Investment History
Portfolio Holdings, Returns, Philosophy, and Lessons.
In January 2020, I’d make my first ‘investment’ which kickstarted my journey. Since then, my investment philosophy has drastically changed. During the crash a few months later, I’d begin investing in companies on the ASX. I’d make plenty of mistakes along the way but learnt what it’s like to invest in a volatile market, observing the markets' extreme fear and greed within a short time span.
Portfolio Performance
Here are my annual portfolio returns (measured by calendar year):
2020 - 48%
2021 - 53.4%
2022* - (3.14)%
*1HFY22
Performance thus far is not indicative of any edge or talent within markets. It’s very possible that luck has favoured me over the past few years. I’m looking to judge my portfolio against major indices over a 5+ time horizon to determine whether I continue active portfolio management. My absolute performance goal is 14%+ (post-tax) annual returns.
Holdings
The portfolio currently contains 3 stocks:
Name | Returns | % of Portfolio
$TOA.WA -14.92% (28%)
$KPG.AX +144% (40%)
$AFL.AX -23.6% (32%)
Although many consider this imprudent portfolio management, I’m comfortable with the position sizing. As a young student, the money invested is small sums in the grand scheme of my life. I can add 1-2 positions (currently) a year that is equal in size to the other positions. It is a gradual scale to 6-12 positions over years and keeps turnover to a minimum. However, I’m considering a slightly different approach in the future.
Investment Philosophy
My philosophy is built on principles of value investing. Financial markets are not perfectly efficient and often behave irrationally. To leverage this phenomenon, I generally target ‘overlooked’ securities such as illiquid microcaps which have more significant inefficiencies.
The quality of management is crucial to the minority shareholder, so founder-led businesses with high-inside ownership and capital allocation skills are attractive. I’d like my management teams to act like owners.
I’m looking for companies that are ‘anti-fragile.’ I’m incapable of predicting the timing of interest rates, inflation, recessions, or any major event which may disrupt a business. Here, I’ll quote Nassim Taleb.
It’s easier to estimate whether something is fragile than it is to predict what will kill it and when. Risk isn’t measurable. Antifragility or robustness, is.
There are businesses that are more resistant than others to randomness. Again, black swan events are unpredictable by nature - the best option is to be prepared.
A concentrated portfolio is ideal, as I’m looking to make a few high-probability bets with asymmetric payoffs. Diversification is the only free lunch in finance, but it has diminishing returns. If you’re trying to beat markets, having a portfolio of ~10 stocks benefits from diversification without diluting your best ideas into meaningless positions. However, plenty of investors have outperformed with a diversified portfolio, though personally find it difficult to follow a large number of stocks and am comfortable with my current strategy. If my businesses are anti-fragile, I’m not worried about whether they will exist or not and can be more concentrated in these positions.
The price of a security is the deciding factor on whether I’d purchase it or not. The value of an asset is the present value of future cash flows. I’m looking to buy a business that can generate returns above my hurdle. This would be through dividends, growth, and multiple expansion. A fair price would expect to return the mix of dividends and growth, anticipating the multiple sales would be equivalent. In microcap markets, I expect to be able to purchase companies with bright futures at value prices. Avoid a high price at all costs, it will destroy returns and take decades to recover. The price paid will determine risk and return.
Conclusion
That is my short history as an investor, hopefully with many years to come. In the following weeks I’ll be releasing more blogs. I’m always open to discuss via my Twitter @doyleinvest.
Any advice and information by the author is general only and has been prepared without considering your particular circumstances and needs. The nature of the blog is a reflection of the author’s personal experience and learnings. Please seek a licensed professional for advice.