, and then felt I understood enough about the company to buy more on the open after its Q4 earnings report. That was among its lowest prices of the year, and it finished up more than 50% from there.

Lululemon (LULU) was our 9^th biggest returner. The story here is not over. Q4 earnings will especially be important for supporting whether we ‘got this right’ or not. But behaviorally, we’ve ridden out a tricky section. When a stock keeps going down when you buy it, it’s no fun. The market is essentially calling you an idiot. That’s the operating and stock momentum point I mention.

If you’re right, though, it’s the perfect way to buy a stock. The purchase prices get lower, and the eventual payoff gets better. After two mixed earnings reports, Lululemon had a better-than-expected Q3, and sounded confident about Q4, and the stock shot up.

The stock is barely ahead of where I started buying, and it’s not a huge winner by any means. There’s plenty left to be decided. But the conviction in the analysis made this a bigger winner than it would have been if the stock sell-off spooked me.

Rules Number 1 and Number 2

These lessons and examples only go so far. But many of the most famous lines about investing are kind of empty, when you think about it.

Warren Buffett’s Rule #1 is don’t lose money, and his Rule #2 is don’t forget about Rule #1.

20^th century humorist Will Rogers famously said, “Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.”

On the surface, these rules are the same. And a lot of the analysis done in this piece is in hindsight, looking back on results already known. Which doesn’t help us drive forward as much as we’d like.

Everything comes down to doing good analysis on the companies we invest in, controlling our emotions as the market swings up and down, and making the best decisions we can based on the facts at play. The lessons, mistakes, and successes here are all specific versions of those fundamental truths.

Interested in more from Middle Coast Investing? Or in talking to us? Get in touch.

Please read our full performance disclosures.

Disclosure: I am long PGR, DALN, AVGO, DFS, VMEO, BOOM, TRS, ACLS, ATKR, AMZN, AAPL, TSM, BKNG, FCNCA, TBF, and LULU. I may change positions at any time. I have no immediate plans to make major changes. This is not investment advice. Investing is risky. Any investing decisions are your own responsibility and should be taken after speaking with an advisor or at your own risk. This is not a solicitation to buy or sell anything. Past performance is of course no promise of future results.

1. The only real pre-election hedging I did was to sell a few shares of DFS in case Harris won, and to buy TBF in case Trump won (on the bet rates would rise). ↩︎