Wealth Accumulated

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

Earnings

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.

Fundamental Analysis, Value Investing, and Growth Investing

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I’ve just finished listening to Fundamental Analysis, Value Investing, and Growth Investing by Roger Lowenstein and Janet Lowe.

Lowe has written books on Graham, Munger, Buffet, and a host of successful investors over the years.

Lowenstein is a prolific writer and financial journalist who knows a thing or two about financial markets.

He also writes a Substack.

Two halves of the same book

I really like how the book is split into two halves.

The first half narrates how the inventor of value investing – Benjamin Graham – came to his approach, what drove his ambition to seek wealth, and what Walter Schloss described as ‘a straightforward man with a quick, brilliant mind’

Impressively there is the revelation that Graham advocated making money from stocks the way that speaks to you, even if that means using a method that is not value investing:

Do those things as an analyst that you know you can do well, and only those things. If you can really beat the market, by charts, by astrology or by some rare and valuable gift of your own then that’s the row you should hoe

Benjamin Graham

Naturally, I’m drawn to the gardening reference Graham makes here.

Lowenstein and Lowe take us on a superb journey with insights about the father of value investing I’ve not come across before.

The second half: fundamental Analysis, value investing, and growth investing

The second half will appeal to the student of the value approach; it’s awash with lessons on how to conduct balance sheet analysis.

You will benefit from a pen and paper.

The authors also compare the differences between the value approach and growth investing, drawing from the experiences of well-regarded growth investors.

That’s the only growth rate that rally counts: earnings

Peter Lynch

The comparison with growth investing is extremely useful because it’s an approach that is just as prevalent in financial markets today as the value approach is.

Net current assets, net cash, intangible assets, growth rates in earnings, ROIC, revenue, and book values – it’s all in there. Lowenstein and Lowe pack in enough detail to get you well up to speed on the value and growth approaches.

(An investor) should think about the world in which he lives rather than to analyse numbers from a balance sheet or income statement

T Rowe Price

Find an investing style that works for you, but value wins out.

The main thread throughout the book is the concept of a margin of safety and mercifully the authors provide numerous examples of how to calculate it and why it’s such a central tenet of the value approach.

This and the fact that Lowenstein and Lowe cover a vast amount of ground from a value and growth investing perspective makes it worth a listen – it’s currently only available as a CD or on Audible.

In the end, the authors have a clear preference for the value approach, and one of their gifts is a clear description of what a value investing model looks like:

The value investing style produces a low cost, low maintenance investment portfolio. But investors should not think of it as a cookbook approach to buying and selling stocks. A value investor typically looks at numbers and plays with a few formulas but no mysterious maths tricks are necessary. As taught by Benjamin Graham, value investing is more of a philosophy than a technique. It is an approach, an attitude, a style.

Roger Lowenstein and Janet Lowe

3 new purchases for the portfolio

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I have positions in stocks mentioned in this article.

On this Monday 15th May 2023, three new purchases for the Wealth Accumulated portfolio have landed.

At the same time, President Biden is still trying to negotiate with congressional Republicans a deal to avoid the United States government from defaulting on its debt.

Such a scenario was recently described as ‘potentially catastrophic’ by Jamie Dimon, CEO of JPMorgan Chase.

The US Treasury Secretary and former Federal Reserve chair also chimed in:

The notion of defaulting on our debt is something that would so badly undermine the U.S. and global economy that I think it should be regarded by everyone as unthinkable

Janet Yellen

The negotiations and potential default are not so important, for the same reasons that Yellen espouses.

What is important is that the portfolio is now fully invested, save a few pennies for sundry expenses.

Why I had to act now to invest 100% into equities

Nearly 100%.

Besides, the window of value is closing.

It was wide open in the fourth quarter of 2022, a year in which equities did not do so well:

Even though much of the year has passed, there’s still a small window of opportunity to get in at reasonable prices.

Today’s additions are:

  • Alphabet
  • Berkshire Hathaway
  • Vanguard’s US Equity Index

Alphabet because I believe they will win the AI race.

Berkshire because it’s Berkshire.

The S&P 500 to protect me from my own hubris.

The most interesting purchase is Alphabet because its earnings skyrocketed due to the pandemic and lockdowns. They have fallen back a little since but not so much to worry about.

I’m not sure that a foldable smartphone will bring in the much-needed boost to earnings, but its continued search dominance – over 90% of the internet – combined with AI features said to be integrated into search results should cement its leadership status.

Welcome to my tech-heavy, US large-cap portfolio.