It has been over a year since my last post. I said in that article that I would write more often, but I failed to do so, so this time I will just say that I would like to write more, and hopefully I will.
While writing has taken a backseat, I have been quite busy on the investing front. I have had both successes and disappointments, but I have used both to transform my portfolio to, I believe, a better future.
The big disappointment has been a substantial investment in Choppies, the dominant grocery retailer in Botswana, which reminded me of an early Wal-mart. I can admit that I bought the ‘story’ and was not vigilant enough over the balance sheet or the price I was paying. While 80% of my purchases were made when the stock sank, and the story is not yet over as they are trying their best to resurrect themselves by exiting some markets etc, I have nonetheless written the value down to zero in my own mind. If the share trades again and I can recoup my investment, or even part of it, it will be a welcome bonus, but I am not relying on it for anything. The important thing is that it has taught me some good lessons which will serve me well going forward.
My Berkshire model
I have now adopted a ‘Berkshire’ model. Berkshire Hathaway relies on the managers of the various businesses it owns to run them, with very little help from HQ, or Warren Buffet the CEO of Berkshire Hathaway. This is possible because Buffett has immense faith in his various managers, as well as having a deep understanding of the investments that Berkshire owns.
In order to follow this model I have whittled down my portfolio to only nine stocks. These companies are run by managers I trust and admire, and are businesses I can understand well. They were also available for purchase at a very reasonable price. There are only nine because these sort of investments are fairly rare.
I am not going to discuss specific stocks on Dividend Tycoon, except perhaps if it is to point out something specific like my stupidity in the case of Choppies, although some of you may be able to work out which stocks I am referring to.
My largest position is now about 30% of my portfolio. I consider it a core position that will not be sold unless there is some drastic change. It should help feed me and my family through thick and thin. While for most investors this would be complete madness, I am quite comfortable with it. (I would not however recommend this to others). It is a business close to where I live, I have visited it many times. I have spoken to the CEO and financial director at various presentations and AGM’s, and I think they have high levels of integrity and honesty. The company is frugal and conservative, and has many of the attributes I would look for in a business I was looking to buy privately. They have zero debt and currently have almost 70% of their market cap in cash in the bank. They are perennially profitable and pay regular and consistent dividends.
So if I have found a business like this, why should I not devote a lot of my capital to it? Why spread it around to other businesses which are far more risky? This business is my core holding, around which I intend to increase my stakes in other good businesses.
In constructing this portfolio I am taking the advice of Charlie Munger who has said that it is the wise investor who buys a few good businesses, when they are available at a reasonable price, and then sits on their ass.
I will continue to research and study businesses in the time I have available, because one needs to be prepared to act. Capital to invest could become available from:
- Dividends exceeding living expenses. Not likely at this stage or anytime soon.
- Any other income I can earn.
- Buyouts of my existing holdings. South African shares are currently at very cheap levels, so this is always possible.
- Sales of one of my holdings should I lose faith in management or feel the industry has changed/been disrupted.
- Sales of Choppies shares, should the share suspension be lifted. I would need to assess the situation and try and speak to the CEO to get a fuller picture of the situation, but at the moment my faith is naturally diminished given the circumstances.
- Selling a current holding should there be an opportunity I simply feel I cannot miss. In the recent share crashes there were two stocks I have wanted to own for a long time but they were always too expensive. I did sell some stocks I would rather not have sold to acquire them, but this will be only when I feel the opportunity is really exceptional.
I am very comfortable with this new model. It fits my ‘time limited’ lifestyle, it requires few decisions by me (my managers make them). it is nice to have a few long standing stocks which I can watch closely and enjoy their successes.
The current market has been a very difficult time, but I plan to keep my head down and focus on quality. Dividend Tycoon HQ is still operating and has not applied for a bailout yet, so watch this space for further news as I have learnt a few other lessons over this difficult period which you may find interesting.