Portfolio performance 2009-2018

Happy New Year 2019!

It's once again time to check how our portfolio fared in the previous year against passive index investing.

The year 2018 was a roller coaster ride of ups and downs in the market. We ended deeper into red than ever before in the 10 years that I have kept record of our performance.

The bencmark investment* was down 6,1% and our portfolio dived 10,8%. 

Portfolio performance 2009-2017. 

Note: "Difference" column uses exact values as input rather than figures rounded to 1 decimal that are displayed.

Many of our largest positions did quite poorly compared to the broad market. Also, we jumped too early into General Electric and saw quite a slide there. Semiconductors - especially Western Digital Corporation (down 53%) - did their share of damage. My decision to take many small cap companies in Finland into portfolio also turned out at least badly timed. Nokia Corporation was pretty much the only one beating the market with clear margin (up 29%).

In terms of cumulative yearly gains, we are now 1,9% below the benchmark investment. In the larger scheme of things (cumulative gains net of taxes 134% so far) this is very small deviation. However, the long term goal is to outperform the benchmark I have set for our investments.

Cumulative gains of our portfolio (blue line) vs. benchmark investment (red line). 31.12.2008 = 100.

Going into 2019 we continue to be almost 100% invested into stocks. I will cover our current allocation in the next post.


*) 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). 

NVIDIA in - Last ETFs out

There has been considerable changes in portfolio due to recent downward slide in stock market.

• Increased technology stocks exposure
• Have now concluded selling all ETFs

I am long term bullish on the technology stocks over pretty much any other sector and felt that the recent series of slides and crashes offer a good point to increase our exposure into U.S. technology stocks and semiconductor stocks in particular.

NVIDIA (NASDAQ: NVDA) is the latest addition to our portfolio. Both current P/E and forward P/E of NVIDIA have come down to below 20 (source: Finwiz.com). It seems like a reasonable multiple given the 'E' or earnings part of the ratio will hold.

Adding NVIDIA is part of my plan to increase our semiconductor exposure while hedging bets over larger amount of companies than before. Right now, especially the 'commodity' end of semiconductor stocks offers significant short term risk and drama while market speculates over timing of the cycle bottom and how deep it will be this time.

Overall, the share of U.S. technology stocks in portfolio have increased now significantly over last few months with addition of Apple (NASDAQ:AAPL) and NVIDIA and additional investments into some of our existing semiconductor positions: Micron Technology (NASDAQ: MU) and Western Digital Corporation (NASDAQ: WDC).

These moves have been mostly funded by exiting all ETF positions. Thus, the performance of the portfolio is now down to 26 individual stocks out of which 10 largest positions make up over 60% of the entire portfolio.

More about the portfolio after we get year 2019 going..

New position: Apple Inc.

I have iniated a position in Apple (NASDAQ: AAPL) recently.

The stock has definitely trasformed from growth stock to a value stock and at the current level (closed in Dec 4th at $176.69) should in my mind offer a good entry point for a long term investor.

Apple has the kind of products, services, brand and pricing power that most other companies can only dream about. That pretty much sums up the "why" of the investment along with the price tag.

In terms of current valuation & financials we are looking at

• Forward Price per earnings est. 12,0
• Price per free cash flow 16,7
• Return on Equity 48,7%
• Cash per share $13,90
• Dividend yield est. 1,65%
• Long term debt / Equity 0,87
• Quick and current ratios both at 1,1

All above based on data extracted on Dec 5th 2018 from Finwiz.

About waiting for the right time

It is amazing how much chatter there is about whether a particular stock is going (still) to go lower or whether it is "right time" to buy (supposedly at the bottom).

Then there are articles where commentators beat other investors or companies about being wrong on their timing.

Putting short term speculation aside,

my view is that the only right way to think about whether or not to buy (as investor) or execute buyback (as company) is to look at the price today. Nobody can predict the future reliably. The one who could would make a fortune in instant so would not bother making anything else than trading on perfect information.

If the price is attractive given the outlook today then it is a buy. If it is cheaper in the future, then buy some more. It is then even a better bargain.

Take for example, Micron (NASDAQ: MU) stock buyback program. Yes, the price has dropped while company buying back stock, but so what?

I do not know how Micron or any other management team executes stock buybacks, but generally it would make sense NOT to try to chase the market or try to please market commentators.

I would personally spread it out evenly and reserve a possibility for opportunistic buybacks in case market goes insane and the stock drops way below level I would view as attractive.

Another way to look at this is that nobody can really in their right mind say Micron is grossly overvalued or in bubble (i.e. investors have gone insane the other way - which they have in my opinion for some other tech stocks). That being the case, the alternatives are "the right price" (market is right always) or then there is a small chance market is undervaluing the company.

Stock market is about risk and reward. You do not get reward if you do not take risk. I rather have skin in the game than stay in the sidelines with the chance I can look smart afterwards if the stock continues lower.

Apart from speculative short term investors, who really cares where the stock goes from here short term if you are in for the long term?



Disclosure: Long Micron.

Buffett's Apple vs. IBM positions

I have been thinking of initiating position in Apple (NASDAQ: AAPL).

While digging into this idea, I bumped into the fact that Apple has been the largest common stock holding of Berkshire Hathaway's (NYSE: BRK.A / BRK.B) portfolio for quite some time now. I kind of knew that they were heavily long into it, but it had not hit home how sizable the position was even for the Omaha-based legend.

Accoding to the datasource I used (Dataroma) Buffett's 252 million Apple shares makes it now close to 26% of Berkshire's U.S stock portfolio.

Since I recalled IBM (NYSE: IBM) was the first technology company where Buffett had a sizable position, I wanted to make a small comparison on the two positions and how they have evolved in last 5 years (IBM is in blue and AAPL is in yellow).

Table: Top 20 U.S common stock positions of Berkshire Hathaway [data source: Dataroma]

Clearly IBM was a favourite for a long time and then Apple replaced it in top 20. The interesting thing behind the top 20 table is that the value of the entire common stock portfolio has grown from 105 billion to 221 billion USD during the five years. Therefore, it is likely that many of the positions have grown in absolute monetary terms moving from left to right in the table.

I wonder what is the average cost of Apple share in Berkshire's portfolio.

According to various sources Buffett accumulated some 57 million shares by end of 2016. Then by Q1/2017 the total of Apple shares was 133 million and year later 240 million.

Let's look at Apple share price during the same timeperiod:

Apple share price during the time Buffett has accumulated it [Chart courtesy of StockCharts.com]

It can be concluded that Buffett accumulated 57 million shares of Apple in 2016 in the neighborhood of USD 100 +/- 15. Then 76 million shares in Q1 2017 between USD 110 and 140 and in the year that followed (until end of Q1 2018) 107 million shares more between USD 137 and 182.

Looking closer to the information at hand from various sources, it can be seen that bulk of 107 million shares were accumulated in Q4 2017 (31 million) and Q1 2018 (75 million).

This is now purely quesswork, but it looks like average purchase price per share of Berkshire could be somewhere in the ballpark of USD 140 +/- 10.


Disclosure: At the time of writing the author did not have position in Apple, but was seriously considering initiating one in near future.