Monthly report 5-2020

Monthly report 5-2020

Summary:

  • Another great month in the stock market, and I’m becoming more and more cautious for every market uptick
  • The refined strategy; «Nordic Compounders» is on track and operational
  • Portfolio is outperforming every benchmark, even with a large cash position, and close to a new all time high
  • Cash position of 25.6%
  • Current portfolio is comprised of 17 companies, which is down from 19 companies in end April
  • Sold Securitas, Boule Diagnostics and switched Castellum with Sagax. Added more in Tomra Systems.
Portfolio as per 29 May 2020

The portfolio return for May ended at 6.5%, and is close to a new ATH! This is achieved even with a large portion in cash, which means the remaining stocks are performing great. The reason why I’m holding such a large cash position is because the I cannot understand the recent market recovery. Record-high unemployment, increasing US – China conflict and an ongoing pandemic is not, in my opinion, a reason for new all time highs. I’ll therefore play it more on the safe side going forward.

Performance YTD

Nordic Compounders

I want a portfolio with high quality Nordic compounders. To be of interest a company has to have a solid balance sheet, high return on capital, high historic growth, stabile margins and a long term megatrend in the back. By constantly focusing on quality compounders over the long run the outperformance against benchmarks will be great.

Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return – even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive-looking price, you’ll end up with a fine result

Charlie Munger

Investment Journal:

As mentioned in the report for April I did not expect an active month in May. Most of the «clean up» was done in April and just a few transactions was made this month. Going forward I don’t expect to be very active in purchasing additional companies, but I might add to existing positions or become more aggressive if the right opportunity presents itself.

Securitas was sold due to poor performance and because my investment thesis proved wrong. Link to write-up: «Securitas – buy, sell or hold?»

Boule Diagnostics was also offloaded this month as my investment thesis has played out and because the company does not meet the standards I set for my companies, i.e. the quality of the company is not high enough and they have not a good enough historically track record. Link to write-up: «No longer bull on Boule Diagnostics»

A switch in my exposure to real estate was also made. Castellum was sold and Sagax was added Castellum may be a safer real estate play, but Sagax has far superior returns on equity, higher yield spread and a tilt towards warehouses which I find more interesting going forward with increasing E-commerce and possible less demand for office rental. Link to write-up: ««Switched Castellum with Sagax»

Finally I bought more shares in Tomra Systems at 330 NOK per share following the selldown by Latour AB (majority shareholder). The share price declined ~ 15% in two days and the short term Risk/Reward was OK. Valuation still stretched, but the company is a real compounder!

Dividends received

Received redemption shares in NetEnt AB

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