I’ve also planned a strategy like this, but then I find my portfolio bulging with all sorts of stragglers, turnaround companies, and yesterday’s promises. However, I’ve already started the process and my first compounder is S&P Global Inc. Even if you don’t like indexes, offering them is surprisingly profitable.
And next, to clean up the portfolio.
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Awesome article, and especially “winner takes it all” made me think about my own investment strategy.
My suggestions:
AMD
The massive processor market has surprisingly little competition and huge moats. AMD has been kicking Intel’s ass for the past few years and has proven its competitiveness.
Walt Disney
Content is king. After buying 21st Century Fox, Disney has even more content to show off to other streaming services. In children’s entertainment, Disney’s brands have dominated the industry for a long time, and I bet that in the future, Disney+ will be the number one way to get kids to be quiet and still. Parents are willing to pay a lot for that.
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Tencent is practically an ETF that invests in gaming and social media companies aiming for growth in China. The only risk I see is the Chinese government; if nothing major happens in China, it will very likely crush the indices. I’m not the only one who knows this, and the price is, of course, reflecting that…
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Thanks again to Juha for a great article! It’s “nice” to realize that even professionals struggle with and think about the same things I’ve been pondering. The weight of US stocks in my portfolio is about 10%, and I’ve been struggling with this for a long time. In my opinion, the biggest problem in picking foreign stocks is the lack of information. Unlike the domestic market, I don’t have a competitive advantage; instead, I’m at a disadvantage compared to local investors. I feel that it’s possible to successfully pick stocks in the Swedish stock exchange, and information can be found at reasonable costs and effort. It’s difficult to find any quality analysis for free on US market companies; you have to pay for all information. I’ve found the company’s own websites to be the best source of information. It doesn’t make sense for a private investor to pay a monthly fee of several tens of dollars for Bloomberg or a similar publication.
Even if I find an interesting target, I often don’t find enough information to justify it as a good and at least reasonably safe investment. It’s difficult to make a purchase decision when I feel uncertain. On the other hand, when I’ve thought about those obvious compounder giants, do you need to delve into them so deeply? I mean, is such “over-analysis” unnecessary because if they demonstrably create shareholder value year after year, have a leading market position, and strong competitive advantages, does it really matter at what price you buy such a company for long-term holding? Is it more important to be on board with these winners?
I haven’t come to a unanimous conclusion about how I would most meaningfully start increasing the weight of US stocks. I know that the most sensible way would be to buy some basic ETF, diversifying over time. However, investing is a hobby for me; I can accept that my portfolio’s return would likely be better if I didn’t try to select stocks, especially in such a competitive market where I have no chance of beating other investors. Many other hobbies also make no rational sense; they are done for the joy of doing.
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Good points from Juha, and I’ve been wrestling with these exact same issues for a while now. I should have added more weight to the US stock market a long time ago, but then stock prices have risen year after year and everything constantly feels too expensive. Finding information from across the pond feels trickier, and when you don’t necessarily have the time and energy at that moment to research a company more thoroughly, a little while later you realize the train has left the station.
For example, the case of AMD: in early 2018, I built a new computer and researched that the AMD Ryzen series processor was clearly a better value for money option than Intel’s. At the same time, I looked into AMD from an investment perspective, and it seemed like a good target, but after some brain fart, I didn’t buy AMD shares from around the $10 mark.
Afterwards, I’ve wondered why this happened. Briefly, the whole thing just slipped my mind because there was no friend or community reminding me of the company’s existence, unlike with domestic stocks, and between work, hobbies, and family life with kids, time is sometimes quite limited. Something similar happened with Facebook in the spring and Berkshire in the summer.
Facebook is also a good example of another problem I’ve had with quite a few US companies. Facebook has risen over $100 from its spring readings, and I can’t justify to myself whether it’s still cheap or if we’ve already moved into the expensive territory. The biggest problem here is that I don’t have the time or ability to follow the company and do a continuous, even approximate, valuation. When you add in the sector’s valuation multiples, where Facebook has lagged a bit, and future prospects, a Finnish guy like me is completely lost.
I don’t know if all these companies fit into the category Juha is looking for, but here’s a bit of my own watchlist from the US stock market:
Advanced Micro Devices, Inc. (AMD)
Alphabet Inc. (GOOGL)
Activision Blizzard, Inc. (ATVI)
Berkshire Hathaway Inc. (BRK-B)
Dropbox, Inc. (DBX)
Facebook, Inc. (FB)
iRobot Corporation (IRBT)
Microsoft Corporation (MSFT)
Planet 13 Holdings Inc. (PLNHF)
Skyworks Solutions, Inc. (SWKS)
Slack Technologies, Inc. (WORK)
Upwork Inc. (UPWK)
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Thanks to Mikko for the mentions (Veoneer and Ambu). Regarding Veoneer, I just replied to the thread you started. I’d be happy to follow if Mikko or someone else more familiar with Ambu would be enthusiastic enough to open their own thread for the company. Could someone suggest a party that offers English or Swedish analysis of Ambu? Swedish Redeye doesn’t seem to follow it, at least in my opinion.
Thanks! I was thinking of opening a thread about Ambu next weekend, similar to the one about Veoneer.
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I’ve already finished the Ambu opening. You can find it here:
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This has brought up a lot of interesting companies to research - thanks to everyone for the comments 
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I only just got around to reading Kinnunen’s latest “jorinat” blog post. An interesting read on investment strategy.
“I believe the world is moving more and more towards a “Winner takes the most” direction, meaning that profits will concentrate significantly.”
The “Winner takes the most” phenomenon also appears to be accelerating based on research. For example, according to the article Kahle & Stulz: Is the US Public Corporation in Trouble? (2017):
─ 1975: The 100 largest US public corporations accounted for 49% of the total earnings of publicly listed companies.
─ 2015: The 100 largest US public corporations accounted for 84% of the total earnings of publicly listed companies.
Few companies deliver high returns. Bessembinder (2017) showed that only a small number of public companies generated higher returns than other asset classes during the period 1926─2016 (4% of companies).
Investments should try to be directed towards these winners. Of my own investments, I only consider Microsoft a true winner company. Many companies currently considered winners seem challengingly priced, although one should consider the company’s valuation in the long term, as noted in the article.
“When looking for leading companies now and in the future, they are usually expensive. So be prepared to turn your gaze to the horizon when evaluating the valuation levels of these companies.”
A few companies on my watchlist where challenging pricing has so far prevented me from investing. These companies are quality companies with a certain competitive advantage, but there can be differing opinions on its sustainability.
- ASML Holding NV (ASML)
- The company manufactures lithography systems for microchips. The transition to EUV (extreme ultraviolet) lithography could be a growth driver for ASML, which supplies EUV equipment.
- Lam Research (LRCX)
- Another company manufacturing equipment for the semiconductor industry, which could be a winner company in the future, as the production of circuit boards and chips appears to be constantly growing.
- S&P Global Inc. (SPGI)
- The company’s Ratings unit has a strong position in credit ratings, challenged by Moody’s (MCO). The third major rating agency, Fitch Ratings, has remained significantly smaller to date. S&P’s growth drivers include expanding its rating offerings to China and ESG ratings.
One would want to buy these companies at a more reasonable valuation level. The text also had a good point about this.
“If you cannot justify the valuation despite the companies, move on to the next target and revisit the matter later. You don’t have to be involved in every story. And preferably not in any bubble.”
Tuomas Komulainen’s latest Inderes articles have also partly touched upon this winner-takes-the-most phenomenon. A few quotes, in my opinion, summarize the essential well.
-
Tuomas Komulainen’s article published on 26.8.2020:
“In the longer term, the coming years will still belong to technology companies. Investors should learn the sub-sectors of the technology sector (software, e-commerce, IT services, platform/monopoly companies, payment services, content services, etc.). The demand drivers for these sub-sectors will vary and differ, but future winner companies will still be found here.” -
Tuomas Komulainen’s article from 26.6.2020:
“In the longer term, it is worth owning US and technology companies globally. I am constantly looking for smaller technology companies in Western countries that have a strong competitive advantage in their field. Long-term growth trends such as technological disruption, aging, and luxury products will continue to create earnings growth drivers for many companies.”
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Ask @Juha_Kinnunen to review Siltronic and ask Mikael Rautanen why. It’s not terribly expensive, all figures under 80 EUR are interesting. Once things get rolling, the share price will double.
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This was, in my opinion, such a good and comprehensive answer from Juha in the Q&A that it already went beyond mere chatter, so let’s save it here.
I personally believe that with the COVID-19 vaccines working and the economy then presumably recovering in the coming years, the best return opportunities will this time be found at the other end of the rotation, in cheap stocks. With cost structures trimmed during the crisis and supported by economic growth, these companies could potentially achieve strong earnings growth again (partly due to low comparison levels, of course).
Because, if I remember correctly, in the chatter related to the March collapse, there was some talk that it was too late to sell, and was this even stated on or near the day of the market bottom, should we take a hint from the above sentence 
i.e., fill the portfolio with Finnair, thanks Juha! (no, not really).
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It’s been a while since I’ve written anything, so let’s bring this thread back to the surface. The topic was very official, meaning the outlook for next year from the stock market’s perspective. Stock markets still seem to be the best option, even if they don’t necessarily look very bright right now.
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Uncle Masse gave a thumbs up even though he hadn’t even had time to read the ramblings yet 
Why? Well, a thumbs up is a given, and it would be even worse if it accidentally wasn’t given
Merry Christmas to Juha and the other Inder regulars!! 
Uncle Masse, FA, Christmas is coming… 
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Stories are coming so fast that @Masse doesn’t even have time to read them - hopefully he still likes them 
This time I said my piece about trading, which has been causing a lot of discussion lately. I haven’t really participated in this discussion, but there are my thoughts 
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Absolutely. The trust is at such a level that a thumbs up comes even without reading Right now I can’t read on my phone because it’s -25C with a hellish wind as a companion during an evening ski in Ruka No sense at all, but I won’t give Verphu an inch in the ski kilometer competition…
Uncle Masse, FA, Ski-Niilo, you can call me untalented, but you can’t accuse me of lack of effort 
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That was a nice chat again.
I’ve also been slightly confused/annoyed by the “fundamentals vs. TA” debate that’s been going on for ages and to the point of tedium, even though they’re completely different things. A bit of a lame analogy, perhaps it’s like weather vs. climate. Both work, but they predict entirely different things.
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Agree here - two tools where one (fundamental analysis) is used to select interesting investment targets and the other (technical analysis) is used to try and optimize entry and exit. Day traders are a separate category.
An eternal holder doesn’t need technical analysis, but if you’re going to trade even a little, it can be useful.
Edit: Damn, I should have read to the end more carefully. Kinnunen actually says the exact same thing:
If you ask me, the best result probably comes from combining high-quality fundamental analysis with selected elements of technical analysis for timing. I have observed that the vast majority of successful traders also apply some kind of combination of fundamental analysis and technical signals.
Smart guy.
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By the way, have you noticed how skillfully Inderes’ analysts write? Sometimes one might think that analysts only understand numbers, but their verbal output is also quite high-level.
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Yes, you can tell from more than one analyst’s writings that they’ve opened a book or two in their time
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