My Investment Philosophy
The Ideal Investment: Passing Down Shares Through Generations
In an ideal situation, one can purchase shares of a company, enjoy increasing dividends for many years and then pass these investments on to your children or grandchildren.
Unfortunately, only a handful of companies globally meet the stringent criteria for such long-term investments. If you are able to buy one of these at a fair price you should not hesitate, but they tend to only get affordable enough during stock market crashes.
Lifespan of Companies: From Greatness to Obsolescence
Even seemingly exceptional companies, like Kodak and IBM in the past, have a lifespan just like humans. In the 1970’s nobody would have believed that the great Kodak or IBM would not dominate the stock market forever. It’s doubtful that Amazon, Google, Apple, Nvidia,... will all defy the odds.
From my experience as an entrepreneur in the photography-multimedia sector, I know very well what disruption is and how everyone active in the sector either did not see the changes coming in time or had no response to them. This makes me extra critical and cautious about the new generation of companies that "will grow forever."
Balancing Price and Quality: The Value Investor's Dilemma
As a value investor I prioritize price over quality. I acknowledge that a poorly performing company can still be a profitable investment if acquired at a steep enough discount, and that even the best company in the world can be a poor investment when the price paid is too high. Nonetheless, I'm constantly seeking an optimal combination between value and quality.
Joël Greenblatt's Magic Formula in my opinion is the essence of investing: seeking companies that strike a balance between quality and value. This principle guides my investment choices.
Prioritizing Certainty: Price Today vs. Uncertain Future Growth
I like growth in a company's numbers as much as anyone, but I'm unwilling to pay a premium for uncertain future growth. The price that you pay and the ROE/ROIC are the most important factors defining your returns. I have no control over the future ROIC, however I do have control over the price I pay.
Risk Assessment: Debt, Liquidity, and Competitive Advantage
Critical factors in my investment analysis include assessing the debt ratio, liquidity, and the presence of a competitive advantage or moat. Such considerations determine the potential for long-term success.
Almost equally important, what are the capital allocation skills of the management? Are we at risk of them lowering our returns because of dumb acquisitions or buying their own company shares at a premium?.
Balancing concentration and diversification
I follow the Peter Lynch principle that to get to know a company well you must be invested in it. However I don’t do hundreds of stocks. I focus on a manageable number of stocks (24-36) to ensure in-depth understanding.
When I research a stock, I try to find reasons to put it on the NO-pile as fast as possible. There are so many stocks worth looking at that I don’t want to waste any more time than needed.
Watering the plants and cutting the weeds: Portfolio Management Strategy
Once invested, I continuously monitor and learn about the companies in the portfolio, following the news rigorously. I continuously try to assess how qualitative the company is. If it’s sufficient but not great I hold until it reaches it’s fair value or until I find a better opportunity. I also re-evaluate when the share price drops 20%. Was I wrong? Is it better to cut my losses?
Companies of high quality warrant longer holding periods, only divesting when quality declines or when massively overpriced. These stocks might be worth accumulating if opportunities present themselves.
By letting the winners run they become a bigger and bigger part of the portfolio. The portfolio concentrates itself.
Global Perspective: Value Hunting Across Continents
Favoring small and midcap companies, often owner-operated or with strategic shareholders, I search for opportunities in Europe (including Nordics and UK, not only eurozone) and North America. I’m also interested in Australia.
Competitive advantages as an investor
A long-term mindset distinguishes successful value investors. By focusing on the bigger picture, we gain an advantage .Thinking three to five years ahead gives us the edge in recognising short term hiccups that guide the stock price, and gives us the ability to profit from them.
As an investor, my strengths lie in filtering out irrelevant noise from the important factors of a business, maintaining a long-term outlook, and effectively managing my emotions when investing.
Would you like to read two example reports? I present to you Smartphoto and Cake Box