Portfolio overview 2019

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This is the eighth review of my portfolio for GuruFocus. It is an article that I look forward to every year because I get feedback from readers and co-investors. As always, I hope you get in touch and become friends as we continue to learn and improve together.

Here are the usual disclaimers: First, you shouldn't invest in any of the companies discussed here without doing your own work. and secondly, i have no idea how these stocks will develop in the next week, next month or next year – but i wouldn't mind if they were traded significantly lower and offered the opportunity to offer additional capital at more attractive prices to invest. I have been striving to be a net equity buyer for decades, and many of the companies I have invested in will spend billions on share buybacks in the coming years. So I hope we can both buy more stocks as cheaply as possible.

<p class = "Canvas-Atom Canvas-Text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "As everyone knows, 2019 was a great year for Equity investors: After a difficult end of 2018, including a low of around 20% in the fourth quarter, the good old market forecast partners were on the spot finally Time to end for this bull market? From today's perspective, we now know that it was another outstanding year for stocks. Once again, the market participants who spent their days entering and exiting the market paid a high price for their impatience. "Data-reactid =" 19 "> As everyone knows, 2019 was a great year for equity investors. After a difficult end to 2018, including a low of around 20% in the fourth quarter, good old market forecasters were a little unsettled finally Time for the end of this bull market? From today's perspective, we now know that it was another outstanding year for stocks. Once again, the market participants who spend their days entering and exiting the market paid a high price for their impatience.

I have been relatively inactive this year, largely due to the fact that I continue to struggle to find companies that I believe will be misunderstood and traded at a substantial discount to intrinsic value. To be honest, the lack of new ideas has discouraged me a little and made it difficult for me to keep turning over new stones (I also believe that I have been affected by this constantly connected world, which adversely affects my skills has deep thinking and focus my attention). I'm not sure how I can get that spark back without waiting for a market correction or getting off the Twitter fire hose. I will try a few different approaches in the new year and maybe discuss this later in more detail (maybe some readers will have a similar lull).

Let's talk about stocks. The numbers discussed below are given as a percentage of my equity portfolio (as opposed to measuring as a percentage of my overall investment portfolio). I will look at my five largest positions, which together make up 65% of the total equity portfolio.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Berkshire Hathaway Inc. (BRK.B) (15% of the equity portfolio) – I write a lot about Berkshire. Read my other articles if you want to learn more about why this has been a big participation and will continue to be in the future. I think the valuation remains reasonable, especially in relation to the other opportunities I see today. In the long term, I expect the stock to provide a reasonable return with a limited chance of negative results. As the world becomes less accommodating, I would expect Berkshire to be able to use its fortress balance sheet effectively to provide tens of billions of dollars for acquisitions, share buybacks and publicly traded securities. That is the kind of optionality that I really like. No matter what the future holds, I am still very happy with a significant position in Berkshire. "Data reactid =" 22 ">Berkshire Hathaway Inc. (BRK.B) (15% of the equity portfolio) – I write a lot about Berkshire. Read my other articles if you want to learn more about why this has been a big participation and will continue to be in the future. I think the valuation remains reasonable, especially in relation to the other opportunities I see today. In the long term, I expect the stock to provide a reasonable return with a limited chance of negative results. As the world becomes less accommodating, I would expect Berkshire to be able to use its fortress balance sheet effectively to provide tens of billions of dollars for acquisitions, share buybacks and publicly traded securities. That is the kind of optionality that I really like. No matter what the future brings, I still feel very comfortable in Berkshire.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Wells Fargo (WFC) (14% of the equity portfolio) – Wells Fargo was included in the top 5 in 2018. The thesis was based on the combination of high quality business, an attractive valuation, substantial return on investment and a possible normalization of operations for the bank. While it is still early and the company continues to face headwinds in the current interest rate environment, I am encouraged by the developments of the past year. Buybacks have had a significant impact on earnings per share, and I'm optimistic that CEO Charlie Scharf is the right man for the job. In addition, the Board of Directors appears to fully appreciate the need for the company to quickly address outstanding issues. The timing for all of this remains uncertain, but things are going in the right direction. "Data reactid =" 23 ">Wells Fargo (WFC) (14% of the equity portfolio) – Wells Fargo was included in the top 5 in 2018. The thesis was based on the combination of high quality business, an attractive valuation, substantial return on investment and a possible normalization of operations for the bank. While it is still early and the company continues to face headwinds in the current interest rate environment, I am encouraged by the developments of the past year. Buybacks have had a significant impact on earnings per share, and I'm optimistic that CEO Charlie Scharf is the right man for the job. In addition, the Board of Directors appears to fully appreciate the need for the company to quickly address outstanding issues. The timing for all of this remains uncertain, but things are going in the right direction.

According to my calculations, Wells trades with a single-digit forward price-earnings ratio if you are willing to look out for a few years. That just doesn't make much sense to me in today's world. I hope management continues to provide a significant percentage of the capital for buybacks with the current stock. It's a long way to say that I think the story remains largely unchanged. If you are ready to own WFC in the long run, I think there is a good chance that you will be happy with the result.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Microsoft (MSFT) (14% of the equity portfolio) – Microsoft, like Berkshire, has been a top holding company as long as I've done these year-end audits. 2019 was another outstanding year for Microsoft's business. Commercial cloud run rate revenue will soon exceed $ 50 billion, or about three times the revenue at the end of fiscal 2017 (astonishingly still growing ~ 40% year over year). Despite widespread media fears that hiring someone internally would result in the company's death, Satya Nadella continues to prove that he's the right person to run Microsoft."data-reactid =" 29 ">Microsoft (MSFT) (14% of the equity portfolio) – Microsoft, like Berkshire, has been a top holding company as long as I've done these year-end audits. 2019 was another outstanding year for Microsoft's business. Commercial cloud run rate revenue will soon exceed $ 50 billion, or about three times the revenue at the end of fiscal 2017 (astonishingly still growing ~ 40% year over year). Despite widespread media fears that hiring someone internally would result in the company's death, Satya Nadella continues to prove that he's the right person to run Microsoft.

As I found out last year, I don't think the stock is particularly cheap. On the other hand, this is a wonderful deal with a first class management team. I think the tendency of most value investors in this situation (including me) is to approach the exits early. I am not sure if this is the right way to go, especially if it involves a significant tax liability. I like the idea of ​​being Satya's long-term business partner, even if I'm not in love with what I should pay for this privilege. For this reason, I feel comfortable to continue to hold a significant position in MSFT.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "The Walt Disney Company (DIS) (12% of the stock portfolio) – Disney as a new addition to the top 5, resulting from my previous investment in 21st Century Fox (I chose stocks as part of the deal). I don't really think that my perception of the current situation at Disney is particularly different from that of others. What I believe is that Bog Iger is a world-class CEO who knows how to run Disney. If someone can master the difficult terrain to reposition this "dinosaur" for the future, it is him (and he has taken significant steps in the right direction in recent years). The company also has an unrivaled intellectual property collection and business model that enables it to effectively monetize this content through multiple channels. For these reasons, I still like the idea of ​​owning Disney in the coming years. "Data reactid =" 31 ">The Walt Disney Company (DIS) (12% of the stock portfolio) – Disney as a new addition to the top 5, resulting from my previous investment in 21st Century Fox (I chose stocks as part of the deal). I don't really think that my perception of the current situation at Disney is particularly different from that of others. What I believe is that Bog Iger is a world-class CEO who knows how to run Disney. If someone can master the difficult terrain to reposition this "dinosaur" for the future, it is him (and he has taken significant steps in the right direction in recent years). The company also has an unrivaled intellectual property collection and business model that enables it to effectively monetize this content through multiple channels. For these reasons, I still like the idea of ​​owning Disney in the coming years.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Comcast (CMCSA) (10% of the equity portfolio) – As I found last year, Comcast is a well-run, high quality company with sustainable competitive advantages in its core business. I am also willing to give management a longer leash for M&A than others (or at least that is my perception). I think they deserve this right based on the track record they have built in over twenty years. With a mid teens free cash flow multiple, I still believe the stock is trading at a discount to its intrinsic value. It's a long way to say that I believe the same things about this company at $ 45 a share that I thought last year at $ 35 a share. "Data reactid =" 32 ">Comcast (CMCSA) (10% of the equity portfolio) – As I found last year, Comcast is a well-run, high quality company with sustainable competitive advantages in its core business. I am also willing to give management a longer line for mergers and acquisitions than others (or at least that's how I see it). I think they deserve this right based on the track record they have built in over twenty years. With a mid teens free cash flow multiple, I still believe the stock is trading at a discount to its intrinsic value. It's a long way to say that I believe the same things about this company at $ 45 a share that I thought last year at $ 35 a share.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Conclusion"data-reactid =" 33 ">Conclusion

All in all, my pre-tax return for 2019, including transaction costs, was an increase of around 25%. This is certainly better than I absolutely expected, even though it lags the S&P 500 by a few hundred basis points. Given the structure of my portfolio and the type of company I own, this seems to me to be an acceptable outcome in a year that is hopeless for the market.

By broadening the time horizon, my portfolio has achieved a return of ~ 13% pa slightly better than the index in the past five years. I'll be honest: I don't find that particularly encouraging. I have compared to what I could have done if I bought an index fund and spent the last five years on the beach (and that includes the tailwind from a big position at Microsoft, which was sure to be a bit of luck for mine Part). Whether I have the skills to be successful in this game is still open. Or I just need more realistic expectations (a profit of 100-200 basis points over the entire investment period is of little importance). We'll see what happens to my earnings if (if?) We encounter a persistent period in which Mr. Market is less generous with equity investors. I think that would benefit my relative results, but only time will tell.

I have no idea what Mr. Market has in store for us in 2020, but I would be happy if we see some volatility and lower stock prices. This scenario would like to offer us some compelling long-term investment opportunities. As always, I look forward to the thoughts of my co-investors.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "disclosure: Long BRK.B, WFC, MSFT, DIS and CMCSA "data-reactid =" 37 ">disclosure: Long BRK.B, WFC, MSFT, DIS and CMCSA

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "GuruFocus 15 year anniversary campaign"data-reactid =" 38 ">GuruFocus 15 year anniversary campaign

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This article first appeared on GuruFocus.