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).