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

• Portfolio holdings

• Portfolio performance

• Things worrying me - Microsoft edition

Portfolio holdings

There were no changes to the portfolio in the past month. That is good because sometimes investing requires you to hurry up and wait.

Performance

Over the past year, the Extraordinary Companies portfolio is up 42%, while the World Index is up 25%. Since our February update, we are up 3.5% while the index is up 1%.

Things worrying me

I analysed Microsoft and found that its share price has shot ahead of the fundamental performance.

With all the artificial intelligence (AI) hype, the market is expecting Microsoft to sustain increased performance for a prolonged period. But the level of performance being demanded has only been achieved once in the past decade. That tells us the share price has a lot of expectations built-in, which may be hard to achieve.

We will need to wait and see how the AI trend plays out. In the long-run I don’t think it will give Microsoft a strong monetisable advantage.

Think of it like the airline industry, you expect the aircraft to be safe and have in-flight entertainment. You won’t pay more for these. In that same way, AI will be expected in all products over time, meaning that it will be a basic feature.

A stock being highly valued can have three future outcomes:

1. It can keep going up and defy all logic for a long time.

2. The price can go sideways while it waits for the fundamentals to catch up.

3. It can go down.

What does this mean for us as investors?

1. As existing owners of Microsoft, I think it means “hang tight”. It’s a great company that seems to be in favour. We can ignore the price and continue to own it.

2. But if you don’t own the share, then maybe think twice before buying it. Perhaps you can find something more attractive.

3. What about selling it and banking the cash? I am not in favour of selling because it might be highly valued. Selling has challenges.

   1. Firstly, why abandon a stock that is going up?

   2. Secondly, what do you replace it with?

   3. Thirdly, we are extraordinary investors, meaning that we want to own great companies, not trade on valuation (which is what value investors do).

In conclusion, Microsoft is not worrying me too much. The market is enthusiastic and Microsoft is benefiting. I am happy to keep holding it - which is in line with our Extraordinary Investing philosophy.

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

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