Review: 2018

This is what my portfolio looked like at the beginning of 2018.

chart

This is what it looks like at the end of 2018.

chart (1)

A few changes that immediately jump out are:

  • I am completely invested at the end of 2018. Since I started dabbling with investments, I almost always had ~ 25% cash. I liked to keep cash because I thought of using it when the markets crashed. I was completely invested in 2012. And, crash or not, I am completely invested now.
  • I went from holding 14 stocks to only 7. I like to think that this is a by product of discipline and not buying things I do not understand. A lot of companies that I was holding at the beginning of 2018, I will never invest now. For example: Silverchef, LSL Properties, Rolls-Royce etc.

At the end of the year, I am holding the following companies.

  • GOOG: I can’t add to what has already been said many times about the significant moat Google has. In my opinion, YouTube is a significantly undervalued business and cloud/self-driving are some bets which might pay hugely. On top of this, Google sells cheaply for a cash adjusted forward PE multiple of 19 and grows at ~ 20%. If you compare Netflix & YouTube, you can ballpark how much YT is worth. People watch ~ 1b hours of YouTube per day! I estimate the value of YouTube to be at least $200b.
  • Facebook: Lots of bad news this year. The stock got hammered and I was able to correct my mistake of not buying FB at ~ $25. On the plus side, now they have a proven business model, make a lot of money, have $40b in cash and grow at ~ 40% YoY. Currently, FB sells at cash adjusted 18 times forwards PE. This is even cheaper than Google & FB grows more quickly.
  • Hikma Pharmaceuticals: I bought Hikma in March after it got kicked out of FTSE250. This is an owner operator and the family owns ~ 25% of the shares. They have three equal sized businesses: Branded Generics, Generics & Injectables. The bad news coming from the Generic segment drowned out the performance/moat they have in Injectables. The company just became too cheap to pass up. I invested big and luckily the stock appreciated by over 50% in the next few months.
  • Apple: Started buying again when the stock sold off in December. I bought it one day before the China sales warning. The thinking here is simple. They have a great eco-system. Their position wrt privacy is a source of moat which no other Software/Hardware companies offer and the products they design & sell are well thought out and a joy to use. The Watch 4 is getting rave reviews and I am not going to pass off a company like this selling for < 12 times earnings.
  • Booking: Booking has built an OK moat in hotel bookings in Europe. I started with AirBnB but have found myself using Booking more and more. One of the major reasons is that you get an immediate confirmation of your booking. Furthermore, the app/website is quite intuitive and easy to use. Unfortunately, Booking still competes on price and face significant competition from Google/AirBnB and also meta search engines like Trivago. This will never be a > 5% position for me.
  • BRK: Berkshire should be able to return 10% a year. And, I plan to keep this position as a safe holding.
  • DNOW: A well run company selling cheaply. This is the only company in the portfolio that I understand the least. But, I like the management and I like the numbers. It is a marvel to see how they manage working capital during downturns!

In order of things I would sell, if push came to shove, are: BRK, DNOW, BKNG.

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Introspecting my holdings

Jun 13, 2013 My portfolio will profit from an introspection, especially given that my performance over the last 2 years has been quite abysmal [src].

Equity Invested
Tier 1 ABB, Bouygues, Tesco, ArcelorMittal, CAF, PostNL, Intel, MunichRe sfr 19,000
Tier 2 Dell, E.On, France Telecom sfr 14,000
Tier3 Bank of America, Banco Santander, Hewlett-Packard sfr 13,000

Tier 2 are the ones which I would prefer not holding — if better opportunities arise. Tier 3 are companies which are either outside my circle of competence (BAC, SAN) or I detest holding them (HPQ). This is a sad state of affairs because out of sfr 46,000 invested sfr 27,000 is not in companies I really like. This needs to change.

I will actively try to shift my holdings towards Tier 1. In 6 months I will check back to see if I have succeeded in doing so.

Oct 25, 2013 It has been four months since I looked at my portfolio as a whole. Here is the current breakup in terms of the Tier structure I defined above.

Equity Invested
Tier 1 ABB, Bouygues, Tesco, ArcelorMittal, CAF, PostNL, Intel, Fortress Paper, Nam Tai sfr 26,000
Tier 2 E.On, France Telecom sfr 12,000
Tier3 Bank of America, Banco Santander sfr 10,000

I still have sfr 46,000 invested and only sfr 22,000 are in the companies which I don’t really like for one reason or another. I feel much better about my portfolio now then I did in June. Especially, after cutting down.

Rate of return

As every investor, my portfolio is performing quite well. I want to note a few things about my medium term goals.

My savings were shown in a previous post (see here). Following should be the value of my portfolio by the year end, assuming different rates of return compounded annually. Note that I have not included my savings for the year 2013 to my overall calculations here.

Rate of return (in %) Value (CHF) Gain (CHF)
0 75,000 0
10 92,000 17,000
15 101,000 26,000
20 111,000 36,000

Given that my portfolio is up CHF 9,500 I don’t think I can achieve more than CHF 26,000 by the end of this year. I have also stopped buying and have continued to lighten up some of my risky holdings. This puts further contraint on my portfolio given the underlying appreciation of stocks in general.

I expect recovery in MT, E.On, BAC, SAN and CAF. A 30% appreciation overall is certainly achievable. This will add around 6000 to my portfolio. So, if I do not find any new opportunities and the market continues to run wild then I am looking at more like 10% rate of return.

Oct 25, 2013 I am up sfr 25,000 already, which is a 15% annualized rate of return since I started investing. I have been helped amply by luck and the fact that the stocks are becoming more and more expensive. If the crazy run lasts, I might even be looking at a 20% annualized rate of return since I started investing.

Power of savings

Savings

 

This is the progress of my portfolio over the last 2 years. I started with 0 balance at the beginning of 2010. Three years and a few months later, I am sitting on a pile of $100k.

The jumps in the graph are due to cash deposits to the portfolio. If you look closely my performance/stock picking is nothing to boast about – at least so far. I have managed a measly 5% compounded return. Still I can boast about my savings rate. Averaging over the last 3 years my savings rate has been 41% of my after tax salary.

My thoughts on savings

I have $100,000 in my equity portfolio. A conservative estimate for my savings each year is around $30,000 a year. Given these figures I can calculate how much I will have in 10 years, depending on my return.

YoY Return Expected saving per year value of portfolio in 10 years
5% $30,000 $540k
10% $30,000 $737k
15% $30,000 $1mn
20% $30,000 $1.4mn
25% $30,000 $1.9mn

Even the lowest estimate is enough for me to retire in India; if I aim for $12,000 in yearly spending (2.2% return suffices). The high estimate is probably going to be very difficult to achieve. I am targeting 30% return — which will be very difficult. But a high target is going to help me weed out low margin of safety investments. I want the undervaluation to be enough to warrant 30% return.

A conservative estimate is around $40,000 saving every year and a 15% return. With a starting portfolio of $100,000 today; this gets me to: $1.2mn.

My goal for 2013 are:

  • Save $40,000.
  • Target 30% return.
  • Never go below 20% cash.

I will see if I achieve these this year or not.