{"id":62955,"date":"2023-09-19T10:19:09","date_gmt":"2023-09-19T14:19:09","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/refocusing-my-quality-investment-portfolio\/"},"modified":"2023-09-19T10:19:14","modified_gmt":"2023-09-19T14:19:14","slug":"refocusing-my-quality-investment-portfolio","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=62955","title":{"rendered":"Refocusing My Quality Investment Portfolio"},"content":{"rendered":"<div data-test-id=\"content-container\">\n<p><figure class=\"getty-figure\" data-type=\"getty-image\"><picture>  <\/picture><figcaption> <\/figcaption><\/figure>\n<\/p>\n<p>It has been almost half a year since my latest portfolio update on Seeking Alpha, so let&#8217;s get started. To check out my prior portfolio updates, click here: First portfolio article and second portfolio article.<\/p>\n<h2>About<span class=\"paywall-full-content invisible\"> me and objective<\/span> <\/h2>\n<p class=\"paywall-full-content invisible\">I&#8217;ll quickly summarize this because I already talked about this in my previous article:<\/p>\n<p class=\"paywall-full-content invisible\">I am a 24-year-old Business Informatics graduate from southern Germany who works as a software developer and author on Seeking Alpha in my free time. I aim to achieve financial freedom through long-term investing in companies with good management, dominating their industries and having significant growth potential. I hold companies for the long term, check on them frequently, and sell if the thesis is no longer intact. I aim to keep stock turnover at less than 20% of the positions per year and concentrate my portfolio around 15-20 positions.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">In October, I aimed for a 60% allocation to Great Capital Allocators, 25% to Tech Leaders, 10% to high-growth and 5% to trades. I now aim to have even more in the Great Capital Allocator basket(which I define as companies with high-quality management and a track record of excellent capital allocation) and less high-growth stocks (which are often unprofitable and highly valued) and tech leaders. I learned that it feels much easier for me to own stocks that aren&#8217;t on the cutting edge of technology. For example, I much rather hold Texas Instruments (TXN) in its boring Analog semi-market than exciting Nvidia (NVDA).<\/p>\n<h2 class=\"paywall-full-content invisible no-summary-bullets\">Tracking the portfolio<\/h2>\n<p class=\"paywall-full-content invisible no-summary-bullets\">In recent months, I started to closely track a few KPIs, which I believe do a good job of evaluating the portfolio. I calculate all these in my valuation spreadsheet, but the values aren&#8217;t updated too frequently, maybe a few times a year. These KPIs are weighted averages, so each company&#8217;s position size is accounted for. Let me explain why I choose these:<\/p>\n<ul class=\"paywall-full-content invisible no-summary-bullets\">\n<li>Free Cash Flow yield: I chose the FCF yield as the basis of my valuation. I believe that Free Cash Flow per share growth drives returns over the long run, so I want to track this metric.<\/li>\n<li>Owner Earnings yield: OE yield is an enhancement to the FCF yield, which I believe smooths out a few things and makes it more representative. I adjust FCF for Stock-based compensation expenses, add back growth capital expenditures (this often has to be estimated) and adjust net working capital changes, primarily changes in accounts receivable\/payable and inventories.<\/li>\n<li>Expected Growth: This is a conservative estimation for each company based on management long-term guidance, industry growth projections or if nothing else, extrapolating past growth (if it seems reasonable).<\/li>\n<li>Owner Return on Invested Capital: OROIC is my version of ROIC. I use my calculated Owner Earnings as a basis instead of NOPAT. I calculate the invested capital part of the equation with and without Goodwill.<\/li>\n<li>Insider Ownership: I prefer businesses with owner-operators with large ownership in the business. Bonus points if it is still founder-led.<\/li>\n<\/ul>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/09\/56002364-16949608245079339.png\" alt=\"Portfolio KPIs\" width=\"256\" height=\"122\" contenteditable=\"false\" data-width=\"256\" data-height=\"122\" loading=\"lazy\"> <\/picture><figcaption>\n<p class=\"item-caption\">Portfolio KPIs <span>(Authors KPIs)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<h2 class=\"paywall-full-content invisible no-summary-bullets\">Changes since the last portfolio update<\/h2>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Since my last update, I continued to narrow down the portfolio by focusing on my best ideas and removing expensive or low-conviction stocks. I bought the following stocks:<\/p>\n<ol class=\"paywall-full-content invisible no-summary-bullets\">\n<li>UFP Industries (UFPI) manufactures and sells wood end products. The company is moving away from commodity products, with over 60% of sales in value-added products. It is well-managed and at a cheap valuation.<\/li>\n<li>Ulta Beauty (ULTA) is a beauty products retailer that has sold off in line with other retail stocks in the last months. It has a history of generating very high ROICs and is trading at its cheapest historical valuation.<\/li>\n<li>Carlisle Companies (CSL) manufactures and distributes roofing solutions. It used to be an industrial conglomerate that continuously sold off its weak segments and now is a roofing pure play with high ROIC.<\/li>\n<li>AO Johansen (AOJ) is a Danish distributor of electrical and plumbing supplies. The company is founder-led and has ~30% market share in Denmark. It invested heavily into automation in the last years and trades at a very compelling valuation.<\/li>\n<li>Ashtead (OTCPK:ASHTF) has an oligopolistic position in the equipment rental market in the U.S. together with United Rentals (URI). It&#8217;s an industry where the big will get bigger and both companies are well managed.<\/li>\n<\/ol>\n<p class=\"paywall-full-content invisible no-summary-bullets\">I also sold out of a few companies:<\/p>\n<ol class=\"paywall-full-content invisible no-summary-bullets\">\n<li>Microsoft (MSFT) is a great company, but I wanted to focus on smaller market caps. Furthermore, it is already dominating its industry and trades at a high valuation, requiring a lot of growth. Almost all growth has to come organically, as M&amp;A is very tough and buybacks aren&#8217;t that helpful at the current 2% FCF yield.<\/li>\n<li>Alphabet (GOOGL): A similar reason to Microsoft, but it trades at a cheaper valuation and is not the same quality as Microsoft&#8217;s business.<\/li>\n<li>Zebra Technologies (ZBRA): I underestimated the cyclical nature of the business and overestimated its ability to go from hardware sales to a higher proportion of software\/service sales. Napco Security (NSSC) has a similar investment case but does a much better job of generating high-margin revenue from its hardware. Sadly, my timing was quite bad here and I reinvested the money from Zebra before Napco crashed 40%. I wrote more about the situation here.<\/li>\n<li>Veeva Systems (VEEV) is a great business, but I&#8217;m not too fond of the capital allocation. It is very asset-light but keeps hoarding cash. It trades at a high multiple, so buybacks don&#8217;t make much sense. M&amp;A isn&#8217;t much of a factor for management and they don&#8217;t have debt to pay down. They should just dividend it out.<\/li>\n<li>Sonova Holding (OTCPK:SONVF) is a good company, but I noticed it did not grow in conviction after owning it for a year. The valuation also isn&#8217;t great and I generally see better risk rewards in other stocks.<\/li>\n<li>Sartorius Stedim (OTCPK:SDMHF): Similar reasons to Sonova. It is a good business, but I don&#8217;t need it in my concentrated portfolio. I reinvested the money into its competitor, Danaher (DHR).<\/li>\n<\/ol>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/09\/56002364-16949647158773985.png\" alt=\"Heavy Moat Investments portfolio\" width=\"640\" height=\"474\" contenteditable=\"false\" data-width=\"640\" data-height=\"474\" loading=\"lazy\"><\/span><figcaption>\n<p class=\"item-caption\">Heavy Moat Investments portfolio <span>(Excel)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Above you can see my current portfolio. I like all the companies in my portfolio right now. Still, if I were to consider selling, it would probably be Nemetschek (OTC:NEMTF) or UFP Industries, just based on the small position size and relatively low conviction compared to the other companies.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">I hope you can get some inspiration from this article and strategy. How do you construct your portfolio and do you have any suggestions for me? I&#8217;m still young and eager to learn, so let me know in the comments below.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Editor&#8217;s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.<\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/seekingalpha.com\/article\/4635877-refocusing-my-quality-investment-portfolio?source=feed_all_articles\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>It has been almost half a year since my latest portfolio update on Seeking Alpha, so let&#8217;s get started. To check out my prior portfolio updates, click here: First portfolio article and second portfolio article. About me and objective I&#8217;ll quickly summarize this because I already talked about this in my previous article: I am [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":16361,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-62955","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Refocusing My Quality Investment Portfolio | iFintechWorld<\/title>\n<meta name=\"description\" content=\"It has been almost half a year since my latest portfolio update on Seeking Alpha, so let&#039;s get started. 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