Introduction

The US elections are over, the winner has been decided and the markets are rebounding because things have settled. The media might have you thinking this is important information, but it isn’t.

At ROA, we don’t care about the politics or what the market is doing. We care about what the companies are doing.

If you’re uncomfortable with that statement, you’re ill-equipped to pick stocks. Owning stocks is hard. Don't believe me? Look at the performance for the individual stocks in our portfolio over the past 6 months. It has been a bumpy ride.

Our largest holding, Nvidia, was up 50% four times and went down to 15% twice. Our second largest holding, Novo Nordisk, is down to -14%. Our third largest holding, Microsoft, is our third worst performer at 3.7%.

When stock prices are falling, the temptation to sell is high. But selling on price movements is not the way of the Extraordinary Investor. If you want extraordinary returns, you have to focus on the company, not its stock price.

Since Novo Nordisk is down the most, lets take a look at its valuation to calm our nerves.

Novo Nordisk

Novo Nordisk released financial results last week and they were good. Unsurprisingly 3-months of financial results don’t change much. Novo was a brilliant company and it still is a brilliant company. The operating performance has increased from last year to this year, but the increase was not as much as the previous year. Last year set a high base, so slightly slower growth can be expected.

Although Novo’s stock price has drifted lower during the year, you can see that it is selling somewhere between our moderate and aggressive valuations. That is to be expected for company of such high quality. You are not going to find it selling cheap.

In conclusion, the financial performance is improving, the company is doing well and the valuation is reasonable.

Now, with our nerves suitably calmed, lets look at the portfolio’s performance.

Portfolio performance

The Extraordinary Companies portfolio is up 36% over the past year. Because we had negative performance from our second largest holding (Novo Nordisk), the benchmark had an opportunity to close the gap. The MSCI World Index is up 33% over the past year. So we’re ahead by about 3%.

Of course since inception, we’re ahead of the index by about 10% per annum - which is brilliant. $100 invested in our portfolio at inception would now be worth $170, whereas the same amount invested in the benchmark would only be worth $128.

We’re kicking butt.

If you look at the blue line in the graph above, you will notice that it has recently become a lot more wavy than the pink line.

That means the volatility of the portfolio has increased. This happened because of the high weightings we gave to Nvidia and Novo Nordisk.

So here's a lesson for you at our expense - if you’re going to buy large amounts of one or two stocks, be sure you can handle a bumpy ride (i.e stock price volatility).

Conclusion

Three lessons from the recent portfolio performance:

1. Periods of market volatility can be hard to stomach. Be mentally ready for them.

2. If you skew the weightings in your portfolio, expect more volatility.

3. If you have bought the best companies at good prices, don’t worry, just leave them alone and wait patiently.

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

DM me on social media or email me.