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.

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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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Reflections for 2016

Savings

This was a great year in terms of making money but a horrendous one in terms of savings. We had higher than usual expense because of the number of travels we made. In short, we made around 128k (~ 10.7k*12) in normal income and were able to save only 43.7k (~3.5k*12). So, we have been saving 35% of our income and spending the rest i.e., 65% of the income. Given my target of 50%, this was a bad rate by any standards.

Portfolio Performance

This year, I decided to take a measure of my performance. In particular, I wanted to know if I have been adding any value, when compared to the Swiss Leader Index (SLI).

My performance (below) is being compared against SLI (without dividends) assuming that I bought the index for all the “cash in” on the first trading day of the year. For comparison, I also have my performance compared against a 10% absolute return.

portfolio-2016

TL:DR; my performance has been approximately 6% compounded over the years, with most of the out-performance coming from the current year (luck?).

screen-shot-2016-12-27-at-12-16-41-pm

I have 17 positions in total (Altius Minerals is repeated twice), and cash is 20% of the portfolio (larger when I transfer the savings for 2016 into my brokerage account).

Philosophy

I am offering an investment course where I work. It is a 270 minutes overview of everything related to investments. It can be split into three major parts: (a) the basics of investing (stocks, bonds, gold, real estate), (b) the business of investing (risk, asset allocation, portfolio construction, active-vs-passive money management, and (c) the implementation i.e., what to do with your money (recommendation being: invest in a ETF).

I learned a lot from the exercise. In particular, when I ran my calculations, I realized that saving 30k purchasing power a year for 30 years at 5% inflation adjusted return will help me achieve my goal of having 100k/year purchasing power forever (after the savings phase of 30 years of course!).

I also feel quite good about myself this year. I made very small number of decisions and felt quite OK when 15% of my portfolio was gone in the beginning of Jan because of SNB breaking the CHF/EUR peg. I feel much more comfortable in “my skin” so to speak.

I am looking forward to the next year.