September 2024 - Portfolio Letter
Stock portfolio and watchlist of September 2024
Dear reader,
Welcome to the third portfolio letter.
At the start of each new month, subscribers receive an update on the Summit Stocks portfolio, covering holdings, transactions, performance, and more. Let’s dive into the month of August.
September was a quiet month for the portfolio, with only one transaction: we purchased two shares of LVMH at an average price of €608.70.
Since switching brokers in July, I’ve spent more time reflecting on how I value the stocks I buy (or don’t buy). I’ve noticed that I’ve become a bit lax in my approach and realize I need to be more disciplined in my decision-making.
I’ve always believed that valuation isn’t the most important factor. After all, if you own a strong enough business, it should outperform in the long run, regardless of the entry price, right? This might be true, but there are two key implications. First, the business must actually be as strong as you think, and it must continue performing well for a long, long time. Given the inevitable pull of reversion to the mean, this is not easy. Second, following this philosophy can lead to a lack of discipline. There’s no clear strategy for when to buy or when to pass—it feels more like wandering blindly in the dark.
I’ve grown increasingly fond of having a proper valuation framework. Just as we use checklists or frameworks when assessing the quality of a business (and if you don’t, you should), we should apply the same discipline when valuing stocks. The question, of course, is how to do that. Most investors rely on discounted cash flow (DCF) models, and while the present value of future cash flows is how the market tends to price stocks, a traditional DCF has its flaws. It demands too many uncertain inputs, turning it into more of a guessing game than an accurate valuation tool. A better approach, in my opinion, is the reverse-DCF model. While it still requires estimates of future cash flows, it calculates the implied growth rate built into the stock’s price.
I'm still learning more about this valuation framework, and I’ll be sure to cover it in more detail in a future post.
For now, let’s return to the portfolio. As mentioned, the only transaction this month was the purchase of two LVMH shares. Our holdings remain the same, and for a quick overview of the portfolio and my thoughts on each company, I refer you to the August Portfolio Letter.
Below is a visual summary of our holdings. Following the recent LVMH purchase and the stock’s strong performance this month, LVMH is now nearly as large a position as Amazon. I’m confident in both companies, so I’m comfortable with the portfolio’s current composition.
The portfolio still consists of ‘only’ six holdings, though my ideal range is 8-12 positions. I was considering buying ASML when it dipped to around €670, but I held off, thinking it was still too expensive. The stock has since rebounded, so that opportunity may have passed. While disappointing, I’m confident other opportunities will arise, whether with ASML or elsewhere.
The portfolio had a strong month performance-wise, but I continue to emphasize that performance should be evaluated over longer periods. While exciting, we shouldn’t get dragged away and grow overconfident. Emotions shouldn’t be influenced by one month’s performance, whether strong or weak.
Top performers this month were Salesforce, Airbnb, and LVMH, while Evolution was the weakest performer. Evolution is my smallest position and appears to be attractively valued. However, due to the specific risks the stock carries, I don't intend to significantly increase my investment.
The watchlist hasn’t changed much, and here are the companies currently on my radar. I consider them outstanding businesses, and at the right price, I’d likely add them to the portfolio:
Aside from these, I’m always on the lookout for new ideas. Right now, I’m exploring Intercontinental Exchange (ICE), which I’ll cover in the next deep dive. I also recently came across Universal Music Group (UMG) through a great post by Rijnberk InvestInsights. Check it out below:
UMG looks like a high-quality business with a solid outlook, but I’ll need to do my own research before making any conclusions.
If a company isn’t included here, it either doesn’t meet my quality standards or I don’t know enough about it yet. That could mean I’m unfamiliar with the company, don’t fully understand its business model or industry, or simply haven’t gathered enough information to make a sound judgment.
Disclaimer: the information provided is for informational purposes only and should not be considered as financial advice. I am not a financial advisor, and nothing on this platform should be construed as personalized financial advice. All investment decisions should be made based on your own research.
Love the concentration
I really like your transparency. If anytime you wanna exchange opinions about some of the companies you mentioned, you can DM me on Twitter :) Great post!