Edd’s portfolio
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Edd 2.0
All-cap investor with focus on Nordic quality companies with solid balance sheets, high return on capital, attractive growth prospects, high retention rate and secular tailwinds.
“Good companies have high ROE and ROIC, but great companies have high returns on incremental invested capital (ROIIC)”
Companies which are able to continue to invest at a high rate of return in the future will compound the intrinsic value of the company. I believe the retention rate (inverse of payout ratio) is one of the key factors to consider when investing in high-quality compounders.
Portfolio concentration: 15 – 20 companies (min – max). A new investment idea has to be greater than the existing or it need to complement the existing positions in some way (industry, cyclicality etc) otherwise the new investment is diluting my returns
Sector allocation: Max 30% in one sector
Watchlist: The companies on the watchlist is always competing for allocation against the holdings in my current portfolio. I divide my watchliste into four tiers:
- World-class companies
- Quality compounders with high return on capital and growth
- Prospects. Possible Tier 2 candidates
- New companies of interest, not researched
When to sell:
One aspect which is often forgotten when investing in stocks are when to dispose of the company.
- Buying the stock was a mistake in the first place
- Reduce exposure if stock weighs > 15 % in portfolio, or above the predetermined position size (risk limit)
- The stock has reached a silly and unsustainable price
Portfolio turnover: In 2020 the turnover was 166%, mostly due to changes in the investment process / strategy, but also due to a takeover of NetEnt by Evolution, trimming positions according to pre-defined risk limits and impatience in some holdings…
Great read! We are looking for much of the same and currently have two overlapping positions (EVO and KIT). I had Itera and Bakka during parts of 2020 aswell and most of these companies are on my watchlist.
How was your prior investment process / strategy?
Strong run by EVO lately – closing in on your 15% portfolio limit 😉 Exciting week ahead!
Edd 1.0 was DGI (dividend growth investing), but I had much of the same criterias when selecting companies so it has really only been some fine-tuning of the former strategy as well as solely focusing on Nordic companies (had some Canadian and US companies before).
Kitron has been in the portfolio since 2016 and I can’t see myself parting ways with them. Scanfil is another OEM-company I owned previously (sold way too early), but now with 35% withheld tax on dividends for Finnish stocks I will stick to KIT as my choice.
Yes, EVO is closing in on the 15% limit, but hopefully new deposits will keep it below so I don’t have to trim it…
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