The result of last week's question: Thrilled for those that never had a down year. I’m in the 16% or more camp myself, although the past couple of years have been kind.

This week’s question:

Cash is king, or is it? Index investors want to stay fully invested. Value investors always have some cash on the sidelines. Buffett has 325 Billion in cash right now. How do you look at the markets now? Do you prefer being fully invested? Maybe you’re trimming because of all the heat?

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2 quotes, do you agree?

"By failing to prepare, you are preparing to fail."

Benjamin Franklin

Providing a cash cushion, always doing your due diligence. Preparation is key. Even if you’re fully invested, do you have a list of companies you would rotate in if a dip occurs?

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“Just as I know that anything is capable of happening so also do I know that it’s not bound to happen. So I look for the best and am prepared for the opposite.”

Seneca

Covid was a black swan event. The great financial crisis too (although some saw something coming as explained in my favorite movie: The Big Short). The whole reason why I combine quality compounders with microcaps (Yin-Yang) is that the microcaps allow me not to wait for a crash. They provide ample opportunity.

However, here are 3 companies I would buy in an instant if their share price dropped 50% tomorrow ⬇️

Which company would you buy in a heartbeat if it dropped tomorrow?

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3 ideas of the week

Games Workshop(Ticker: GAW.L)

Category: Cash generator with pricing power

What does it do?

They hold the intellectual property for Warhammer Fantasy and Warhammer 40,000k. Warhammer is a very popular miniatures game. The IP of Warhammer is enormous: 550 novels and numerous video games and tabletop games are set within its realm.

Why should you care?

Warhammer’s popularity continues to increase. Amazon Prime has obtained the rights to make a TV show (with Henry Cavill, the most popular Warhammer fan producing), but it seems they haven’t put the pedal to the metal yet. Playing a Warhammer wargame doesn’t come cheap. GW has significant pricing power, and that will stay relevant in the near future. But a P/E of 30 is too expensive for my taste.

Medpace (Ticker: MEDP)

Category: Growing master capital allocator

What does it do?

Bringing a new drug to market is a long and expensive process. New companies need significant investments and take on a lot of risk. Medpace helps companies go through these clinical trials and reduce the risks related. They provide services and have expanded their offering through laboratories worldwide.

Why should you care?

If you’ve read any previous articles, I’m not an expert in biotech or the pharmaceutical industry. But Medpace is an outlier. From the skin in the game to the CEO’s curious story and the unique business model, Medpace is poised to hold its ground in the future. You can find a great write-up on the company here. (note: I’ve just read a class action lawsuit has been filed claiming violations of certain SEC laws). They do buybacks but are very conscious about the price of the stock in the market.

Adyen (Ticker: ADYEY)

Category: Growing cash generator

What does it do?

Adyen is a payment processor with worldwide operations. It grows organically, never does acquisitions, and has a very unique culture that the management team protects at all times.

Why should you care?

There is still a lot of growth ahead with more and more payments going cashless. In addition, Adyen has a land and expand strategy: landing an initial customer, and showing their value by for example increasing authorization rates, then expanding the volume handled by existing customers. They want to provide value to merchants and not be perceived as a commodity. Find my full write-up below. Would love to buy this one once more at 700…

May the markets be with you, always!

Kevin

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The result of last week's question: You do not need a lot of time to take action! I’ve changed my process. If after a couple of hours, an investment ‘feels good’, I will take an initial position to get my toes wet. The more I research and the more the company executes, it can be built up into a full position.

This week’s question:

It may not be easy to admit. Especially if you’re active on social media, and literally everybody seems to be a stock market genius. Maybe the question is too severe, and I should have asked if you manage to beat the index every year.

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2 quotes, do you agree?

“Success is not final, failure is not final: it is the courage to continue that counts”

Winston Churchill

Although it’s easier to muster through when you’ve had success. 😉 The problem is our human brain, which loves to look for causation. However, the mistake we make is linking the outcome of a decision to the quality of decision-making. I wrote about it a while back:

It’s one of the reasons why I apply a yin-yang strategy. If you invest in compounders, it may take many years before you can say if the outcome resulted from a great decision you made. When investing in microcaps or even special situations, that time frame shortens. The results should show itself rather quickly.

I never lose, I either win or learn

Nelson Mandela

Over the last decade of investing, I have lost, and I will share my losses in all transparency. Here’s some of my mistakes of 2023 ⬇

Beware of those that never lose! If we revel in a loss and double down on the learnings from it, we can use it to strengthen and improve our process. Over time, new losses will occur, but the goal is to make them smaller, to never stop compounding, and to always learn.

How do you feel about investors that only share their winners?

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It’s time for this week’s ideas ⬇️

3 2 ideas of the week

Guillemot Corp. (Ticker: GUI.PA)

Category: French microcap cyclical cash generator

What does it do?

Guillemot manufactures and sells hardware and peripherals in the entertainment industry. Their best-known brands are Thrustmaster (think PC gaming accessories) and Hercules (DJ equipment and software). Probably not known outside of the US, but I had a Thrustmaster joystick for gaming when I was younger!

Why should you care?

Expected to have a great H2 in 2024 and this might not be priced in at the moment. Multiple reports of some of their products (racing wheels) seem to be strong sellers not seen since the COVID lockdowns. If margins are similar to the past, and with the success of H2, the company could be trading at a forward EV/EBIT of 3 or 4. I would not hold this one until eternity, but could be an interesting short-term play.

Orbit (Ticker: ORBI)

Category: Microcap Defense Industry play

What does it do?

Orbit develops airborne communications, satellite tracking, and audio systems. 75% of revenue is generated by the defense industry which overall market is set to expand. It creates mobile satellite communication systems, ground tracking systems, and communication management systems.

Why should you care?

On the brink of change. System development for Lockheed Martin will complete in 2024 with purchase orders arriving in 2025. Backlog contracts have grown by 60% while revenues have not (only 18%). A trailing EV/EBIT of 12 on trailing numbers

Only 2 ideas this week…

May the markets be with you, always!

Kevin

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The result of last week's question: It seems most of you at the minimum have one sort of monopoly in your portfolio.

This week’s question:

The problem is, that one can keep analyzing a company and its market for hours and hours. How do we decide when enough is enough?

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2 quotes, do you agree?

“I think generally people’s thinking process is too bound by convention or analogy to prior experiences. It’s rare that people try to think of something on a first principles basis. They’ll say, “We’ll do that because it’s always been done that way.” Or they’ll not do it because “Well, nobody’s ever done that, so it must not be good.” But that’s just a ridiculous way to think. You have to build up the reasoning from the ground up—“from the first principles” is the phrase that’s used in physics. You look at the fundamentals and construct your reasoning from that, and then you see if you have a conclusion that works or doesn’t work, and it may or may not be different from what people have done in the past”

Elon Musk

I love first principles. The only drawback is that it takes time and makes my head hurt after a while. The best article ever written on this topic is by Tim Urban titled: The cook and the chef.

The cook has a recipe that outlines ingrediënts and instructions and can replicate this to perfection. Let’s say you’ve read all you can on quality investing and want to replicate Polen Capital’s process. ⬇️

Or maybe you’re more into microcaps and are looking to mimic Paul Andreola’s strategy. ⬇️

Nobody said being a cook is easy. The goal here is not to diminish the value of a great cook. Executing an investing strategy to perfection is hard. But a cook does not necessarily use first principles.

Now this first principle fancy is nothing new. It has been around for centuries ⬇️

“In every systematic inquiry (methodos) where there are first principles, or causes, or elements, knowledge and science result from acquiring knowledge of these; for we think we know something just in case we acquire knowledge of the primary causes, the primary first principles, all the way to the elements. It is clear, then, that in the science of nature as elsewhere, we should try first to determine questions about the first principles.”

Aristotle, Greek Philosopher born in 384 BC

So we arrive at the chef. The chef is the one who creates the recipe. His ability to reason from the ground up leads him to a ‘new’ strategy, to think independently and arrive at his own conclusions.

Do you believe there are any ‘original’ strategies left in the investing world?

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I believe anyone who has read the article on the chef and the cook would like to be the chef. And I too try my best to think from first principles by analyzing a company. Our main goal is to think independently and come to a conclusion with the least amount of outside influence possible.

But if you can be a cook, and stick to your strategy (and avoid behavioral mistakes) you’ll go a long way in the markets…

It’s time for this week’s ideas ⬇️

3 ideas of the week

Kitwave (Ticker: KITW.L)

Category: British roll-up compounded

What does it do?

Kitwave is not your typical food wholesale business. It serves more than 40,000 convenience stores in the UK. It’s a classic example of counter-positioning. Where competitors focus on large-volume, lower-frequency deliveries, Kitwave is a master in high-frequency, low-volume deliveries to small stores. They have a scale advantage compared to smaller competitors.

Why should you care?

Besides their strategic advantages, the company has grown its EPS at a 20%+ CAGR over the last 8 years and has ample room to reinvest its proceeds. Kitwave grows organically and specifically through acquisitions of smaller competitors. Although they have some debt, their interest coverage ratio is good. Margins are slim though as is to be expected in the wholesale food sector.

You can read an excellent deep dive into the company written by Jon Cukierwar by Sohra Peak Capital.

Alarum Technologies (Ticker: ALAR)

Category: Microcap AI play

What does it do?

Their statement:

We are a leading global data provider, empowering organizations to gain a competitive edge by streamlining the collection, extraction, and analysis of large-scale structured data from public online sources

To make it more tangible: Company A wants to do a competitive analysis for their positioning. They need to get data from the web, but anti-bot tools used by certain websites prevent this. Alarum can help them bypass these tools and scrape all that data.

Why should you care?

You might have heard of this company as it has appeared on social media or other networks due to its rapid stock price increase fueled by the AI hype. (A 10-bagger in 6 months). Now that momentum has calmed down, it might be interesting to look at the long-term prospects of this company. The biggest question to answer here is: Do they have a capability that few others can replicate? I do not have the answer to that question at this time.

You can go deeper here written by .

Atkore (Ticker: ATKR)

Category: Mid-Cap Buyback Machine

What does it do?

Atkore manufactures and distributes electrical products like conduits, and cable management systems to other professionals. They have a large distribution network with their transportation fleet. It has a worldwide presence.

Why should you care?

It seems COVID significantly bumped all their financial metrics. Sales have declined compared to 2023, ROIC has come down from the heavens (they had an ROIC of 40%+) and it now sits in the twenties. Pricing has also come down and seems more reasonable (P/E of about 7). This company is a cash generator and uses it to buy back its shares (15% this year) and pay a dividend. If the company can retrieve some growth and keeps buying back at the pace they are, you can nail a decent return.

That’s it for this week.

May the markets be with you, always!

Kevin

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The result of last week's question: I got burned on biotech in the past. It serves me well for investing in a sector I knew nothing about! Self-awareness starts with listing what you know nothing about.

This week’s question:

If you don’t have any, why not? If you do, do you care to share which ones?⬇️

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2 quotes, do you agree?

“What great business is nobody building?”

Peter Thiel, entrepreneur and venture capitalist

Thiel loves monopolies, and for good reason. A monopoly owns its market. It has no competition, so it produces at the quantity and price combination that maximizes its profits.

You could generalize this further and ask yourself: When investing, what game are you playing? Are you playing one with a lot of competition, or are you seeking to play a different game, to not do what most others are doing?

Even if you play a different game, owning a great business is not enough though ⬇️

“Creating value is not enough, you also need to capture some of the value created”

Peter Thiel

A business that is generating lots of value, but all the value goes to the consumer and not to the shareholder, is not a great business to own. An example:

“For example, US airline companies serve millions of passengers and create hundreds of billions of dollars of value each year. But in 2012, when the average airfare each way was $178, the airlines made only 37 cents per passenger trip. Compare them to Google, which creates less value but captures far more. Google brought in $50 billion in 2012 (versus $160 billion for the airlines), but it kept 21% of those revenues as profits—more than 100 times the airline industry’s profit margin that year. Google makes so much money that it’s now worth three times more than every US airline combined.”

We could discuss the definition of value here but you get the idea.

3 ideas of the week

3 ideas that show monopolistic or oligopolistic traits.

Old Dominion Freight Line (Ticker: ODFL)

Category: US Oligopolistic Buyback Machine

What does it do?

ODFL is a leader in the Less-Than-Truckload (LTL) category in the US. Over the last several decades it has built out a servicing network, increased its competitive position and together with 2 other companies dominates this sector.

Why should you care?

Right off the bat, the stock is too expensive at the moment. The great thing about ODFL is the tangible network that strengthens its MOAT. This company is getting stronger and stronger with time, and the market knows it. A great play on a buy-the-dip list. But you might have to wait for a couple of years.

MercadoLibre (Ticker: MELI)

Category: The Amazon of Latin-America?

What does it do?

MELI is an online platform that offers e-commerce services, and an online marketplace and is increasingly growing through its fintech branch. MOATs and monopolies are local. They dominate countries like Argentina and Brazil and are spreading throughout Latin America. Over the last decade, MELI has grown revenue at a 40%+ CAGR.

Why should you care?

Several countries in South America seem to be turning around, and MercaLibre stands to benefit. Finchat shows me a trailing FCF yield of 6% which is cheap for a company growing as fast as MELI is. There’s not much that I need to add, a wonderful company that seems to trade at a fair price. I need to do more work on it, maybe for a future article.

In the meantime, here’s the best write-up by

Pharmx Technologies (Ticker: PHX)

Category: Australian Microcap Turnaround

What does it do?

In a nutshell, when a pharmacy in Australia & New Zealand needs to order a new medicine, they use an electronic system that is connected to several suppliers. Pharmx is the developer of this system and it is used by 99% of pharmacies in Australia.

Why should you care?

Great, it has some sort of a monopoly then? Show me the money!

Not so fast. They have a solid cash position and pretty good margins, but past revenue is down. Gross profits decreased from 2015 to 2019 (and then fell off a cliff due to COVID). They had 2 business lines, one was losing money. Sadly, management only decided to divest the bad business line in 2022.

But things are changing. There is an opportunity to expand their market. Pharmacies are more and more selling other products than pure medicine. They are signing more suppliers to the system. Management is now focused on growing their profitable business line and avoiding venturing into new horizons.

A detailed analysis has been written by

Full disclosure: PHX is very illiquid. I own a small position.

That’s it for this week.

May the markets be with you, always!

Kevin

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The result of last week's question: I could have added more options. There’s no right answer. The only right one is a positive return 😉

This week’s question:

Which sector would you NEVER touch, because you know nothing about it or for other reasons?

You can add other sectors in the comments ⬇️

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2 quotes, do you agree?

“Live as if you were to die tomorrow. Learn as if you were to live forever.”

Mahatma Gandhi

This is a powerful quote for life and investing. Famous investors often tout, to stay within your circle of competence. But they speak less about actively expanding it. When he was young, Warren Buffett learned everything he could about insurance. He read about it, he spoke to people in the industry, and then he placed his bets. (In 1955, he bought Western Insurance at a trailing P/E of 1).

Could he have learned about technology? Of course. The man has sufficient brainpower to learn anything he wants. But he chose not to. In his view, it is too difficult to forecast the future of tech. He wants inevitables. Or to phrase it differently:

"In the long run, everything is a toaster."

Bruce Greenwald, finance professor and value investor

So, one can go wide, and learn about many sectors, or one could go deep, and study a few sectors in detail. What do you want to do? Go deep or wide?

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I prefer to go wide. Why? I prefer to know a little bit about many things than being a specialist on one single topic. Stick with what resonates with your personality.

3 ideas of the week

These are 3 ideas I never acted on because they are outside my circle. My goal is to expand that circle into financials in 2025 (the companies are just too profitable)

Hingham Institution for Savings (Ticker: HIFS)

Category: Well-run small-cap bank

What does it do?

Hingham is a small bank in the US. If I had to write down one word for Hingham: Focus. It excels in what it does not do. Consumer lending, commercial lending, investments and wealth management, insurance, etc. But wait a minute, how does it make money?

Real estate lending services. Instead of expanding its services, it chose to stay within its circle of competence and spread out geographically.

Why should you care?

The stock suffered from the ‘banking crisis’ when Silicon Valley Bank exploded and traded at 80% of book value. It has recovered since. It had a terrific ROE in the past decade (>15%) until the end of 2022 when it began to suffer. With 15% inside ownership, there is still skin in the game. I keep it on my watchlist.

Check out the best article I could find written by

Kinsale Capital (Ticker: KNSL)

Category: Mid-cap fast-growing insurance group

What does it do?

It’s a specialty insurance group that focuses on the excess and surplus lines (E&S) market in the U.S. These are risks that are too complex for traditional companies to insure.

Why should you care?

A 10-year revenue and EPS growth rate of more than 30%. A 20-bagger up until now. It does not seem Kinsale is stopping. It has a unified enterprise system which allows them to make an offer faster and more precise. This advantage reminds me of a company like Adyen, built from the ground up without polluting the business model with acquisitions.

A superb write-up by

Secure Trust Bank (Ticker: STB)

Category: UK Microcap bank in a downturn

What does it do?

Secure Trust Bank (STB) is a specialist lender in retail finance, vehicle finance, real estate finance, and commercial finance.

Why should you care?

This bank finds itself in a pickle. It trades at a P/E of 3 or 20% of book value. A court ruling on vehicle finance sparked uncertainty across the industry, prompting some banks including STB to suspend lending. As a result, annual underlying profit before tax would be 10-15 million pounds ($13-19 million) below market expectations. The market reacted:

Proceed with caution. The most extensive write-up can be found here.

That’s it for this week.

May the markets be with you, always!

Kevin

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The result of last week's question: I’m glad you all have a great investing mindset!

This week’s question:

When I started investing, I considered buy-low and Sell-High decisions to be discrete, two singular moments in time. That has changed over time. I prefer building an initial position and adding to it as the investment case strengthens. In reverse, instead of outright selling, I prefer to trim positions.

Together with the correct position sizing, it's a way of managing risk in your portfolio. If you want to dig deeper into this topic, you can check out a previous article:

I great idea I heard from John Rotonti Jr. (former Motley Fool) is he never sells outright. If he wants to get rid of a position, he always keeps 1 single share. Each time he looks at his portfolio, he will be reminded of his losers. This keeps him humble.

2 quotes, do you agree?

To be an investor, you must believe in a better tomorrow

Benjamin Graham

Focus on the downside, and the upside will take care of itself

Mark Sellers, hedge fund manager

In other words, we need to embrace the paradox. We need to imagine a future that can be bright and devastating simultaneously and then choose the most probable outcome.

Although Benjamin Graham was known for his net-net strategy, he looked at everything. He even had a “large cap in a short-term downturn” category. Copying Benjamin and Peter Lynch, I think it’s a great idea to categorize your investments and keep an open mind.

Do you stick to a single strategy or are you more open?

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3 ideas of the week

I’ve got some Yin and Yang ideas this week. (changing microcaps and high-quality compounders)

Serstech AB (Ticker: SERT)

Category: Profitable inflection microcap in a niche market

What does it do?

It manufactures handheld Raman detectors. The name Raman comes from an Indian Physicist who won the Nobel Prize in 1930 for his work on light scattering. These detectors are used to identify almost 17,000 substances by measuring their chemical composition. Possible end-markets are law enforcement (narcotics), hazardous environments, and the pharma industry.

Why should you care?

Although the first Raman device was produced in 1966, the current market leaders lack innovation. Serstech is a younger player, has a net cash position, has grown revenue fast (+200%), and became profitable last year riding a tailwind of the fentanyl boom and increasing geopolitical uncertainty. Important fact: 30% of revenue comes from software instead of device sales. The thesis here is to assess if the growth is structural or not going into the future.

You can dive a little deeper into this Redeye report.

ASML Holdings Inc. (Ticker: ASML)

This idea came after a discussion with a reader. Do not hesitate to email me to discuss stocks!

Category: Large Cap Partial Compounder (cyclical)

What does it do?

Most of you probably already know this company. They manufacture lithography systems (huge machines). In its simplest form, these are systems that use light and lenses to project a pattern onto a silicon wafer. This results in a microchip. Deep Ultra Violet (DUV) light (older machines) or Extreme Ultra Violet (EUV) can be used. ASML has a monopoly on the EUV machines as these can be used to make the most dense microchips. Clients are Intel, TSMC, and Samsung.

Why should you care?

Price has come down over the year as TSMCs execs claimed to not need the new EUV machines in the short term. A leak of Q3 reporting showed slower-than-expected earnings. However, last week, an article claimed that TSMC should receive ASML's newest high-end machine at the end of this year.

I call ASML a partial compounder because on average it has reinvested 25% of its earnings each year. They have done some buybacks and provided a small dividend. Lots of CAPEX spending at the moment to fuel the next-generation systems. This company is a monopolist in EUV systems.

As an additional note, a super investor, Dev Kantesaria bought ASML (1.5%) one year ago at the current price. Why does this matter? Dev is notorious for his inactivity. It will be interesting to see if he has added to his position in the coming 13F filings. At a P/E of 35, it might look expensive, but if you had bought 5 years ago at a P/E of 45, you would have doubled your money.

Rorze Corporation (Ticker: 6323)

Category: Small Cap Quality Compounder (cyclical)

What does it do?

Rorze manufacturers circuit boards, and equipment to the semiconductor industry.

Why should you care?

For some reason, this company keeps popping up on my screens. It has low debt, high interest rate coverage, and EV/EBIT sits at 12. Management proclaims guidance of 25% sales growth in the coming years. Since their main market is the semiconductor industry, one should be vigilant when looking at their guidance.

That’s it for this week.

May the markets be with you, always!

Kevin

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The results of last week’s question:

The question this week (pick one)

Drawdowns, corrections crashes, it’s all part of the game. Each bear cycle has been accompanied by a stronger bull cycle:

Since 1950, when looking at the S&P500:

• There have been numerous corrections (10-20%)

• There have been 10 bear markets (20%+)

• And a couple of major crashes, the last one in 2020 (35%)

The question is not if the next one will occur but when.

The buffet indicator takes the market value of the Wilshire 5000 and divides it by the US GDP. It’s an approximate measure of the overall US economy versus market pricing.

Yep, the US sits at record highs. It’s not a perfect indicator though.

What can we do? Jensen Huang may have the answer ⬇️

2 quotes, do you agree?

I wish you great pain, and suffering

Jensen Huang, CEO of Nvidia giving a speech at Stanford

Jensen Huang says it best:

He argues that your strongest asset is not intelligence, but resilience. And resilience is cultivated through suffering.

• Are your current holdings resilient in the face of an economic downturn? Can they grow despite a crisis?

• Are you resilient as an investor? Have you suffered in the past, and are you ready for more?

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“When we are no longer able to change a situation, we are challenged to change ourselves.”

Viktor Frankl, psychiatrist and holocaust survivor

We have no control over how and when a recession should arrive. Focus on what is in our control, ourselves, and our portfolios.

3 ideas of the week

Since the theme is resilience, here are 3 ideas that could withstand some suffering in the market.

Hammond Power Solutions (Ticker: HPS)

Category: Illiquid Small Compounder

What does it do?

Located in Ontario, Canada Hammond is the largest supplier of dry power transformers in the US Market. Recession or not, given the age (40 years) of power transformers on the grid in North America, they will have to be replaced. Electricity is essential.

Why should you care?

Recession or not, the 40+ transformers on the aging US electricity grid will need to be replaced. The market is growing, and Hammond is there to serve it. With an ROIC of 20% and a high reinvestment rate, this compounder is on a roll, but so was its price in the market. It has a fortress balance sheet (with a negative net debt) to wither a storm. Looks fairly valued at the moment, but need to dig deeper into its valuation.

Medpace (Ticker: MEDP)

Category: Mid-Cap Cash Generator

What does it do?

I normally avoid anything Biotech or Pharmaceutical, but Medpace is different. It helps other companies within the sector with clinical research trials. It’s a service provided to the industry.

Why should you care?

It’s a leading Contract Research Organization (CRO) that helps small biopharma companies undergoing late-stage clinical trials. With high skin in the game, a unique business model, and high Gross and FCF margins, this is a standout company. The problem is price. It had a serious run-up since the end of 2023, but the price is trailing down now. Could be interesting for a buy-the-dip list.

Visa (Ticker: V)

Category: Large Cap Buyback Machine

What does it do?

I do not think I need to explain. It provides the number 1 credit card network in the world, taking a small fee for each purchase made.

Why should you care?

Yep, it’s not very original, but it’s one of the few companies that have actually withered and thrived through several recessions. This is a long-haul resilient investment. Just do not expect to achieve a 15% IRR.

That’s it for this week.

May the markets be with you, always!

Kevin

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The results of last week’s question:

The question this week (pick one)

Me?

I’m in the quarterly camp. I check my holdings when I’m going through the earnings updates. I come from far checking my holdings multiple times a day. I did not sleep well because of it.

What if the stock market did not exist and Mr. Market is not bidding a new price for your holdings daily?

2 quotes, do you agree?

Make the best use of what is in your power, and take the rest as it happens

Epictetus Greek Stoic Philosopher who lived 2000 years ago

You cannot control the price. 

You cannot control the business fundamentals. 

What do you control?

• The information you consume

• The investment decisions you make

Make sure your investment decision is based on business fundamentals, not price movements.

Volatility is there to serve you.

I've been banging away at this for 30 years. I think the simple math is, some projects work, others don't. There's no reason to belaber one. Just go on the next - 

Brad Pitt after winning a Screen Actor’s Guild (SAG) award in 2020 for his role as Cliff Booth in Once Upon a Time in Hollywood.

Did you suffer losses on some of your investments? It’s part of the game. We can’t pick winners every time.

Beware of those who say you can!

Just, make sure you stay in the game. Do the work. On to the next opportunity. Remember, time is your friend. Keep at it.

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3 ideas of the week

Credit Bureau Asia (Ticker: TCU.SI)

Category: Small Cap Quality Cash Machine

What does it do?

I’ve always been intrigued with companies like Moody’s. Think about it. The company gives a credit rating to bonds or other securities. If you choose not to use Moody’s, and go for some of the lesser-known rating agencies, the rate you’ll have to pay will be higher. That’s the power of trust. Moody never trades cheaply. So we need to go look elsewhere, a company in a similar business in South East Asia for example: The Credit Bureau of Asia.

Why should you care?

TCU has seen its price slip over the last 12 months. Gross margins above 75% and rock solid growth at a 10-year EBIT CAGR of 15%. Call me intrigued. Time to dive in?

Find the best write-up on the company here by .

Monarch Cement (Ticker: MCEM)

Category: Illiquid Monopolist in a cyclical market

It has the coolest logo for any company I have ever seen:

What does it do?

Monarch Cement is a Kansas-based producer of Portland and masonry cement. In business for about 110 years, it has locations in Kansas, Iowa, Missouri, and Arkansas. 

Why should you care?

Due to its local monopoly and growth in the surrounding region, it has been able to increase prices, sales, and margins over the last few years. Not the cheapest at the moment, but might be interesting for a watchlist.

Find the best write-up on the company here by .

Silvano Fashion Group (Ticker: SFG1T)

This one, surprisingly, came on my radar by applying the guard rails by Polen Capital.

Category: Optically Cheap Estonian nanocap (< 50 M USD)

What does it do?

It’s a lingerie producer and distributor in Eastern Europe. The problem: It showed up on the screen due to the growth after the COVID dip, but revenue has been pretty flat over the decade. It took a first hit due to COVID-19 and a second one due to the war between Ukraine and Russia. 

Why should you care?

Margins have increased. The company has never traded this cheaply on an EV/EBIT = 0.5 but we’ll need to dig deeper into the financial statements.  I’m guessing the bet would be: that an end to the war could lead to a recovery in the business. The market cap sits below their current cash level. However, the audit of the financial statements can only be done partially because 7 of its 11 subsidiaries are located in Russia and Belarus. Estonian audit companies have terminated relations with Russian and Belarus audit companies for the time being. There is risk involved.

That’s it for this week.

May the markets be with you, always!

Kevin

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1 question to reflect on

Here’s the result of last week’s question. I need to check my data, but I think I did 4-6 trades this year.

The question this week:

At the start of each year, I tell myself: “This year, I’m going to do less, leave my portfolio be, and let the companies do their work. “

The fact that I have the same goal every year is telling. I would like to be more patient each year. A quality investor like Dev Kantesaria goes for several years without doing anything.

He says: I love our quality investing approach.

It’s like watching paint dry

Do you manage to hold on to your winners?

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2 quotes, do you agree?

He that can have patience, can have what he will

Benjamin Franklin, writer, statesman, inventor,...

In life and investing, one can benefit from slowing down. Notice the world looks different when you drive your car or you take a walk down the same street.

Take another look before acting. Do not rush into things. Focus long-term. Good things come from patience (and compounding). 

Tip: When you get excited about a stock, leave your analysis for a week or two and come back to it. In my experience, I’m a lot less excited the second time (and more rational).

Not convinced? ⬇️

The Big Money is not in the buying or selling but in the waiting.

Charlie Munger, wise investor

I rest my case.

What do you think?

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3 ideas to dive in

1. Nike (Ticker: NKE)

Category: Quality Compounder

What does it do? You know.

Why should you care?

Still looks expensive, but might warrant putting on a “Buy the Dip” list. The term “Nike” always trends in the month of December. Holiday shopping? New Year's resolutions? Even if performance is down, the mind share of the brand is still strong. At 70 USD/share, it was trading at an FCF yield of 6%. May be a bit too big of a company for my taste. Do you see the company double or triple in size in the future?

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2. Stellantis (Ticker: STLA)

Category: Cyclical

What does it do? The Conglomerate was founded in 2021 through the merger of the Fiat Chrysler Group and PSA Group (Peugeot, Citroën). Production and sale of cars and car parts.

Why should you care?

Funny how the new car company (TSLA) and the old car company (STLA) have similar tickers. Has been trading “optically cheap” since 2022. ROIC of 14-15% over the last 3 years is not bad for an automotive company. But FCF took a hit in the first half of 2024. If the reduction in FCF is only temporary, and if you can get in near the bottom of the cycle. As Peter Lynch says, you make money when the company goes from bad to better.

3. Litigation Capital Management (Ticker: LTI)

Category: Underfollowed (Quality) Microcap (illiquid)

What does it do? Similar to Burford (BUR), but much smaller in size. They fund cases (like class action lawsuits) aiming for a big payout. Imagine instead of buying a company with your capital, you would fund a lawsuit, and receive part of the payout if they win. (if you want to learn about litigation Finance, check out this article by

Why should you care?

This has kept popping up on my radar for the past year. The financial metrics look solid and on quantitative numbers, pops up as one of the highest-quality companies in the world. However one needs to dig deeper and understand the business model and the actual earnings power of the company. Low institutional ownership. Check out this write-up to dig a bit deeper. Ever heard of it?

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That’s it for this week.

May the markets be with you, always!

Kevin

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The structure is the following:

• 1 question on investing to reflect on (+ results of previous week's question)

• 2 quotes, do you agree?

• 3 investing ideas

Enjoy!

1 question to reflect on

There is no right answer here. There are 2 extremities when it comes to investing:

1. The day trader: daily trades

2. The buy and hold investor: 1 trade per year?

Both styles can lead to winning in the market. You need to find the style that fits your personality. There is no end goal. It’s a journey, a process. I am steering away more and more from the buy 1 position size and holding it forever. I believe the better approach to be:

• By an initial position

• Add to a half position if the company performs

• Add to a full position if the company keeps performing

• Trim position if long-term prospects start to deteriorate

• Sell if you have lost confidence in the thesis

2 quotes, do you agree?

It is not Death that a man should fear, but he should fear never beginning to live

Marcus Aurelius, emperor of Rome

Are you 100% focused on building capital or spending it?

The most extreme FIRE (Financially Independent Retire Early) follower aims to live like a monk and gather wealth as quickly as possible. Or do you look for more balance and ensure you live in the moment?

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If You Spend 13 Minutes A Year On Economics, You’ve Wasted 10 Minutes.

Peter Lynch

When all is said and done, an investor wants to buy something below its intrinsic value, buying 50 cents on the dollar. Macroeconomics and correct future forecasting are near impossible and should not be the main focus.

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3 ideas to dive into

1. Gaming Innovation Group (Ticker: G2M + )

What does it do?

A B2B iGaming company that provides affiliate marketing (media) and platform tech services to iGaming operators.

Category: Quality microcap/spin-off

Why should you care?

Gaming Innovation Group has grown over the past year into a “conglomerate”. A conglomerate discount was applied to its market multiple when compared to competitors. Splitting the business may allow the reveal of the value and increase focus for the 2 management teams. The 2 new companies: Gentoo Media (G2M) and Gig Software (GIG-SDB) are now trading separately. The spin-off has been concluded 2 weeks ago. The media business has been split from the technology platform. The software business screens badly at the moment.

2. Ulta Beauty (Ticker: ULTA)

What does it do?

Retailer for beauty products in the United States. It provides both branded and private labels in its stores. It has 1300+ stores and an online presence.

Category: Quality compounder

Why should you care?

Ulta Beauty could be in a short-term downturn. It shows great historical quality metrics. Is this a temporary or permanent downturn? Will it be able to fend off competition from the likes of LVMH (Sephora)? The answer to these questions will define if it’s an opportunity or a quality trap.

3. XTB (Ticker: XTB)

What does it do?

A central and eastern European broker for stocks, commodities, etc. It has a retail and institutional business. It has grown revenue at a 50% CAGR over the last 5 years.

Category: Quality Cash Generator (not a compounder, it has low reinvestment possibilities)

Why should you care?

This came up on my screen while applying the quality guardrails by Polen Capital. Checks all the quality historical metrics, but the price has increased a lot over the past year. Might be interesting to analyze and put on a “Buy the Dip list”. Trades at a current P/E of 9, an FCF yield of 10%, and a dividend yield of 7.8%

That’s it for this first 123 article.

May the markets be with you, always!

Kevin