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This firm has an *astonishingly* good balance sheet. Revenue, assets, cash position - all very strong. Earnings clearly growing and liabilities reducing. Operating margin is also amazing at c.55%.
Excellent quality share. I'm well and truly bought in because I think it has much further to go. Good luck to you all.
As the inflation-fears-led-sell-off of tech and other high growth assets continues, this can only be good news for SLP`s rock-solid cash flows. To be fair there are risks. Pricing power, well, they don`t have any - in the sense of being tied to PGMs market-rates.
But then there is moat. And it doesn`t really come much bigger or wider than this one.
Even at 150 one could (in a parallel universe where Elon Musk wants to go to his Doge Moon in a Pt rocket) easily imagine Goldman or MS laying out a case of 500+ based upon a story of diminishing supply, increasing demand, with a discount rate of 11.5% based on a USD T-bond risk free rate of 1.7% and an equity risk premium of say 8% with a beta of 1.5.
And if you think I`m joking well of course I am...Elon with a Pt helmet, I means come on, he wouldn't be seen dead in one.
But I can wish :)
S
What a marvellous post, Sirius (one of my favourite stars). I wonder, given the conditions you've stated (the moat), wouldn't there be a case to put the beta lower than 1.5?
Have to be a bit careful with betas as a lot of stocks will show up as negative which is implying that such holdings will actually de-risk ones portfolio and this is utter nonsense when e.g. GME were bouncing up and down like a Musk-rat on acid the reason being that the falls and highs were not correlated with the index - the reasons were extrinsic and happened due to (well we all know why it happened). The point is just looking at a chart of GME and seeing a beta of -0.5 one might falsely assume they were very low risk volatility but nothing could be further from the truth.
The beta isn`t that important in a valuation; the elephant in the room (well there are 2 - (i) the discount rate; and (ii) the terminal value which a lot of M&A banks use a pricing multiple thus not really being a true DCF valuation at all.) I use a cautious approach and use proxy between the risk free rate and the local GDP estimate which gives a result which if one were to use the pricing multiple method aligns to a low PE multiple of around 5. SLP are in a high risk sector and South Africa too. They are incorporated in Bermuda and are on AIM. If they were incorporated in London and listed on the LSE main market I`d be happier. On a positive note, the equity markets have been red all week but PGMs are holding firm.
On this SLP dip I intend to go in heavy again and in doing so break a rule about % of holdings. But without conviction there is nothing and we are all agreed here, SLP is still undervalued so lots of upside.
S
Hi Sirius,
I don't diversify. I never did.... for decades. There are better ways of managing risk. I only ever have a handful of positions. It takes me years to find one to invest in though. £2.35 is still 50% of where this one should be in 2022.
Which other 'savings account' offers this rate of return? If you find a better one, let me know :)
N
Buys versus sells here :) Sooooooooooo unusual :)
Bought a few more, can't think where else to put cash? Only a couple of other's I'm looking at also, out there.
Me too.
Care to disclose who "the couple of others" are Mark?
:)
s
Trident Royalties for one, still giving thought to one or two other shares. SLP is the best business I've invested in and is the top position for me.
LunaNera @
" I don't diversify. I never did.... for decades. There are better ways of managing risk. I only ever have a handful of positions. It takes me years to find one to invest in though. . . "
-----------------
- Would be intrigued to hear a fuller exposition of your adventures Luna (but of course not your personal finance details for security reasons) on your personal strategy, Luna.
Reminds me very much of Warren Buffet's advice given at a conference call on a YouTube video somewhere, when he answers an investor's question by advising that you only ever get 2 or 3 at most, really great investing ideas in an investor's stock-picking life, so why dilute those by adding lesser stocks, thus diversifying your available funds?
- Which is not what the average investor would think Buffet would advise investors to do.
However, the inexperienced, general investor, and those with attention required on demanding full-time employment etc., are better off diversifying if they can't devote full time to investing.
But your strategy, identical to Buffett's advice - fits the school of thought mantra that runs: Diversification = Diworsification.
And also matches a superb little investment book I obtained for free some years ago called: " Zurich Axioms "
A smashing read with lots of real-life examples. A book that was generally hated by media reviewers - not for its quality - but for the strategy it espouses in the little entertaining book. I doubt many have heard of it - as it runs against general investing lore. Amongst my collection of investing books, that one has a special place within it.
Yours is not a strategy for the inexperienced, risk averse, or safety-fist investor IMO - but Buffett argues the exact opposite :)
IMHOThere is no right way, no magic bullet, no Nirvana. Peter Lynch e.g. talked a lot about having only 5 stocks that but didn`t stop him from owning a fair slice of the whole S&P index when he managed Magellan with hundreds of holdings to his name. It is easy to pick the 10-baggers after the event (and after 10 or 20 years. )
It is like salt and pepper - a matter of taste. There is no right or wrong way. If you don`t diversify and followed on the tail-coats of Buffett's two nightmare plays e.g. - Dexter Shoe and Precision Castparts they lost ($3.5Bn) and ($11Bn) respectively, you would have been wiped out. So much for non-diversification and that is why you don`t put all of your eggs in one basket.
Munger also talks about why settle for average meaning ONLY the 10% S&P returns (!) but from what I see and read most hedge funds would kill for that year on year.
If you want "spectacular" then agreed don`t do it just be prepared for the sleepless nights. I value my health and dont need to adopt such risks ! But bravo to those that do. I admire base jumpers in a similar way until their canopy fails to deploy and I`m thinking - yeah well, what did you expect in the long run.
S
Hi Velo,
Interesting question. There are many frameworks that work for a variety of people. For some reason, there is a lot of motivation to automate judgement and reduce a rather complex subject, human behaviour, do a formula. There is no idication whatsoever that we are even close to something like this. One needs to focus on a few intangibles as well.
It never made sense to me to hold a lot of positions. I find it quite a lot more work to keep on top of it all. For me, it is a lot simpler to concentrate on my circle of competence and invest in companies who meet quality and value criteria. Understanding and keeping on top of every single sector looks like a lot more work.
So when a good opportunity comes along, why restrain yourself artificially? This never made sense to me. It's best to focus on your best idea, not your second, third etc....
Every couple of years, such opportunities arise. Even more so when markets panic, because it's easier to meet valuation criteria. It is not unusual for positions to make up between 20-70% of my total holdings. My last #1 idea, AAPL in 2005, occupied 65% of my total porfolio then. At a P/E of 10, this was not exactly an outlandinsh investment. Especially not for a companies that grew it's cash position by 30% every quarter. It had "big opportunity" written all over it. Why would I ever invest in a position that I think is less worthy? Doesn't make sense.
SLP is in similar territory, although it doesn't have pricing power, but it does make it up in other departments. It doesn't make sense for me to invest in another miner, even though there are good ones around, when I see this one as the best in class (meeting my criteria). Owning 2-3 others in that sector isn't exactly diversification either. You'd need to find a good lollypop producer or a good retailer or whatever else in order to consdier yourself diversified. But I am not interested in sweets, nor in retail. So why should I become involved in something I don't want any part of?
It's a lot less work than a huge portfolio, and financially more satisfying.
Other approaches work as well, this just happens to be mine. But to hold a lot of everything in order to eliminate risk is a dillusion. If that would work, a lot of people would be much better off today.
I think that I have less risk investing in a company trading below intrinsic value, whose management is competent and shareholder friendly. There are not that many around, but every couple of years one or two such opportunities do come along.
Thanks for your response Luna. A fascinating post by you. Appreciated.
Will re-read again, and return to it a couple of times, in due course. I do enjoy the real life experiences of others as opposed to text book guideline 'rules'.
I agree with you and Sirius; that no one way is the holy grail, and most investing strategies have their day in the sun, coming into their own as sentiment ebbs and flows within the stock markets. So using what one is most comfortable with, is important.
Most of the investing books I own are promoting differing theorems on what has worked for those guru authors. But several of them seem to agree that whatever, at the end of the day, you must align to what fits your own risk profile - your own investing character leanings, and outlook on life.
As much as I read alternative investing strategies I'm more and more wedded to trend following with each passing year, than when I alight on a particular appealing strategy.
Having held 20-25+ stock portfolios in the past - is where my "errors" mostly lie buried but was mostly following divi income strategies back then.
(Coincidence or too many stocks to keep my eye on the ball?)
Velo, you might enjoy this book
https://www.amazon.co.uk/Bull-Maggie-Mahar/dp/0060564148
Bull!: A History of the Boom and Bust, 1982-2004
The bottom lime to all this of course is the dummys guide to investing.
It reads, "stick it all in SLP and come back each quarter to see the size of your stash".
:)
Hi Stoodio!
I have to be happy with my investing results over the last few years. And I did stick SOME of my money into SLP at 8.2p, and more later. So I can't say I've screwed things up.
BUT, the fact remains, I would have made far more if I'd just followed your simple rule: "stick it all in SLP and come back each quarter to see the size of your stash."
Mind you, with my luck, if I'd done that, an asteroid would almost certainly have wiped out SLP's operations.
Nice post Luna. Good to read others strats. I agree with what you said, though I'd like to point out that it is a very dangerous strategy for someone reasonable new to investing. It takes time, and quite often many mistakes to learn and get to the level that you are at.
Funny final line TBTT, tongue in cheek, but so very true! Having bought initially at under 10p and more on the way up, I wish I'd put everything on SLP, hindsight is a wonderful thing! But what a beautiful thing SLP has been and will continue to be.
Great board, full of great investors. GLA
Hi 42trader,
I agree that it is not a strategy that will fit most, esp newcomers. With newcomers I would err on the side of caution and just invest in an ETF that tracks a well performing index, like the SP500...
After surviving the .com crash, I vowed to never invest in a company again unless I understood their balance sheet. That's what eventually led me towards focus investing. I don't recommend this to anyone btw... but since someone asked...
PS: it can take me years to eventually take a position in a company.
Everyone has to find the framework that works for them.
Do you have a target price your aiming for?
£4 in 24 months? Short term it's rather likely to hit £2 before end of this year...
125 wtf
Thanks for that Book recommendation, Luna. I do have several books on Bubbles and crashes including the daddy of them all the Popular Delusions and Madness of Crowds definitive record by Mackay (1869 I think). Stunning book; amazing data considering the difficulty of research centuries ago.
I managed to download your book as an Ebook for free on this occasion, liked the drama documentary opening to it; the innocent analyst guy from nowhere built up to guru status by the crowds - could imagine it as a TV special if expanded so :)
Maybe it's the Rhodium chart and its dip below the 50 sma, it's been vertical for many months and covid & mine closures have helped, i think $25k is about where it will level off, still good value still but will people buy when the price of platinum & rhodium has probably peaked, People don't tend to buy oil shares when oil is falling back do they? plan 30% on 50 day 30% at 119p which is the point of control for 2021 and 30% at 114 area bottom of a channel. Alternatively, possibly sit out and go 100% on the break in the downtrend. It's all about Rhodium.