Stock Picks | The BnB Fund - Europe & Japan Edition

28th Sep '24 by BnB

24 comments 1170 reads

I wonder if participants would be interested in a summary of my investment fund?

Before diving into the companies or talking about performance, I think it makes sense to start by examining my objectives. Firstly, I’m not trying to beat the market or any benchmark. After an entrepreneurial career, I’m fortunate not to have a target sum for my senior years. Damnit, I’m in my senior years already and the fund is a way of staying in touch with the world. More than that, it sustains my relevance by aligning my economic interests with the direction of future industry and commerce. It keeps a man who is used to having his nose in plenty of companies in, well…, plenty of companies! And it provides intellectual engagement and a way to pass the hours in blissful data analysis. While there’s time for golf - if I played it, though mountaineering is actually my thing - and my hours are highly flexible, the market keeps you on your toes, reacting to trading updates, watching the Fed, reading Stockopedia posts. So, in many ways it’s a full-time job. And that’s just how I like it.

My mission is to create a fund of exceptionally high quality companies - companies that I want to own, not trade, and which are characterised by exceptional products that I admire, outstanding management whom I respect, or privileged market positions, commonly called moats, that are difficult to breach. They are in industries which I consider to have the longest runways for growth or some that simply touch upon my life and it gives me pleasure to own the other side of the trade.

The fund is heavily diversified to avoid idiosyncratic risk and, contrary to studies which show that an “ideal” portfolio holds only 30 names, back-testing shows negligible deviation from a much more concentrated portfolio of “best ideas” taken from the wider fund. Perhaps I just need to learn to make better concentrated bets! But then my aim isn't to maximise profit, it’s to engage with the development of the global economy through widespread exposure to its leading businesses. 30 holdings is never going to cut it.

The fund is concentrated in three sectors, information technology - my field of specialist knowledge - healthcare, and industrials. This latter group primarily comprises leading edge, tech-focused companies that are almost tech companies themselves in a world where data,…

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KevinS1

29th Sep '24

Very Interesting BnB. Thanks for posting and I look forward to the next instalment.

Peter T

A fascinating, superbly written peek into your fund and investing style/philosophy.

Also a refreshing Sunday morning diversion for me with most of the companies mentioned being outside my normal focus. I'll pass some time today looking further into some of these out of the interest you've sparked.

I'd absolutely be interested in your US edition. Thank-you.

Howard Adams

Hi BnB

Very interesting write up. Your explanation of your motivations for investing resonate very much with my own motivations.

I like your write ups and will trawl through many of your holdings I have not encountered before.

I do share quite a few of the same holdings, and agree with each of your investment summaries.

While in the past I have also held quite a diversified portfolio which spanned several markets. Over the past couple of years I have favoured a more concentrated set of holdings. Ideally about 30 but occasionally up to 40.

I found that in a down turn the high number of holdings hampered decision making and catalyzed higher losses than I was comfortable with. Since working with the 30 (ish) number my performance has improved a lot. But importantly, in volatile periods, my comfort levels are high.

I look forward to your part 2 write up.

Regards

Howard

Chrisgsy

Thank you for the details of your fund. Very interesting to compare methodology with my own and to look for opportunities that I might have missed. The US version would be of interest.

doctor dave

Great post, thanks so much for taking the time to do this.

I used to have 170 holdings and had a "buy and hold" approach like yours. And held quite a few of the same European names. But gradually I found that, as I am working and have little time for researching, I knew very little about any of the stocks. And I began to get irritated by the laggards staring at me every week!

I really like how you describe your aim in investing. Mine is different and is really an intellectual rather than financial imperative to see if I can beat the index. So having 170 holdings made no sense and just ensured I had a tracker fund of my own.

So now I have 40 holdings, all UK, and I try to follow sensible commentary from those who are knowledgeable. I'm grateful to everyone on here who takes time to post and explain their views.

Cancun

Absolutely fascinating BnB... very grateful indeed for the time that you took writing this up... as a relative Newbie, it's posts like this that are so informative... the US version would be amazing if possible please... many thanks once again...

Viz

Excellent post BnB thank you. In terms of stocks, I've been in and out of Porsche/VW for sometime, mainly as I'm an aircooled fanatic at heart, but I also do like some of the newer Porsches out there. I will be buying Porsche again in the not too distant future, mainly based on:

Growth prospects. It's an achievable (super) car to buy and maintain. The residuals are excellent and many lease car drivers don't car about that anyway. It's not hard to see people move from an Audi to Porsche, rather than jump into a Ferrari or similar.
EV development is way ahead of others in this space. The only car currently I'm in the market for is a Cross Turismo Taycan (and I normally have 5 cars on rotation), the thought of a practical 700 bhp estate ticks every single one of my boxes.
VW links and holdingsd, this is a double edge sword insomuch that they can get full access to VW tech, but can tinker with it. Downside is that if VW shares tank, then so do Porsche.
Porsche efuel. This is only at the beginning of its development. If they can pull it off it will be a game changer (using electricity to create fuel at a CO2 neutral cost).

I note you do not have any Japanese car stock, I'm looking at Nissan as a turnaround, but long term - Toyota has it all sewn up, EV, hybrid with money flowing in year in, year out.

ShoeShineBoy

Hi BnB,

Like the other comments below, thanks for posting. A really good read which must have taken you some time to think through and then write up. I always enjoy reading about other approaches to investing / trading and look forward to the day when I can read posts or review an annual report on a Monday morning instead of heading to the office!

I was interested by your comments on option trading and would be interested in 1.) why you do it when you seem to be a long-term investor ie: is it something that you use to top up the cash balances for long-term investing or to pass the time of day or for pure enjoyment; and 2.) could you recommend a book or a YouTube channel so I can find out more. Thanks in advance.

SSB

BnB

I found that in a down turn the high number of holdings hampered decision making and catalyzed higher losses than I was comfortable with.

This is definitely a risk. My solution, and one that works well if you don’t want to crystallise tax gains (unlike everyone else it seems right now), is to short S&P or Nasdaq futures. Obviously you need a cooperative broker or bank, but it’s even easier than closing, say 20 or 30 positions, and then having the stress of when to get back into each of them. One short. Bang done. And then money just starts appearing in your trading account if you’ve read the direction of travel right. It’s unnerving if you get it wrong though. But that’s the case whatever your strategy for timing the market. Most of the time I don’t bother. I’ve been through that many apparent crises in my personal and business life, they don’t bother me other than in the intellectual quest to be responding as efficiently as possible.

The only car currently I'm in the market for is a Cross Turismo Taycan

I adore a fast estate, and in fact that’s my only car. It’s a BMW rather than a Porsche as they rattle less and don’t suffer tyre roar to the same overbearing extent. But the object of your desires would do me fine if they just made it a bit smaller in length and width. I’m holding back as EV tech just keep improving. And I love my 8 year old Q car.

I do it for yield since the holdings don’t provide much of a dividend. When I sell a call it’s always at a level that I don’t expect to be met by the maturity date, and, if so in spite of my best efforts, at a valuation that I consider to be excessive (barring major improvements in fundamentals), such that the name will likely dip below the strike level in the next period of volatility. It is very rare for shares to be called away. So few that I can probably name them all. But I’m usually back in them almost immediately. Or right away by taking a loss on the option. A recent example would be SAP where I sold the September €200 call when shares were around €170. The option expired in the money and the shares were called away. But I bought it back for €197 within a week. That earned me about 1% on the option and 1% on the re-entry. It’s also intellectually challenging but it really is like picking up pennies in front of a steamroller!

I taught myself by trial and plenty of error I’m afraid. But I’m sure there are plenty of resources. Start small!!

Thanks everyone for the support. I shall try to get US stocks ready for next weekend. Depends on the weather!

DavidMcCabe

Many thanks BnB

It is always good to here about the philosophy behind people's investment decisions and also some of the companies you are invested in.

I am also keen to hear about the UK choices in particular.

I appreciate your openness and taking the time.

David

Thanks for the suggestion. I think shorting is a bit above my pay grade at the moment. But I will bear it in mind.

Threepeat

BnB,

I think your article especially on your Euro holdings was absolutely superb. From one who invests solely in UK I tend to stick to what I know, keeping it as simple as possible, but now I know a whole heap more.

My question to you would be :- apart from stocko, what sources or platforms do you use, for researching, valuing, forecasting of these stocks before purchase. Don't know what else to ask as I hardly know the right questions

Many thanks

Steve

My question to you would be apart from stocko, what sources or platforms do you use, for researching, valuing, forecasting of these stocks before purchase

Thank you Threepeat. I’ve come the other way round, starting in Europe, Asia and the USA, and only more recently building up my UK holdings. I have access to research from my bank which is the first port of call. And they are also able to share reports from a couple of other big banks, where the name is not covered in-house. But my best source of longer term thinking on companies and shares is Morningstar. For about half the price of Stocko I have research on most of the investible universe of large caps, and many mid-sized names. They produce incredibly detailed reports, both in terms of narrative and data content, updated every quarter after earnings. There is a huge emphasis on moats, wide, narrow and none, corresponding in their definition to 20 years of prospective value creation (wide), 10 years (narrow) and good luck (none)! Firms can move between the categories of course and there are regular up and downgrades. Look out for narrow being upgraded to wide!

A few years in, I back-tested results for the three categories and found that performance had diverged in tune with their categorisation. Wide moats outperformed. Although, to be fair, this was after some volatility, when wide moat (typically large cap) names tend to suffer less. Within the Morningstar categorisation I have learned to pay less attention to their denoting a stock as over- or under-valued. This should only be taken into consideration relative to its own history rather than across the wider universe of stocks. The Morningstar algorithm cannot cope with names like Rational or Belimo, which are always mega-expensive. As with all these sources, you learn how to use them over time. But you will get excellent returns from an investment in Morningstar and I value their research very highly.

30th Sep '24

Thanks BnB,

Very helpful to me and everyone of course

MH1

5th Oct '24

Thank you BnB! That is a lot of names! I came across a Wide Moat ETF (MOAT) the other day though I have not gone through the holdings or weightings. An enjoyable read with many names I know and some that I don't.

Is your focus purely on fundamentals or do you think much about portfolio construction and technical analysis? I am in a similar situation to you. My whole life has been spent in markets. Markets are a source of endless stimulation-I often think my biggest weakness is too much curiosity which can lead to lack of focus!

Is your focus purely on fundamentals or do you think much about portfolio construction and technical analysis?

Broadly, my focus is on thematic exposures through moaty names. Digitisation, AI and cloud, which leads to a vital demand for cybersecurity and reliable data providers; water preservation and flooding abatement; premiumisation and the rising global middle class; ageing populations and the associated healthcare demands as well as the demographic effect on economies and the consequent need for industrial automation; allied to which is the energy transition and electrification of everything, which in turn creates opportunities in building and construction technologies.

I use very basic technical analysis to set strike levels for selling covered calls. My portfolio construction is very directional/risky. Broadly, only three sectors and I’m all in on equities, with over 90% of my assets in liquid listed names, A few % in property. Less than 1% cash. Expect a crash soon.

I run portfolios for three generations of my family and those are 80/20, stocks/bonds. Recent performance is comparable to mine on a constant currency basis (better than mine unadjusted this year owing to GBP strength). I’ve had good success investing in bonds (and avoiding them in 2022) but I just find the underlying asset dull relative to the journey that you embark on when you buy into a company’s future. So they’re not for me despite my stage of life.

john2

20th Oct '24

Not a complaint, just an observation - I recently bought some Ferrari NV (NYQ:RACE) shares via Hargreaves Lansdown. HL do not sell the Milan listing, so I was forced to buy the NYSE listing, converting this from a European to a US holding for me. I would have preferred the Milan listing.2

The BnB Fund - Europe & Japan Edition

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BnB

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