RE: Share quality20 May 2021 10:40
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.
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