We’ve issued a press release today in BusinessWire on our full year 2022 returns, which you can find here.
Due to a 180-degree pivot in May, the I/O Fund ended the year at (38.8%). This places us within roughly 6% of the Nasdaq-100 (NDX) which helps illustrate the comeback that occurred starting in May. Typically, in a risk-off environment, the indexes are known to protect investors to the downside. It also helps to gauge the overall cost of owning tech in a historic year for losses in the stock market. Meaning, even the most conservative tech investors lost (32.9%) in 2022, defined by those that hold their exposure to NDX through QQQ.
Notably, losses are geometric in nature, so a portfolio that is down (67%) has to go up 85% to catch up with our 2022 performance of (38.8%). To catch up with the I/O Fund compared to other all-tech portfolios since inception, you’d have to make up 174%.
Our 2022 relative outperformance followed an outperformance in 2021, with gains of 11.4% compared to many tech funds that were down (23%) or more. On a cumulative basis, we currently have the largest lead over Ark that we’ve ever had since inception.
Ark is not the only all-tech portfolio peer that we are outperforming on a cumulative basis. The portfolios listed below are managed by highly regarded portfolio managers, are reserved for high-wealth individuals only, and have billions of assets under management (AuM).
“If you had invested $10,000 with the I/O Fund's picks versus other all-tech portfolios at inception, the difference would be a portfolio value of $14,692 with IOF versus $5,358 with institutional tech-focused portfolios. The difference in value is 174%”
Our mission statement is to help Retail beat Wall Street in the challenging sector of technology.
When we set out on this mission, it was purely an experiment. The statistics show that Retail often fails to such a high degree that we felt any improvement here would be worth the attempt.
Past performance is not a guarantee of future performance. The I/O Fund is a publishing company. The analysts are not money managers and we are not financial advisors. Please consult with your financial advisor for every trade you do.
A few important stats on our Performance:
- The I/O Fund announces a cumulative return of 46.92% since inception versus the Nasdaq-100’s 18.65% return during the same time period.
- The I/O Fund’s cumulative returns of 46.92% have more than doubled the Nasdaq since 2020 with an outperformance of 28.27%
- I/O Fund’s 2022 performance of (38.8%) rivaled the Nasdaq-100 performance of (32.9%)
- The I/O Fund’s relative outperformance in 2022 surpassed institutional all-tech portfolios by as much as 85%
- Since inception, the I/O Fund has a lead over institutional technology portfolios by as much as 174%
The transition began in May with the analysis “Compartmentalizing Cloud Stocks” and was complete by August.
In a nutshell, this is what that looks like:
Please note, anything stated outside of our performance review are estimates. The only official, verified number we provide is from the Engagement Letter listed below of (38.8%).
- AEHR: 6% Allocation in October-December
- NFLX: 9% Allocation in October-December
- NVDA: 10% Allocation throughout 2022 with active management
Hedge: mitigated some of the largest drops after April. The biggest moves from our hedge in 2022 are below. The green indicates periods where we mitigated the drawdowns, while red indicates periods where we had to close our hedge for a loss.
Hedging
In an environment where the odds can be stacked against Retail, the I/O Fund is committed to leveraging tools that institutional-level money managers are unable to leverage.
The primary tool we leveraged for Retail in 2022 was hedging. In 2021, the tool we leveraged for Retail was to actively manage crypto. A few of the all-tech portfolios listed in our comparison chart are not able to leverage these tools. For example, ETFs such as QQQ (tracks the NASDAQ-100) and ARKK do not hedge and do not hold crypto.
In 2022 we partnered with Vincent Duchaine of WealthUmbrella. The automated hedge that Duchaine built helped the I/O Fund close the gap between human-driven actions and emotionless machines. This marked an important turnaround for our firm as we gave up what I would call “retail idealism” which centers around the idea that holding a stock for a long period of time is retail’s only defense. This works during times of economic expansion, but this can go (horribly) wrong when a new, more challenging macro can change the outlook for any given company.
I’ll be the first to point out that success is a team effort, and these Knox and Vincent repeatedly ran the ball into the end zone in the third and fourth quarter. If half the battle is just showing up, then most of you noticed Knox and Vincent did not let our Members down in this regard.
April of 2022 marks the end of the I/O Fund relying on stock picks as the primary, offensive measure. It marks the beginning of what I would call IOF 2.0, more officially known as “man and machine” and “woman and machine.” After partnering with WealthUmbrella on an automated hedge, the I/O Fund hedged successfully up to 100% of our portfolio, at times.
We pivoted to playing defense rather than offense. Those who watch team sports will understand this transition well, as the strategy changes from attempting to make money (or make a goal) to a strategy that prevents losses (or prevents a goal).
With Vincent’s help, the I/O Fund has reduced whipsaws. The automation tool has also freed up Knox’s time to work on broad market and identify circuit breakers, which are the broad market levels that must hold. Together, these two launched an incredible tool for retail.
Performance Review
Below is the engagement letter from the firm that reviews and verifies our performance. Our terms and conditions with the accounting firm state that this engagement letter is to only be shared with paying customers. For that reason, our performance letter resides behind our paywall.
With that said, any paying customer can access the engagement letter which is posted on io-fund.com/premium and io-fund.com/essentials for this purpose.
The I/O Fund owns the performance review and we do not authorize our customers or any person on our site to share a confidential engagement letter or performance review outside of our paywall. As the owner of the report, we will at times market our performance number outside of the paywall. The terms and conditions can be found here.
The I/O Fund Experiment
Our site and services remain an experiment to see if Retail can beat Wall Street. There is no guarantee the experiment will work out in the future. Humility is the one adjective that best describes the market and we had a heavy dose of this last May.
I believe our site’s edge is the accountability and transparency we offer. By tracking every trade in real-time, we were forced into instant accountability on every action we were taking. What resulted was rapid self-improvement, similar to athletes who track every mile they run, or every swing of the bat. By measuring every single daily action, our accountability went through the roof as did our drive to improve.
Real-time trade alerts and an audited performance are extremely uncomfortable when you’re not performing well. However, it was this very thing that forced us to become better during a landslide in tech.
We made the case that this is partly why retail performs so poorly. There are simply too few resources available that mirror what real money managers do. With that said, most professional money managers resemble what Knox does on the I/O Fund site, which is actively managing positions, with lots of activity, pivots and course corrections. This is the reality even if Retail is sold on utopian idea that you can buy one stock and hold into eternity. In some cases, this is the correct thing to do, but it’s rare.
2022 Was Still Negative = The I/O Fund Has More Work to Do
In our webinar, we pointed out the Lessons Learned from 2022. The methodologies and processes from pre-2022 simply weren’t working, and perhaps due to our high level of accountability, we felt this more than most. For a live presentation on this important pivot plus the Lessons We Learned from 2022, please reference our premium webinar here.
Here is a brief summary, the full list can be found/heard on the webinar.
- Lack of flexibility was our number one mistake last year. We need to be more willing to change.
- Cold, Hard Facts Vs Hopium. We were ignoring obvious facts and relying on hopium instead (hopium most dangerous around earnings)
- 100% Offensive instead of a mix of Defensive = put making money above protecting money
How the I/O Fund Sets a High Bar for Accountability
In addition to a lack of risk management tools, we believe a lack of verified returns in the retail space contributes to the losses this investor type experiences. Smart money is careful about who they consider a good investor — they do not take someone’s word they are a good investor; they make the investors or firms they follow prove it. Every single hedge fund has to report their returns, which reduces the chances of posturing.
Retail is not offered these checks and balances, and instead, this investor type follows many influencers and research sites who verbally state their performance without proper verification. Across the board, retail is offered a very low amount of accountability – this includes unverified month-end reviews, a list of stock tickers, unchecked screenshots, or other methods that are easy to manipulate. This widespread acceptance of loosely stating a stock performance is odd, to say the least, considering the finance industry is more inclined than any other industry toward deceptive practices.
Over the past three years, the I/O Fund has invested over $130,000 into accountability and transparency for our Members. When we launched in July of 2019, for the first year or so, we used a forum hosted by Tribe for our trade alerts, but by January of 2021, we had migrated to SMS and email tools that were the least likely to experience an outage for our real-time trade alerts. This costs us $40,000 per year.
In addition to this, we use an auditor from a large firm in San Francisco to mathematically review and verify the performance of our I/O Fund portfolio trading account and crypto account. The process is quite extensive and it takes up to four months to complete. This costs $4,500 per audit and we’ve completed four audits for a total of $18,000 spent on this process.
We want to thank our members for believing in a small team that is focused on beating Wall Street. The sense of community we all have created together and the support we received during a tough 2022 was extraordinary. When we launched our retail-focused fund, we aspired to bring institutional level research to investors by forming a small, focused team that cares very much about their chosen specialty. We continue to improve upon our processes and look to strengthen our returns going forward.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.