Wealth Accumulated

By D J Thomas, a large-cap stock market value investor and financial writer

Charlie Munger

Apple position up 15.82% in four months

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Apple is up 15.82% since it was added to the Wealth Accumulated portfolio at the beginning of February.

It is the largest position in the portfolio by a country mile.

24% according to my broker both through holding shares of Apple and through a large position in Vanguard’s US Equity Index, of which Apple is a sizeable chunk.

There’s more than one way to pony up for Apple, and why not?

Apple is the best business in the world and so it makes sense to me to disregard textbook portfolio management theory that usually trumpets spreading positions equally among 15-20 stocks.

Why Apple is such a large position in the portfolio

It begins and ends with research.

As fun as it is to distill investment reasoning and share it on social media platforms, there’s a grain of truth to me piling into Apple based on Warren Buffet’s love of the company.

The Oracle recently opined at the annual Berkshire Hathaway shareholders meeting:

It happens to be a better business than any we own

Warren Buffett

I also often take a leaf out of Peter Lynch’s book which encourages retail investors to pay attention to their daily experiences of using products and services, ‘stumbling onto the big winners in extracurricular situations’ as Lynch eloquently puts it.

I’ve been an Apple user for over two decades, seen the ups and downs, followed their story, and even stretched to a documentary here and there.

Apple, especially the iPhone, has been central to the daily operation of my life and the lives of millions of people across the globe.

I’m writing this blog post on the WordPress app.

Booking flights, banking, relationships, buying a house – the utility of a modern cell phone is unmistakable, and Apple simply makes the best cell phones in the world.

Their laptops, tablets, and watches aren’t too shabby either.

Why Apple is such a good business

Let’s take a look at a selection of Apple’s numbers from the last three years:

The explosive growth in earnings and ROCE is incredible and unlike other tech firms, Apple is not seeing a collapse in earnings since the reopening that other notable firms have been experiencing.

Sometimes a business makes things so good that everybody has to have the things they sell. That ability (or inability) to sell ends up in the numbers.

Green shoots of recovery and the value approach

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Potatoes have to be the simplest vegetable to grow, which is why I grow them every year without fail.

Here you can see their stems poking out of the ground in my back garden/yard through tough, dry, rocky, clay soil.

The process is as follows:

1) make a hole in the ground 10 centimetres deep, place the seed potato in the hole, and cover it with soil.

2) make sure potatoes are planted 60 centimetres apart in all directions to allow for adequate growth

3) the picture shows how I’ve ‘earthed up’ the potato plant stems with soil to protect potatoes from sunlight which will turn them green otherwise. It also helps the plant grow more potatoes.

I planted potatoes in early March, but last Autumn I completely weeded the ground and added grass clippings from my own garden and a neighbour’s to decompose over winter.

If you’re in climate zone 8 like me there are potato varieties that you can plant right through to late August in time for Christmas, but do ask your local supplier who will be happy to advise you.

Green shoots and the value approach

One of my jobs as an investor is to prepare the ground from a philosophical and practical framework of investment operations.

A value approach that makes sense to me in the same way that your favourite musician makes sense and speaks to you.

Planting potatoes into the ground without prepping it is possible but not optimal.

My preparation for recent investments has been a years-long love of reading books, annual reports, blog articles, and newsletters on subjects ranging from digital marketing, ancient philosophy and gardening in addition to value investing.

One of the greatest discoveries of the value approach is that it does not matter if the economy is experiencing green shoots of recovery or recession; a key role of the value investor is to discover the intrinsic value of a listed business and purchase its stock below that value.

In my whole life, I’ve never known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero

Charlie Munger

There really is no substitute for amassing knowledge from consuming the thoughts of others who have done what you want to do and what you want to achieve.

The Woodstock for capitalists: Warren Buffett and Charlie Munger speak out

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Jimi Hendrix woodstock

Here’s some of what Warren Buffett and Charlie Munger had to say at the annual Berkshire Hathaway meeting that caught my eye this past weekend.

Forward earnings

The majority of our businesses will report lower earnings this year than last year

Warren Buffett

This one’s pretty straightforward and speaks to the earnings recession that has been predicted for some time.

The fact that a massive and massively diversified conglomerate like Berkshire Hathaway will suffer lower earnings for the foreseeable future means that the rest of the US economy will suffer the same fate.

If you’re investing in 2023 like I am, be careful how you go about it.

Diversification

One of the inane things that’s taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks … That is an insane idea

Charlie Munger

Charlie’s straight talking is what I’m most impressed with. He really does not give a cr*p if he insults you or not, but at least you get the truth.

For me, this quote speaks to the choices you have as an investor:

  • Buy a low-cost S&P 500 index tracker, or
  • Invest in a portfolio of 10-15 common stocks that are conservatively financed and represent an adequate margin of safety at purchase.

Investment opportunities

What gives you opportunities is other people doing dumb things

Warren Buffett

Recent examples include Kanye West’s antisemetic ranting (he’s a special kind of pleb) leading to a collapse in the Adidas share price, government-enforced worldwide lockdowns leading to a collapse in the price of oil, and Mark Zuckerberg basing the future of Meta on an unproven technology which also drove a collapse in its share price.

See a pattern here?

Other people.

Dumb things.

The best publicly listed business in the world

It (Apple) just happens to be a better business than any we own

Warren Buffett

I own some Apple and so does a sizeable chunk of the investing public, either through their pensions or if they simply track the S&P 500, such is its size.

There’s no doubt that right now, at this time, Apple is the most recognisable brand in the world and happens to manufacture the world’s most iconic item – the iPhone.

Apple’s recent foray into banking in collaboration with Goldman Sachs is a great example of how a business with a crocodile-infested moat can take advantage of its dominance by entering into new markets with ease. AAPL is a keeper.

QE is over. Hello QT

During the last six months or so, the incredible period for the US economy has been coming to an end

Warren Buffett

Buffett was referring to the massive amounts of government spending and quantitative easing that ensued as a result of the coronavirus pandemic. Which lead to some dumb things.

Such as a lot of Berkshire’s businesses overspending.

Buffett noted:

Some of them had too much inventory on order, and then all of a sudden it got delivered, and people weren’t in the same frame of mind as earlier. Now we will start having sales when we didn’t need to have sales before.

More sales to get rid of stock means lower earnings going forward until that inventory has been worked through.

All whilst rates continue going higher.

Conclusion

The thing I’ve learned through multiple market and economic cycles is that people will ALWAYS do dumb things which leads to some excellent investment opportunities.

In the past, I’ve been reluctant to take them either through fear or through trying to catch the bottom.

Developing a behavioural finance practice has made a huge improvement in my ability to execute on an investment.

Warren Buffett and Charlie Munger, didn’t talk much about behavioural finance and a calibrated mindset, but they sure lead the way when it comes to knowing how to find investment opportunities, managing a portfolio, and the best types of businesses to own.