Ninth pin stuck in the newspaper

Warren Buffett’s portfolio is very concentrated. Warren Buffett and Charlie made some comments on their investments at Berkshire Hathaway’s 2023 shareholder meeting.

Berkshire owns plenty of different stocks. The portfolio concentration though is huge. Just five companies make up about 76% of the value of the listed stock holdings for Berkshire Hathaway Inc. Charlie Munger doesn’t see any problem with that. Apple, Bank of America, Chevron, Coca Cola and American Express are the top 5 in common stock investments for Berkshire Hathaway. Charlie said it is not that easy to find good stock opportunities that are easily identified. If he can only find limited numbers of good investments say three. Charlie would then rather be invested in those 3 stocks instead of his worst ideas. The beauty is of course that Warren and Charlie can say with confidence what their best investments will be going forward say the next five years. If they invest in only 5 stocks, they are likely right with 3 of those. The other 2 stocks will likely underperform the S&P 500 mildly or be only down 20% over 5 years. Most other people that will try that will not fare so well. Most people can’t predict upfront which companies from their stock portfolio will perform best in the next five years. Holland Park Capital London certainly cannot predict that. So only for investors that have a proven track record of predicting their best stocks in advance a concentrated portfolio makes sense. For the rest of us mortal souls that can’t tell their best ideas from their worst a diversified portfolio makes more sense. So do concentrated portfolios make sense? It depends on who you are. If you are in the same league as Warren Buffett and Charlie Munger then yes by all means go for it. If you are smart enough to realize you are no Warren Buffett than diversify, diversify and diversify even more. Holland Park Capital London prefers the second solution for its own money. Buy and hope for the best suits Holland Park just fine. Warren wasn’t very impressed by how the regulators had handled the US banking crises so far. The unrealized loss of trillions of dollars in the financial industry by underwater bond investments is clearly making the case for diversification for people that do not know what they are doing. Berkshire is still long Bank of America but has sold off or reduced most other bank stocks it used to own. On balance Warren has reduced the equity exposure in 2023 so far. Buffett seems to feel morally imposed to hold on to his Bank of America shares since he was invited to help them out back in the day and was rewarded for his risk taking with a good investment in Bank of America. More worrying for stock and bond investors in US banks is that so far in case of the banks that have gone down the stock and bond investors have been wiped out. It becomes a self fulfilling prophecy. When a bank is seized by the US government, its common shareholders are wiped out. First Republic shareholders and debt holders will not receive anything. So when a bank is in trouble according to Twitter why wait? Sell now ask questions later is a good capital preservation method for US stock and bond holders in troubled US banks. Everyone knows any stock holding can go to zero. Any bank stock equity holding just can get there faster because of leverage and a mismatch of assets and liabilities. Warren wasn’t very complementary about the management of the failed banks. His father lost his job once thanks to a bank run. He despises the heads I win and I get rich and tails I keep my bonuses stay rich and just lose my job as manager of a failed bank attitude. Berkshire Hathaway is not sitting on unrealized losses on investments in bonds. As expected Warren and Charlie know what they are doing. Buffett mentioned his companies are expecting lower profits this year. The earnings of listed companies are already in a recession. It is a matter of time this year for the real economy to hit a recession as well. The equal weighted version of the S&P 500 index (RSP +2.1% YTD) has underperformed the standard capitalization weighted benchmark (SPY +11.92% YTD) by the most in a calendar year since Bloomberg started tracking this in 1990. Small companies always underperform more and faster going into a recession. The money supply is negative year over year now. Fed officials are once again very busy overcompensating for their previous overcompensation that is now causing big problems. As Milton Friedman said: “Inflation is always and everywhere a monetary phenomenon.” Warren Buffett also thinks that Apple is still worth it. He loves the customer loyalty and Apple’s speedy share buybacks that actually shrink the number of outstanding shares in the company and not just enrich the management. On that topic Apple’s latest banking offering is a savings account with a 4.15% annual percentage yield. The big US banks still offer deposit rates of below 0.25% annual percentage yield. Who is having a better stakeholder policy Apple or the big US banks? It is about time to stick the ninth pin into the quotation page of a newspaper and pick a (none £ listed and none $ listed) stock this time. It makes sense to aim for a Euro listed stock this time for diversification reasons and according to the investment plan of the book “Beat the Stock Market Casino”. First though let’s have a look at how the monkey and crayon portfolio have done so far. Both the monkey and the crayon portfolios are paper portfolios. A paper portfolio doesn’t exist in the real world. No real money is put to work in a paper stock portfolio. Holland Park Capital London Ltd does seek to own all the companies in the monkey and in the crayon portfolios, but the timing of the stock market purchases will be different and the number of shares purchased and the average purchase prices will be different as well. As such the returns that Holland Park Capital London Ltd will achieve will be completely different from the paper portfolios by default. The monkey portfolio is making money again and is up now over 3% excluding dividends. The monkey portfolio has a higher dividend yield than the crayon portfolio. The Stockrover website for example guesses that the current monkey portfolio will pay over $2000 in annual dividends in 2024. The crayon portfolio was luckier so far. The crayon portfolio is up almost 55% (excluding dividends) according to the Sigfig.com website since inception. The real performance difference between the monkey and the crayon is less than it appears because of dividends.

Picture above; the current 8 holdings of the Crayon Portfolio courtesy of the Sigfig website. Because the monkey portfolio now makes money the ninth position will have a new position value of about $5000 according to the “no capital gain taxes growth investment plan” in the book ‘Beat the Stock Market Casino’. Have you bought the book “Beat the Stock Market Casino” yet on Amazon? The investment plan makes sure of higher $ value bets when the stock portfolio loses money. Simply put when the market is down the odds of buying a stock that goes on to double or more (long term) is higher. So a down market when the stock market is flashing a “for sale” sign can be an opportunity for long term investors. Because of the higher $ value bets when the stock portfolio is down method is embedded in the investment plan there is no need to time the market. It is just a matter of following the investment plan. Part of the value added of this strategy should be the “doubling up” in down markets that is in the investment plan. The crayon portfolio follows where the monkey portfolio leads to keep things simple and comparable. So the crayon portfolio will also invest around $5000 in the ninth round of investments in the crayon paper investment portfolio. Holland Park Capital London is no Warren Buffett or Charlie Munger so diversification is the name of our game. Clearly a portfolio with only nine holdings is still way off from a diversified portfolio... So both the monkey and crayon portfolio are still extremely risky, but the plan is to add another holding to both portfolios every 6 months so both paper portfolios will get diversified eventually... Plus both paper portfolios are being “time diversified” as well and at least that is reducing risk as well..... The monkey has no opinion and no knowledge. Just sticking to an investment plan and throwing darts at the quotation page of the FT or Wall Street Journal will do the trick of making money. Holland Park Capital London would bet that the monkey portfolio after another 8 years will consistently make money. Time in the market and a diversified portfolio are hard to beat. Put your money where your mouth is. While the monkey and crayon portfolios are paper portfolios, Holland Park Capital London has a holding in all the stock holdings of those portfolios. Just not the same amount of shares per holding as the paper portfolios. The purchase prices per holding are completely different as well. For the ninth round the highlighter landed on the listed stock EssilorLuxottica SA with code EL of the quotations page of the FT newspaper. Ideally one would buy the liquid French listing. For portfolio tracking reasons however we looked up the most liquid US listing for the same stock. That listing is ESLOY. The day range on Tuesday the 6th of June 2023 for this listing was 89.21-89.95 in USD. For the monkey portfolio a paper transaction was added to the paper portfolio of 55 shares at $89.95 the day’s high price (on the 6th of June 2023). That transaction had a value of about $4947.

Above; FT newspaper yellow marker landed on the stock EssilorLuxottica for the monkey stock pick of the ninth round. For the crayon portfolio a paper transaction was added to the crayon paper portfolio of stock LVMH Moet Hennessy Louis Vuitton SE with code MC listed in France so also in listed in the Euro currency. There is a less liquid US listing of the same stock under code LVMUY. The traded day range on Tuesday the 6th of June 2023 for the LVMUY listing was 173.49-174.57 in USD. For the crayon portfolio 28 shares of LVMUY at $174.57 were selected for the paper portfolio (also on the 6th of June 2023). That transaction value on paper was about $4888. Future performance of the two new stocks will depend on the future multiple of the earnings paid by investors and by future earnings. Both are impossible to predict. There is no analysis here of why Holland Park Capital London Ltd put LVMH in the crayon portfolio in the ninth round. It is just the opinion of Holland Park Capital London Ltd to like this stock. This is not financial advice. Do your own research please. As Mark Manson says in his book “The Subtle Art Of Not Giving A F*ck”; “True happiness occurs only when you find the problems you enjoy having and enjoy solving”. Both paper portfolios have 9 holdings now. Slowly but surely the portfolios start looking a little like diversified portfolios. May the force be with both paper portfolios. Thanks for reading this blog. Holland Park Capital London hopes you enjoyed the information in the blog. This is not a financial promotion. Holland Park Capital London Ltd is not receiving any compensation from anyone to write this blog. Holland Park Capital London is long the stocks in the crayon portfolio and the monkey portfolio. Holland Park Capital London Ltd just doesn’t have the same amount of shares per holding as the paper crayon and monkey portfolios. The purchase prices are also completely different. Holland Park Capital London Ltd is also long the S&P 500 index. Holland Park Capital London has no business relationship with any company whose stock is mentioned in this blog. Holland Park Capital London expressed its own opinions. This is not advice. This blog is for information purposes only. Make your own decisions please. Do your own research. Please go and see an authorized financial advisor before making any investment decisions. What works for Holland Park Capital London may well not work for you and your personal situation is unknown to Holland Park Capital London. Stocks go up as well as down and you may get back less than you invest. Your capital is at risk when you invest in stocks. In other words you can lose all your money by investing in stocks. Any information in this blog should be considered general information and not relied on as a formal investment recommendation. This blog is for information purposes only and helps Holland Park Capital London expand on the book “Beat the Stock Market Casino” and brings extra discipline in the investment process. Holland Park Capital London Ltd is not liable for any mistakes in this blog. Sorry for any grammatical errors in advance, but Holland Park Capital London Ltd hopes the reader still understands the content. This blog cannot be a substitute for comprehensive investment analysis. Any analysis presented in this blog is illustrative in nature, limited in scope, based on an incomplete set of information and has limitations to its accuracy. The information upon which this blog is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore the accuracy cannot be guaranteed. Any opinions are as of the date of publication and are subject to change without notice.