A Decade In The Making…a 10-Bagger & a 26.0% pa Investment Track Record

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Alphabet, annual review, benchmarking, buy and hold, COVID, crypto, Donegal Investment Group, GARP investing, growth vs. value, KR1, multi-bagger, portfolio allocation, portfolio performance, track record, Universe Group, VinaCapital Vietnam Opportunity Fund

Looking back, I must admit I never imagined reaching this kind of anniversary…but yeah, the Wexboy blog turned 10 years-old earlier this month! A journey that kicked off with this Sirius Real Estate buy (at an astonishing 0.31 P/B!) in Nov-2011. Which was obviously a stock-picking tour de force – noting SRE‘s been a 7-BAGGER+ since. Well, except I somehow managed to distract/scare myself out of the position two years later…for a mere double-digit gain! And maybe that’s where this post should abruptly end, because:

The one BIG lesson most investors still need to learn is how to HODL!

But let me be clear up-front – this is not intended to be some lessons-learned victory-lap post. As investors, we never really know what’s coming down the road…next year could be a celebration, or a total humiliation. And we all make dumb mistakes, we repeat them, we live with them & we finally move on – great investors just make less mistakes. And we can’t afford to get disheartened, or to rest on our laurels – great investors (should) never stop learning & adapting ’til the day they finally exit this great game. To assume/pretend otherwise is to tempt the gods, which makes investing such a uniquely weird mix of confidence…and humility.

That said, this year & last year have been an accelerated learning experience for me – as is presumably true for all investors (& everyone we know). And yes, I know I’ve promised to write about this – and hopefully share some positive learnings & useful advice – particularly in light of my actual FY-2020 & YTD-2021 performance. But I gotta admit, I keep putting it off…because now I desperately want & need it to be a final epitaph for this (Zero-) COVID hell we’re still stuck in. [Despite most of the world getting vaxxed since!?] So yeah, that’s obviously something I gotta work on…

But meanwhile, I’m thrilled I’ve actually managed to deliver that unique & rarest of beasts…a public/auditable 10-year investment track record via the blog (& my Twitter account). I obviously don’t disclose the actual euros/cents of my portfolio, albeit my long-abandoned career & my family’s security/future clearly rely on it – which means return of principal is just as important to me as return on principal, in true family-office style – but readers & followers have always been able to assess my level of conviction/risk tolerance via my specific % allocation in (disclosed) stocks, and via (essentially real-time) tracking of my (rare) incremental buys/sells in those stocks.

And in return, I’m far more interested right now in seeing readers draw (& even share) their own conclusions – privately, or publicly – from my stock-picking & investment track record to date. To facilitate that, here’s my annual returns…complete with links to my annual performance review & actual stock-picks/investment write-ups for each year.

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So Why Not Buy Apple..?!

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$AAPL, AAPL:US, Apple, circle of competence, deferred taxes, disruption, economic moat, growth investing, growth vs. value, innovation, Margin of Safety, Philip Fisher, Steve Jobs, technology, value investing, Warren Buffett

We all know the type: Born-again value investors who still have that new car smell. No longer clueless, but the market hasn’t beaten adequate sense (or humility) into them just yet, so they’re still insanely over-confident. Which we tolerate – after all, we were like them once – then they start expounding their new & improved value investing philosophy, and it all goes downhill. I recall one encounter, some years back, where I struggled to get a word in, let alone offer some kind of reality check. Finally, my new guru was forced to pause & finally breathe, so I did the only sensible thing. I lobbed this hand grenade:

So why not buy Apple..?!

All I got was a puzzled look. Repeating the question, I then pummeled him with a veritable laundry list of Apple (AAPL:US) fundamentals & ratios. If he was such a value expert, surely Apple was a screaming value buy?! Needless to say, I never got much of a reply, but it stopped him in his tracks & scared him off…job well done! But the more I thought about it, the more it seemed like a valid question for other investors (& even me…). And a question to be asked in a spirit of honest inquiry. I mean, let’s look at Apple’s numbers today:

• Net sales have reached $216 billion (as of FY-2016).
• Net sales increased 99% & over 1,000% in last 5 & 10 years, respectively.
• Gross margin increased to 39% ($84 billion) in last 10 yrs.
• Op profit margin more than doubled to 28% ($60 billion) in last 10 yrs.
• Net income increased 76% & almost 2,200% in last 5 & 10 yrs.
• EPS compounded by 16% pa & 38% pa in last 5 & 10 yrs.
• Net cash/investments inc’d almost 1,400% to $151 billion in last 10 yrs.

• Current share price (as of cob Feb-7th):  $131.53
• Current market cap:  $690 billion
• Current P/S ratio:  3.2 times
• Ex-net cash/investments P/S ratio:  2.4 times
• Current P/E ratio:  15.7 times
• Ex-net cash/investments P/E ratio:  12.1 times
• Current FCF ratio:  13.2 times
• Ex-net cash/investments FCF ratio:  10.1 times

OK, just take a moment & marvel…even with the share price now approaching all-time highs again, surely Apple’s still a screaming value buy?

So why not buy Apple..?!

The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?)

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blue chips, bubbles, bullish, diversification, floating world, growth vs. value, negative yields, Nifty Fifty, price of money, quantitative easing

My last post (‘Welcome to the Floating World…’) talked about some of my habitual concerns regarding the markets & my portfolio…and consequently, I couldn’t help but highlight an inherent contradiction of my portfolio:

If I worry so much, how come my entire portfolio’s invested in stocks..?!

The answer’s simple: I have been & continue to be resoundingly bullish on the markets. Except it’s really not that simple…because this immediately highlights another obvious contradiction of my portfolio:

If I’m so bullish, how come my portfolio’s invested so defensively..?!

To illustrate, let’s revisit my Top Tips for 2015 post – which actually listed my Top 10 portfolio holdings (as of year-end 2014). Here they are:

I’d classify eight of these holdings into three (overlapping) categories: Deep value, special situations & (mostly) uncorrelated stocks (vs. the economy, or even the market). Which leaves just two holdings that can be described as growth (or high beta) stocks/funds: Fortress Investment Group (FIG:US) & VinaCapital Vietnam Opportunity Fund (VOF:LN). Granted, a defensive portfolio mix helps me sleep at night, as I’ve boasted before – but in light of my bullish market view, I have to ask if this is really an unnecessary luxury…or maybe even a bloody hindrance?

And in reality, my market view shouldn’t necessarily be that relevant anyway – return to my recent Stock Picking…Art, or Science?! series (esp. Part IV), and we’re reminded that consistent portfolio diversification isn’t just about geographical & asset allocation. Take another look at my Top 10 holdings table – again we see an inherent contradiction of my portfolio:

If I’m so concerned about diversification, how come my portfolio’s so lacking in large cap/growth stocks..?!

[Interestingly, the two growth stocks/funds I identified are actually my largest market cap holdings. My other holdings’ average market cap is just $84 million.]

Stock Picking…Art, or Science (Part IV)?!

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art vs. science, asset allocation, diversification, Event Driven, GARP investing, growth vs. value, IRR, Margin of Safety, Return on Market Equity, stock picking, stock selection, stock valuation

Continued from here.

Value vs. Growth:

In my last Stock Picking post, I highlighted a common value investor failing – namely, a preference for over-leveraged & illiquid small/micro-cap stocks. All too often, it seems like this kind of preference (& others like it) are simply hard-wired in…maybe you’re born to be a value or growth investor! Now, we could get all touchy-feely here & try to personality-map this out – cautious vs. aggressive, quantitative vs. qualitative, thinker vs. dreamer, and so on – but does it really matter? Far better to recognise & accept what you are – if you haven’t already, just stop reading right now & come out to your wife:

‘Um, darling, it’s time you know…I’m a value investor!’

You may even find out she knew already…

Acceptance is the first & most important step in recognising inherent investing biases, and maybe trying to curb some of the worst excesses of hard-core value investing. [Of course, the same is equally true of growth investing]. This might take years…it definitely took me years! And pride often gets in the way – sometimes it’s nice to feel different, one of a select breed of smart investors who can boast of finding hidden gems in the rubble. But this is just an illusion – true growth investors are equally select. [Yes, most people seem biased towards growth stocks (if they ever mention stocks at all!?) – but in reality, they’re fairly clueless about money & investing. At best, they’re TALT* investors…] For them, genuine growth stocks are equally difficult & just as precious to find. And let’s face it – on average, in the real world, nobody can reliably claim value investing is superior to growth investing, or vice versa.

But accepting your value investing biases, curbing your excesses, and exploiting your natural advantages, is surely the best way to maximise your comfort & your returns as an investor. Except this can ultimately prove a double-edged sword…the world you end up living in may just be a value ghetto. Sure, it may feel large enough, it may even feel comfortable enough, but if that’s as far as your horizons stretch, you’re missing out on a whole other world of opportunity out there. Forget about investment ideology – again, this is about diversification, and it’s about becoming a better investor.

If you choose to ignore growth stocks & investing, you’re voluntarily cutting yourself off from vast swathes of the available investment universe – that’s countless companies, entire sectors, new/disruptive business models & secular trends, even geographies, etc. you’re missing out on, maybe forever…how does that make any sense? And even if you heed everything else I’ve written about diversification, how meaningful will the impact be if your portfolio remains blighted by the absence of growth stocks?

Of course, the classic value objection to growth stocks is that they’re invariably over-valued. But this, my friends, amounts to nothing more than a red herring… A true growth stock always seems to be over-valued, yet its share price can subsequently look astonishingly & ridiculously cheap after the business/stock somehow manages to scale up by hundreds or even thousands of percent. The real complaint here, I suspect, is that growth investing is just too hard!?! And if you’re a value investor, there should be no shame in admitting this – because that’s exactly how it feels: You naturally take a primarily quantitative approach to investing & you always require an adequate margin of safety, but identifying true growth stocks demands a far more qualitative approach & appears to offer little in the way of safety…

Stock Picking…Art, or Science (Part III)?!

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art vs. science, asset allocation, correlation, debt, diversification, growth vs. value, home bias, illiquidity, stock picking, stock selection, stock valuation, volatility

Well, it’s not ideal publishing another post in this series two months+ after my last post…but I’m obviously no post a day pleaser. And life, Xmas, stocks & markets, and sneaking off to the movies, all tend to get in the way! 😉 A quick (re-)read of Parts I & II might be in order, if you’re so inclined? But to recap, very briefly: In Part I, I stressed stock picking is really two distinct & independent activities:

a) Stock Valuation, and

b) Stock Selection

And all too often, investors confuse & conflate the two…

But presuming your quantitative stock valuation process is nailed down, then stock selection is obviously a far more qualitative process…it’s certainly not about ranking & selecting stocks purely in terms of their upside potential. Fortunately, there’s plenty of stock selection filters you can employ – for example, to help protect against the risks posed by home bias, bottom-up stock picking, and/or a concentrated portfolio. Of course, the overall objective here is to:

i) Ensure stock selection is as much science, as it is art, and

ii) Always strive for greater diversification & superior risk/reward in your portfolio.

Here are some other filters you may find particularly useful. No doubt, as you read, they’ll strike you as perfectly obvious…the trouble is, applying them consistently is easily forgotten when you’re considering individual stock holdings & potential buys, let alone when you’re trying to manage the overall risk/reward of your entire portfolio:

Stock Picking…Art, or Science (Part II)?!

Tags

art vs. science, asset allocation, bottom-up stock picking, concentration risk, diversification, growth vs. value, home bias, Margin of Safety, stock picking, stock selection, stock valuation

Continued from here.

OK, time for a more in-depth look at stock selection. [NB: We’re presuming you’re already comfortable with the rigour & consistency of your stock valuation process]. While I’m happy to acknowledge stock selection may (ultimately) be art, here I’m going to illustrate & argue why it should be mostly grounded in science. So yes, I’m sorry – I don’t have any magic tricks up my sleeve to avoid, for example, a situation we all abhor…you know the one I mean:

You dutifully winnow a list of stocks down to two finalists, do a fine job of valuing them side-by-side, and make your final/fateful selection…only to see one stock double in three months, while you ponder the 35% loss on the stock you actually bought!?

But this can & does happen to the best of us! Unfortunately, it comes with the territory… You have to remember buyer’s regret & remorse are really just symptoms of Fear & Greed. Which can be tackled in two ways:

– Ignore the Problem:  As tempting as self-flagellation is, why indulge in such a pointless exercise? Don’t forget, we’ve already assumed you’re doing a bang-up job with your stock valuation process – so you obviously shouldn’t be buying dud stocks, or forsaking a decent margin of safety! What you’re dealing with here is really just Lady Luck…and her rough edges tend to get smoothed out over time.

– Systemise Your Process:  Stock selection is an independent, but equally important, part of your investment process – and as I’ve argued before, formalising & systemising every single component of that process is the best way to subdue and kill your fear & greed. Like I said, stock selection is mostly a science..!

And as I wrote in my last post:

‘Stock valuation must be absolute, but stock selection is usually relative.’

Stock Picking…Art, or Science?!

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art vs. science, growth vs. value, stock picking, stock selection, stock valuation, TGISVP, Warren Buffett

Gather some investors together, mix liberally with beer, garnish with some grub, lose track of time, and there’s a question which inevitably bubbles to the surface:

So, stock picking…is it bloody art, or is it science?!

If you’re a regular reader, you might recall my Why I Read (I, II & III) series & this more recent piece (Investing Haiku), and assume I’d argue stock picking is ultimately art. That’s understandable – and if you buy me enough drinks, I’m sure I’d be more than happy to expound on that very argument! [And yeah, maybe I can talk even more than I can write. 😉 But only v occasionally… 🙂 ] But in the hard light of day, I’d be far more reluctant – not because of the argument itself, but because of how it tends to be abused…

First, we have the experts who never really share/explain their actual investment process. Who knows if they’re afraid to share their secret sauce, if they’re looking to add some mystery & glamour (and a following), or if they’ve simply succumbed to false modesty? Intentional or not, they persuade investors their stock picking is ultimately art – so you can invest with them, slavishly copy their stock picks, or you can simply give up…because you can never hope to emulate them!

[I mean, look at Warren Buffett – here we are, 60 years into his career, still slavering over any attempt to reverse-engineer the keys to his investment process & success. Whilst lauding a schizophrenic media that likes to preach why you should invest like Buffett, and why you can’t invest like Buffett! Before he dies, Alice Schroeder needs to perform the ultimate public service – lock herself in a room with Buffett, and only come out when she’s fully documented the real nuts & bolts, facts & figures, and dollars & cents of his major stock picking successes!]

Cheap & Interesting!

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blind stock valuation, cheap and interesting, fear and greed, growth investing, growth vs. value, investment writeup, reading, stock ideas, value investing, worship the spreadsheet

There’s one category of email I receive ’bout every second day. A typical example will thank me for the blog (yes, always good to hear!), stress they’re a regular reader, often cite a share we own in common, but then we reach the real meat – usually a somewhat impassioned plea:

Please tell me…where & how exactly do you come up with your ideas?!

All appear to be from genuine readers & investors – I certainly don’t think anybody expects some kind of get-rich-quick answer. [Though it gives a taste of how such a desire is so regularly exploited by the unethical & downright criminal]. I suspect this plea reflects a pretty common frustration for investors – where & how do I find new ideas…and how do I know if they’re actually bloody good ideas? Of course, I’ve no magic short-cut to offer here. My definitive answer’s still:

Read, read, read & then read some more…

I covered this ground in ‘Why I Read…’ (Parts I, II, & III – probably my most popular blog series ever). [‘Why I Write…’ may be a useful companion piece]. Looking back, I think these lines (from my final post) nicely sum up the challenge & benefits of reading:

‘I’m talking about territory where the greatest opportunities, and the greatest investors & traders, reside….For them, you can probably chalk it up to pure innate talent. For the rest of us, I think huge swathes of reading is the inevitable toll you pay to get there – however you go about it:

But reading annual reports will give you the figures. Reading non-fiction gives you the facts (& the right context). And most importantly, reading fiction allows you to recognize the fear & greed in yourself (& others), and enables you to see & imagine the world very differently.‘

So, Growth…or Value?

Tags

Benjamin Graham, buy and hold, catalyst, growth investing, growth vs. value, investment theme, Joel Greenblatt, multi-bagger, Philip Fisher, reading, survivorship bias, value investing, Warren Buffett

Ah yes, the great investing debate & divide…

At one extreme, we have the wild-eyed growth investor foaming at the mouth over a great story. A silky-tongued CEO’s painted unicorns & castles in the air, and our reckless plunger’s itching to dance the magic rainbow. No price is too high, no management too sleazy, no risk too great, to deter him from the boundless opportunity he now sees stretched out in front of him… His investing idol’s Philip Fisher, of ‘Common Stocks & Uncommon Profits’ – which I had the misfortune of re-reading recently. How this book was ever nominated a bloody investment classic, I don’t know!? OK, let’s grant some credit. Yes, I’m sure Fisher was a gifted investor, but he was also in the right place at the right time – in California, at the dawn of the electronic (& venture capital) ages.

So, who’s ever sat down & really studied his book, and actually figured out how to bloody implement his 15 Points? Who among us has the time, the means, the resources, or the determination to practice 95% of what Fisher preaches? And where in the book is the real secret exposed – the foresight to pick a 100 or even a 1000–bagger? That’s the problem people forget with growth investing – survivorship bias. Consider a buy & hold investor seeding his portfolio with a selection of promising growth stocks – some die off quickly, most turn out so-so, but maybe one (or two) actually grow & grow to dominate his entire portfolio. Of course, the losers are long forgotten, and he’ll nod wisely & tell you he always knew the real winners! Or how about the chancer who bought a single long-shot stock…and ended up making a friggin’ fortune?! Well yes, he’s obviously a media darling now. But where are the stories about his fellow slobs who bet the ranch & lost everything? Well, like I said, the losers are long forgotten…

Not to mention the fact share prices of even the biggest winners usually suffer some pretty sickening plunges along the way. Of course, every growth investor’s confident he won’t be the sucker shaken out of his wonder-stock’s long-term parabolic trajectory by a mere trading blip. Learn from Black Monday ’87, he savvily reminds you – it’s a mere blip on the charts now! Yeah, but the average investor wasn’t calling it a blip then – he was too bloody busy selling…