H1 2023 portfolio letter
The party goes on
Hello, this is my H1 update. Maybe I will not have much to say in the next updates, but this update has many thoughts.
The portfolio is up 10.6% this half. I consider such a variation as more or less irrelevant and represents a normal monthly correction. But over time, it starts to add.
We are at about 11% a year approximately since I opened my new brokerage account and I got a bit more experienced. Yes the start point, Jan 1st 2019 here, is a bit biased by history of a bad year in 2018. It is weak but decent in an insanely difficult environment. I also took dividends out for several years, and had to pay a bit of capital gains taxes so…. it’s not audited.
Some of my return was also due to trading up and down around value. Buying low, adding lower, selling higher. Adding lower worked great during this period of covid crisis. Otherwise, many great value cases are still not moving up.
The fair value is in my opinion at least 75% higher. I am not alone in this analysis, several value funds highlight the highest gap between prices and fair value in recent years.
It is true that I miss out on some explosive growth stories especially in IT services and digital transformation businesses scoring 40, 50% revenue growth in 2022. It’s just that I am not fully confortable with the industry cyclicality and lack of long term competitive advantages. However it can be a source of under performance. And let’s not mention NVDA 0.00%↑. On the other hand, my portfolio has a lot of growth companies to avoid this effect.
The market and investing for the long term.
The current inflation wave is still a covid effect, and like covid, it may not matter in a year or two. I think that any result impacted by covid or inflation is irrelevant to a long term thesis. But it may disrupt some businesses in the short term.
Investing can be about guessing the next quarters earnings and positioning yourself for a quick 50%. This is hedge fund, professional type of stuff for the full time investor. If you can pull it off, great. Maybe you can do this in special situations investments, and some are highly successful in this.
This is not for me, and for most of us, investing should be more like buying private companies for their cash flows, or rental apartments with a cash return mindset. Of course, companies reinvest earnings and this adds complexity to the equation.
I am quite frustrated with seing no movement in many very undervalued securities. Not all, because I got Fairfax Financial, a Canadian Mini Berkshire, for example, which shot up a lot since my purchase. But many securities are no different than Fairfax last year in terms of valuation and solidity of earnings, and do not move up at all. So I just keep holding or adding, focusing on the process rather than the results. This is a long game.
On the other hand, large cap tech and compounder is in a big speculative bubble. There is no other way to say it. It’s not even investing in my eyes. Few of the buyers do it for the business cash flows. Be careful.
Recently I have moved up a bit the growth requirements scale, while staying very contrarian and cheap. I like stuff that grows 8-10% a year minimum.
I will try to sell less and hold more for the long term. I am trying to change the way I invest progressively. I am not the best money manager, despite doing quite well, so removing most of the sale decisions will help taking some bias out and the tax man away.
Of course I still have some value stocks that do not grow fast enough, so they would need to be sold if they reach full valuation, but I am hoping for less sales. I also did a lot of movements as I discovered new stocks and screened new markets. I am quasi done with that.
I believe that I take from “quality investing” writers the very relevant concepts of growth, good capital allocation with decent ROI, and from value people the concept of paying nothing, and my picks are in the middle between the two, often trying to get quality and deep value together. Best of both worlds.
How is it possible? Microcaps and Emerging markets. Sure, some may suffer with a currency devaluation higher than usual in 2023. In the end, fundamentals will matter. In this current market, they do not, and it’s more about momentum. Fundamentals always win. I Invest on fundamentals. I have the mindset of an owner. Do you worry about inflation’s impact on the value of your owned house? I don’t. I hope house prices drop so I can upgrade for cheap.
Recent public ideas reinforced in the quarter.
These are all really cheap, with challenges for some but nothing that should be long term.
I am cautious with reinforcing companies so I limit to two to three “spoons” before moving to another company to reinforce for the time being.
BTW, the concept of Spoon comes from a sarcastic french stock forum..
Next: I will prepare an article about a new French but exotic position, and then about a Spanish Hidden champion. Stay tuned.
Movements, new positions explained, and full portfolio below.
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