H1 2024: Good portfolio returns from the old economy

Berkshire, builders and financials pushed the portfolio up. Discussion of the portfolio, new positions and am I following my plan. What is the plan for H2 2024?

Good performance in the first half of 2024 with an increase of 12.3%. In this article I will look at changes in the portfolio. New positions I initiated and checking if I actually did what I set out to do at the start of 2024 in my portfolio overview article.

Returns

Great results Berkshire Hathway. Got rewarded by getting sold down. See my article on Berkshire Hathaway. Still think the insurance market might stay tight, but this already somewhat in the price.
Hornbach did great. Good results and still way too cheap. See my article on Hornbach.
Heijmans got sold see Portfolio.
ING performed well. See my article on ING. Still see lots of opportunities in European banks.
Grupo Catalana Occidente. Well-run company getting slightly more reasonable valuation. Still cheap. Nice article from Emerging Value (behind paywall).

Good performance, but a little slow in the last part. No biggy. 12.3% in a half year is still great in my book. I personally do not care too much about my results compared to the indices. It is the best comparison I have though.

Indices have been performing great on the back of a meteoric rise in AI related companies. Trends might go on longer than you anticipate. Personally, I’m not willing to pay these prices for companies. In the medium-term competition and mean reversion are also strong forces which can wreck the returns of AI stocks.

Results since my broker switched from UK to Ireland thanks to Brexit. Still looks amazing. Personally surprised with the stability of the rise. I know I have a mix of companies that benefit and are harmed by interest rates. Still surprised with how smooth the ride has been.

I have stats going further back which are not this great, but still very satisfactory. The results show it is possible to beat the indices without much technology exposure or following popular themes. Not having more exposure to Microsoft & Google has clearly been a mistake. Those companies have clearly amazing business models if the growth continues the prices you currently pay might look cheap looking back.

Portfolio

Comparing the largest positions in the portfolio with yearend you see some significant changes. More than I would think is normal for me.

Sold a significant chunk of Berkshire Hathaway: Discussed before and in more detail in this article.
I did sell Heijmans. Given the huge run up in valuation. Happy that I was patient and did not directly sell after Heijmans overpaid for their acquisition. The stock reacted strongly to a recovering Dutch housing market. I have enough exposure to homebuilding with Hornbach but am interested in construction companies. Both Heijmans and Volker-Wessels have been good to me. A shame I missed the strong returns of homebuilders in the US. A mistake of omission you don’t see in the statement but does exist (I tried to capture the returns through Melcor, but Melcor has not seen the same return as US homebuilders. Should have bought some PulteGroup).

New top positions came up due to growth in their share price. Except for Bloomsbury which will be discussed under trades.

Trades

A significant amount of trades. Partly due to new money coming in and due to some needed housekeeping. Will probably have less sales in H2, but a similar number of buys. Probably more additions to the current portfolio though than new companies.

Bought shares in Fonterra. A that absolutely dominates New Zealand’s most important export sector. I think they are clearly globally advantaged versus the competition, which should result in decent returns on capital for shareholders. More details in my article on Fonterra. So far, the results have been more than satisfactory. The planned sale of their brands is a bonus. See my article on Fonterra for more detailed information

Melcor Developments. A company that has been on my radar for a long time and in another portfolio I run. Emerging Value has a good writeup on them (behind paywall). Recently the REIT below them has halted the dividend. Not a big risk for Melcor Development. Returns have been muted so far. Will benefit from more housing activity in Canada and the US.

KSB is a leading pumps and valves company. I can’t understand why it is so cheap. 7.4 times earnings with no debt. They have an Indian subsidiary which trades at 80.5 times earnings. Not really interested in the Indian stock market, but this is a nice significant bonus to the KSB thesis. Not that I see them divesting it but given that valuation I feel more confident that KSB might get some growth from India. Recent position. Might write more about it in the future.

Japan stocks will get a more in detail discussion at another time. I like Takeuchi after doubling, San Holding is a typical Japanese stock that is way too cheap (lots of cash) and not cyclical (growing funeral operation). Keihin seems a quality company trading at a bargain price. More information on Keihin can be found in great articles from Wintergem & Altay Cap.

Banco del Bajio is discussed in my Mexican series. Pinfral will have to wait when I reach the letter P (Cheap highways).

In addition to these trades, I also tendered my Brill shares. I do like the publishing sector and decided to reinvest the vast majority of the money that I got from my Brill shares in Bloomsbury. This stock is again on a nice profit. This sector keeps performing for me. The publishing sector can be quite sleepy. I find Bloomsbury a lot more enterprising. This is something I really like. I do like there recent acquisition in the US, the strong balance sheet and the valuation is cheap compared to the sector.

Plan

Look more into South America & Japan. I did buy some positions in Japan. Most of them are not really new for me. Just new in this portfolio. Still like the big return gap in valuation between bonds and stocks. I think that the devaluation of the Yen creates strong opportunities. Especially Takeuchi will benefit greatly from it.

My focus on South America was narrowed down to Mexico this especially after reading the book “Why Nations Fail” by Daron Acemoglu & James A Robinson. I do think the proximity to the US will be more beneficial to Mexico going forward. In addition, I concluded that in Brazil the focus in more heavily on commodities. I might increase my position in Petrobras, but apart from that I will first continue looking in Mexico. You can join me in my search for value there by reading my Mexican stocks series.

New plan

New plan is not a big deviation from the old plan for 2024. I will continue my Mexico series and my sporadic hunt for value in Japan. That being said I don’t want to stray too far from the European market, which I know best. Singapore is another market on my radar, but it might not be wise to spread my attention too thin. Will add some more money to the portfolio in the second half. If you have any great ideas? Please let me know.

Conclusion

Good results. Market is running up, but that is actually in a fairly narrow part that I’m not fishing in. I still find enough potential diamonds. Actually, I find so many that I have to be careful not to spread myself to thin (25 positions currently). I have to make sure I’m not buying some fake gold by accident. My worries about the US market have so far been very wrong. I have not changed my mind though. The US market is way more expensive than other international markets By selling and redeploying Berkshire shares I decreased my position in the US market even further. The US market might however keep climbing higher. A combination of recent returns attracting fresh money and the wealth effect helping the economy are a strong cocktail. Given the uncertainties about the future profitability of AI, high valuations and the huge fiscal deficit in the US I’m not eager to look at US companies. Someone a stock in the US market that is too good to pass on?

Disclaimer: These are my ideas and not personal investment advice. I might own shares discussed and can sell those shares at all times. I don’t know your financial situation. Do your due diligence and do not blindly follow an article on the internet.