The Valor Blog.
Investment News and Views, Direct from Our Team.

The best from our portfolios

As a suggestion from a good friend, I have decided to give some insights into how we manage our portfolios.

The suggestion he made was to provide a few examples of our best stocks over the last few years.

As with every bit of advice I discuss on this blog, it is general advice and has not taken into consideration any persons financial objectives, goals or risk attitude. If you are looking for specific advice on your portfolios, we believe we have a respectable track record at Valor, so give us a call on 02 8013 5205 and we can get together to see if we can help you.

Here are our portfolios best stocks over the last few years: (Stocks we previously bought, but are not necessarily in the buying range anymore) (We have bought at different prices for clients so the average buy price can vary.)

Magellan Financial Group

Magellan Financial Group has had a fantastic couple of years. Their funds under management has grown from approximately $400 million a few years ago to $4.5 Billion today. This growth combined with a slower growth in costs has seen earnings double approximately ever 6 months for the last few halves. There are very few companies that can boast returns similar to Magellan.

Hamish Douglass and Chris Mackay are very capable in both the attributes a fund manager requires; marketing and skill at allocating capital. There are countless fund managers who fit the first trait, a few who fit the second trait, but very few who combine both talents to draw in enormous inflows of investor money.

Fund management businesses are inherently risky businesses. When they are out of favour, the financial planners can exit their clients funds at an extremely rapid pace. For this reason, we always limit these types of businesses to very low single digit percentages of our clients portfolios. If we can find four or five above average fund managers over the years, this group of businesses should hold quite favourable economics when compared to the average market return.

We began buying Magellan at $1.25 and have held the stock to its current share price. We intend to start trimming our position not much higher than the current price.

Google

Google is the dominant force in online advertising. Their commanding position in the market is yet to reveal a worthy challenger and is going from strength to strength.

Whenever a company’s product becomes part of everyday vernacular, it is likely that products brand is entrenched in society. Google is an everyday word and it will be enormously difficult for Yahoo or Microsoft or any competitor to knock it off its perch any time soon. The day is hear someone say they are going to “Bing” something to look it up on the internet is the day I begin to question our Google holding. The growth in tablet and mobile search may slow profit growth as cost per click is substantially lower, however we believe there is still significant upside from the current position.

Many online businesses may be less than a decade old and so it may appear difficult to judge how deep and wide their moats are in such an infant industry. We do see many changes in this industry over the next few decades. This is very different to the car industry where cars are not dissimilar to cars from 10 years ago and are likely to be fairly similar in another 10 years with perhaps slightly different engines or power plants. The 20% time for Google employees should see Google at the forefront of the industry in many areas. This one point will likely keep Google’s moat wider than its competitors as one of the dominant players for many years to come.

We purchased our Google shares for our clients around the $560 to $580 per share. Its latest pullback is returning its valuation to a more attractive range and with 45% growth in revenue in the last year, we believe there is plenty of growth ahead.

Walmart

Walmart has been a stellar performer for our clients climbing approximately 50% to its current share price from our purchase price of approximately $52.

For those that have wandered around a Walmart in the US, they will understand the commanding position this retailer holds over the competition. The prices are astoundingly cheap. For a company that has grown at high single digit rates throughout the GFC, we were very confident when we were purchasing the business at around 10 times earnings that we were getting one of the worlds best businesses on sale. The property portfolio of Walmart is worth approximately $60 billion which complements their retail operations.

The risk from online and competitors is not insignificant, however the management at Walmart led by Mike Duke appear to be cognisant of the risks and are taking steps to ensure the Walmart moat is both wide and deep for many years to come.

The 50% price rise has us less excited about significant future gains, however is not enough to warrant us selling our position.