As of today, I have increased my position size in Disney from 2% to 5%.
I first bought Disney shares in March 2020 at around $90. With the rapid rise in Nasdaq companies in 2021, share price of a company as large as Disney more than doubled and I was able to sell some shares at around $202 and reduced position size to 2%.
Since then, prices have gone down by more than 50% and are now below pre-covid levels. This is while company’s core business has revived and company has been successful in pivoting their business model towards OTT, gaining market share from the likes of Netflix. Lets see how future pans out. Cash is reduced to 25%.
As of today, I initiated 5% position in Google. In past 5-years, this is the third time I am buying Google, at a price lower than when I lost sold it (around $104 in Feb 2021, see link below).
Its amazing how powerful forces of mean reversion are, and how ignoring them can lead to subpar results. The EV/sales chart of Google suggests that they bottom out around 4x EV/sales. I last sold around 7x EV/sales.
Thoughts on Nasdaq collapse: It seems that we are in the last leg of the Nasdaq collapse, when share prices of good cos with free cashflows are getting hit.
In every market collapse, the first leg of downturn starts from junk cos, as was the case with ARKK ETF peaking out in Feb 2021. The collapse then trickles down to reasonable cos with slightly shaky business models (likes of Dropbox, Uber). The final leg is when the blue chips (or so called generals in folk literature) start getting hit (likes of Google, Microsoft, etc.).
My portfolio positioning has largely followed this trajectory. I was fully out of tech stocks (except a 2% position in Disney) by March 2021. I then started buying slightly shaky business models like Uber in October 2021 (which was a bit early), Dropbox in Feb 2022, Netflix after its huge 60% intraday fall in April 2022 and subsequently bought InMode, more of Disney and now Google.
It seems that I have come the full circle, from having large positions in tech stocks, then getting completely out and then reentering the ones I like. In all this time, companies have grown sales, started focusing on free cashflows and are now behaving like mature adults (like they should!). Its been a delightful journey maintaining my thought journal on this thread.
Coming back to Google, I will look to increase my position size to 10% if price reaches $75-80. Updated portfolio is below and cash reduces to 20%.
I strongly think you should read Trupanion shareholder letters. Very well written. Almost comparable to Berkshire or Markel or Constellation letters, read it to understand what I mean.
A very thoughtful post as always. Your focus on mean reversion plays has opened my eyes to them, thanks for that!
Thoughts on Nasdaq collapse: It seems that we are in the last leg of the Nasdaq collapse, when share prices of good cos with free cashflows are getting hit.
In every market collapse, the first leg of downturn starts from junk cos, as was the case with ARKK ETF peaking out in Feb 2021. The collapse then trickles down to reasonable cos with slightly shaky business models (likes of Dropbox, Uber). The final leg is when the blue chips (or so called generals in folk literature) start getting hit (likes of Google, Microsoft, etc.).
Going by past NASDAQ crashes in 2000 and 2008, this leg seems to have some ways to go before it bottoms. This maybe the start of the last leg (Where the generals start getting shot), but we may be some ways away from the end of the last leg?
Of course standard disclaimers regarding history not repeating itself applies here.
They barely make 20-30% gross margins, if one really wants scorching sales growth isnt InMode an easier bet? There is an actual profitable business model there with proven ROCE and one is paying very reasonable multiples.
Honestly, I dont know. My strategy has been to buy into pain and sell into optimism. Bottom is only known in hindsight. In this tech collapse, from my own buy price,Netflix is up 50%, InMode 70%, and Dropbox, Uber and Disney are flat. There’s clearly a lot of stock specific action and I want to capitalize on that, rather than trying to find lows and highs of a broad index. Obviously, all my gains can easily evaporate, but nobody knows these things!
As of today, I initiated a 2% position in VF Corp. They own very renowned brands like North Face, Vans, Timberland, Dickies and Supreme. I am a big fan of their North face brand which produces very durable sports accessories.
This is a 100+ year old company with a history of profitable growth and growing dividends. They return most of their free cashflows via dividends or buybacks (see below).
With current recession fears, stock has gone down a lot and is trading at 2012-13 levels. However, their core brands are very strong. In last few years, they have grown via inorganic expansion, with the last one being a $2bn acquisition of Supreme brand in 2020. Most of their manufacturing is outsourced to China, as a result of which most of the balance sheet is working capital + intangibles.
Receivables are generally set-off against payables, and company funds inventory from their own book (3-4 month of working capital). Given their strong positioning, working capital has been well managed over years.
I will scale up position if valuations go down to 2008-09 levels. If this position doesn’t work out, I will blame @rajanprabu as he brought up this idea. If it works out, I will take the credit
Updated portfolio is below and cash reduces to 18%.
I am value averaging in MON100- NASDAQ100 ETF. Buying into weakness and selling into stregth. Dont know bottom or top , neither trying to guess.
However I made 5-6% gains from buy price and i sold the excess ( Premium over the invested). If last leg of nasdaq fall happens, then will plough back the cash back into the ETF. Plus will pump additional cash.
From current level of NASDAQ-11400, how low do you expect it can fall- as per previous crashes. Need not predict exact bottom. This would help to plan staggered cash deployment plan ready.
VFC seems to be an interesting stock to analyze. However, looking at the chart, I feel that market might be knowing something that we are probably overlooking. Other than, D/E ratio going to 2X from 0.5X, I can’t find anything bad so for.
Question:
Why did the Debt/Equity jump suddenly during CY19Q4?
When these debts are maturing and are they facing refinance risk?
@harsh.beria93 How does the change in debt taxation figure in your future international investments ?
The change in taxation to income tax slab & not as capital gains looks to me like a significant deterrent for future investment.
Please let us know your thought process.
Hi, I am a non-resident Indian living in Switzerland, so these tax rules don’t apply to me.
If I was investing from India, I would have still diversified globally because of the massive opportunities abroad. For e.g. last year I was buying InMode which is an amazing business (80%+ gross margins, 40%+ EBITDA margins, 40%+ ROIC) growing at 25%+ rates and I was able to buy it at 10x PE. There is not a single business in the Indian listed universe which has these kind of risk reward.
Similarly, I bought Markel (speciality insurance co) at book value or the largest German AMC business at negative enterprise value. These kind of opportunities are just not available in India and I am happy in participating in these even if I have to shell out higher taxes. Hope this clarifies my thought process
As of today, I switched from Phillip Morris to British American Tobacco. BAT has much higher dividend yield and almost the same business profile as Phillip Morris.
In terms of EV/sales, both have traded at similar multiples except since 2020 when valuations have diverged. I attribute this partly to problems in UK and general risk aversion of investors towards UK market.
To value, you have mentioned to EV to Sales across multiple businesses. Do you feel it is a right metric for almost all stable businesses? Or is it just a sample and you use other relevant valuation ratios too?
Your thesis points are heavy on business model, triggers and valuation. Do you also study the books of accounts in depth? Do you think the chance of accounting jugglery in large and established US businesses is low given relative tight laws?
As of today, I have added 2 stocks to the portfolio. This reduces cash to 11%.
5**% position in Dino Polska SA:** The original idea came from our in-house Polish expert @rajanprabu . Dino is a retailer based out of Poland and has done amazingly in past few years. Just to give some context of their scale, I will compare their numbers with Dmart.
Sales growth (since 2016) for Dino has been 33% (vs 21% for Dmart).
If Dino was listed in India, I dont know what valuations people might have ascribed as they are superior on every metric vs a Dmart. Actual valuations are half of that of Dmart. So I am getting a superior business model growing faster at less than half the price (thank god for global investing!)
Dino has been consistently been bottoming out at ~25x PE and their current valuation is ~28x, so its towards the lower end of valuations. Lets see how this position works out.
2% position in Mettler-Toledo. They manufacture lab instruments and have been industry benchmark for close to a century. I will share few numbers about this business:
Consistently increasing gross margins, leading to improvement in EBITDA and PAT margin over years.
They generate about $800-$1bn in profits and freecashflows, and they use all this to buyback their shares. As a result, their sharecount has kept decreasing over time.
Just to give some context, net profits have grown from $100mn in 2002 to $872mn in 2022 (11% CAGR). But their EPS has grown from 2.21 to 38.41 (15% CAGR) due to consistent buybacks. This is a very high quality and sticky business and they are trading at lower end of their valuation band. This is largely because they saw a large boom in business during COVID which has now normalized and market has derated them. Lets see how this works out.
I try to find mean reverting variables in terms of valuation, it makes the entire exercise very easy. For mature businesses with stable margins, EV/sales looks through business cycles and is a good metric.
I largely focus on free cashflow generation as a filter for accounting jugglery. By no means its perfect as companies can easily manipulate free cashflow. However, if a company returns a large part of its free cashflow to investors, its highly unlikely that they will be fudging accounts. But it can still happen.
