Portfolio allocation

Our sector allocation is currently as shown in the picture: 

The backbone of the portfolio is technology. The related sectors total to 46% of portfolio. This is the same aggregate allocation as in the previous year across the tech sectors. There were changes in individual sectors and companies, but they seem to even out on this level.

Industrial goods & services is our second largest bet with financials trailing very close. Berkshire Hathaway is counted 50/50 for both.

Our top 5 stock positions currently are:

1. Berkshire Hathaway (USA)
2. Nokia (Finland)
3. Metso Outotec (Finland)
4. Verkkokauppa.com (Finland)
5. Siili Solutions (Finland)

 

Compared to year go Berkshire Hathaway and Nokia have climbed one position upwards while Metso Outotec fell from 1^st place to 3^rd largely because the two previously mentioned performed much better in 2021. Since I trimmed our semiconductor positions smaller, Micron nor any other players are visible among top 5. Verkkokauppa.com continues to be the 4^th largest position and Siili Solutions raised to be the 5^th.

Especially the top 3 positions are significant. They make up 34% of the entire portfolio while top 10 is 67% of the portfolio, which contains all told 23 stocks from Finland and USA.

Back to black - in a big way

On March 21st, 2020 near the bottom of the COVID19-induced market crash, I wrote a blog post stating essentially that

• I don't believe in timing the market. 
• This included pledge of not jumping out of market when it starts to look bad (exception being a clear bubble)
• As result of sticking with this I lost all gains from previous 3 years
• As my next steps, I told that I was going to continue to ignore daily swings of the market and focus on the quality and financial condition of the corporations we continue to be invested in.

Well, you know what happened. A very rapid correction upwards and then some.

Both our pre-crash and post-crash portfolios were riskier than the portfolio than the Dow Jones Global Index (W1DOW) shown in the figure above (yellow line). The post-crash portfolio being more risky than the pre-crash one because I deliberately shifted balance to the most risky assets in portfolio.

And when I say risky, I mean high beta. Not some low quality hacks, but high quality corporations that just happen to amplify whatever the general market direction is.

Because of that, I emphasized that I make these investments with 10-30 years time horizon. Because it could have gone the other way too. In which case I would have been ready to sit on that portfolio for the said time.

After significantly beating the index, I have rotated back to companies that are low beta and hence the portfolio is likely going to behave close to market.

Let's be clear: Getting above average return was not due to some skill I possess in picking overperforming stocks. It is largely because I took more risk (than the index contained) and was compensated for taking that risk because the market moved the right way and the high beta stocks amplified the market move.

Where the stock picking comes in is to have a portfolio that you do not have to follow every day. Not even every week to get a good night sleep.

Happy New Year 2022!

Happy New Year 2022!

Last year was the busiest I have ever had. Thus, did not have time to post. But also did very little in terms of change in portfolio. There was no need because we had already rotated in 2020-2021 heavily towards value from the hot stocks.

I maintain my view that

• some of the stocks are grossly overpriced
• on the other hand, one can find still reasonably priced stocks

Despite the flight to value, we managed to have the best year ever in terms of absolute gains. In terms of year-on-year growth the year was second best (only second to 2019) at 27,2%.

Relative to our benchmark investment the portfolio gained 1,1% extra.

 Portfolio performance 2009-2021 (chart).

Portfolio performance 2009-2021 (table).

In terms of cumulative yearly gains, we are now 76,3% above the benchmark investment. 

All five best performing stocks are listed in Finland:

• Nokia +95,8%
• Nordea +60,3%
• Fortum +37,0%
• Capman +31,1%
• F-Secure +29,5%

From our U.S portfolio, Berkshire Hathaway, which is also by far our largest single position in any market, gained 29% when measured in euros.

Last year, I started with wishing that the year 2021 would bring the end of the Coronavirus pandemic globally. Did not happen.

Thus, extending that wish for 2022.

Portfolio update: Continuing 91% invested in stocks

We are currently 91% invested in stocks. Rest is largely in cash and while it is near same level as previously disclosed in October 2020, there has been some rotation as lucrative opportunities presented itself in e.g. Nokia. We had increased the stake long before the Wallstreetbets induced rally and used that opportunity to offload some of the position.

Few other positions in smaller Finnish stocks have been trimmed as they presented some near vertical climb and ended in my opinion to price level that can not be justified by fundamentals. Well, that's really a lot broader challenge now in the stock market as market as aggregate goes up induced by .. well, I guess mostly by past positive momentum. 

Top 10 stocks stand now at above 70% of portfolio already despite some being trimmed down so that continues to spell out as decent company risks. The trick with most of those positions though is that they carry currently most of our unrealized profits and reducing them mean Finnish tax authority takes 30-32%. As long as those positions can be justified by fundamentals - even if need to stretch a bit - I think we are better of just continuing long.

Sector allocation is as shown in the picture: 

46% of the portfolio is allocated to technology related sectors and that continues to be the backbone of the portfolio. We do like IT/Tech and would like to accumulate even more, but not with any price.

Industrial goods & services is our second largest bet (I count 50% of Berkshire Hathaway into this btw). 

Our top 5 stock positions currently are:

• Metso Outotec (Finland)
• Berkshire Hathaway (USA)
• Nokia (Finland)
• Verkkokauppa.com (Finland)
• Micron (USA)

2020: The Odd Year

Happy New Year 2021!

May this year bring be the end of the Coronavirus globally.

The year 2020 was altogether odd. In terms of investments it seems that Wall Street and Main Street are (again) drifting apart. After the COVID-induced market crash of early 2020, the market has rebounded and then some. Those of us with exposure to technology stocks have done well. However, it does not feel as good as if the same would apply the economy at large. 

Some of the hottest stocks have gone through the roof and continued to climb further from the point where I considered them being extremely expensive (like NVIDIA in July). Still, I do not consider starting rotation from NASDAQ darlings to more dull main street names being a mistake in the long run. There are signs of gross overpricing if not bubble in some tech sector names similarly to the great tech bubble 1999-2000. Ever crazier valuations are justified with questionable logic.

If you assume low enough weighted average cost of capital or perhaps some growth to perpetuity, then you can pretty much justify any valuation. Divide by zero yields infinitely valuable stock.

Still, you can find also reasonably priced stocks even in the technology sector, but usually they come with a short or medium term challenge (like Nokia or Intel). Outside of tech sector it gets easier and you may not even have to discount for any headwind. For the sectors that were hit hardest (travel, restaurants, events etc.) it will take long time to recover.

The year 2020 ended up to be the best year we have ever had in stock markets in terms of gains relative to our benchmark investment* - passive index investing (+11,8%).

 Portfolio performance 2009-2020 (chart).

Portfolio performance 2009-2020 (table).

In terms of cumulative yearly gains, we are now 57,2% above the benchmark investment. 

Our best performing stocks this time included stocks both from Finland and USA. In Finland it was in particular the small and mid caps that did well and in USA our semiconductor plays delivered (especially Micron and NVIDIA until we let it go in the middle of the year). 

In the next post, I will cover our starting allocation for 2020. As usual, we continue to be almost fully invested into stocks. However, rotation towards lower risk stocks started in 2020 and is expected to continue during 2021.

*) The "benchmark investment" is an imaginary passive ETF that closely tracks the performance of MSCI all country world (ACWI) index in euros (more info here).