In this edition, we are going to look at the following:

• My thoughts on ROA’s first year

• Portfolio holdings

• Portfolio performance

• Is it time to panic?

My thoughts on ROA’s first year

When I started the Rule of Acquisition a year ago, I envisaged talking about private business and due diligence (i.e. how to investigate private businesses). But then I discovered that you all love hearing about public companies and the stock market.

That was great because it allowed me to share my dream with you.

What dream? Let’s go back in time a few years to when I was a bright-eyed and bushy-tailed MBA graduate. I had worked a bit and realised that not every company created value for its shareholders. I had a feeling that if you could find the good ones, there was a “better way” of investing, but I had no idea how to do it. So I read a lot, I studied and I learned as much as possible at work. That gave me knowledge and experience, but not the answers I was looking for.

As it turns out, when what you’re looking for doesn’t exist, you have to build it.

That is what I have been doing over the past few years. Building my idea of what investing should be like. I call it Extraordinary Investing (we described it here).

Perhaps the biggest lesson I’ve learned is that the “better way” of investing is the way that suits you best. I like Extraordinary Investing, it suits me. The reason you should do what suits you is because it is easier to stick to it, if it comes naturally.

In September 2023, we introduced the Extraordinary Companies portfolio (click here). This is a real portfolio, with real money. The portfolio had been running for a while but we really kicked it into high gear last year.

The fun part of the portfolio is using it to share our thoughts on investing with you. In that process, we expose our mistakes, we improve our investment thinking and advance our analyses. By doing all of that transparently, we have become better investors.

I hope that by reading ROA, you have gained as much as we have by writing it.

A big thank you to you for joining the journey and reading the ROA. Wishing you extraordinary profits in your Extraordinary Investing.

Portfolio holdings

There were no changes to the portfolio in the past month, but the weightings change as share prices change. Notably Nvidia is down a bit.

Performance

Over the past year, the Extraordinary Companies portfolio is up 32%, while the World Index is up 21%. Since our March update, we are down 13% while the index is down 5%.

The reason we are down is that the US market and tech companies were running hot at the start of the year and have now fallen.

Is it time to panic?

• Tesla is down 61% from its 2021 high.

• Netflix is down 21% from its 2021 high.

• Nvidia is down 10% from its March 2024 high.

• Apple is down 15% from its December 2023 high.

• Meta was down 10% this week.

For most investors this would be concerning. The emotions shift from “making easy money” to “fear of losing your money”. This can cause panic.

The reason why I’m pleased that the market is down and our portfolio is taking a hit is because we are about to learn the best investment lesson of them all - how to navigate a down market and keep our emotions in check.

Lets do that using our Extraordinary Investing equation:

Extraordinary Investing = Quality Companies + Growth Prospects + Shareholder Orientation + Investor Mindset + Analytical Approach

We’ll look at three aspects.

Do we own quality companies? Yes. These are some of the best companies in the world. You would be hard pressed to find better ones.

What does our investor mindset tell us? We want to think like the owners of family businesses. We do not care what price the market is offering us for our stock today, we are concerned with long-term compounding and how the business itself is performing. Why should we sell the best businesses in the world cheaply because other people are willing to do that?

Are we applying our rigorous analytical approach? We are clear on the determinants of value creation and look to those as our guiding light in stock ownership. Each of the companies we own creates massive shareholder value and they have strong competitive advantages that will help them retain their leading position. This is what we base our buy and sell decisions upon, not on price movements.

Conclusion. When we look at these factors in combination, it should comfort us and put into perspective that price drops are meaningless in the context of a portfolio full of Extraordinary companies. In fact, the drop might even present a buying opportunity.

To answer the question definitively, it is not time to panic. If you own great companies, forget the stock prices and keep owning them. Don’t give your treasured stock away cheaply now and buy them back more expensively later. Market dips are nothing but bumps in the road. Look at the graph above, dips are normal and we can survive them without harm if we behave like Extraordinary Investors should.

I would like to hear what you’re up to.

DM me on social media or email me.