16th pin stuck in the newspaper

It is time to pick something to invest in again for the “put a pin in the newspaper” experiment.

We are travelling to a country that completely dominates the MSCI world index. The US weight stands at 72%. Might as well call it the US index with some world ex US leftover stocks.

The maximum US stock picks in this project is one out of every three stock picks. I like my diversification thank you very much. The world is my playground.

Always be bullish on America, but there are risk management limits.

The first job was to buy an old-fashioned newspaper.

Finding the quotations page with listed stock companies to randomly select a stock from was the next step.

Investing like this is so simple a child can do it.

Where was the blue marker going to land?

Well, the answer is something called Allstate (ALL). The stock code in the US is ALL. Apparently, it is an insurance company. The forward price earnings expectation is just under ten times earnings.

Allstate will be the pick for the monkey portfolio.

Valuations are ignored in this experiment. On average and over time valuations will average out to world stock market valuation levels if enough global stocks are added to the project.

And the winner is Allstate!

Source FT newspaper

An investment is needed for the crayon portfolio as well.

I am a fan of Nvidia. I should have added it to the crayon portfolio years ago... Could have, would have, should have...

There are plenty of nice stocks available in the US.

NVDA is now cheaper than it has been in years. That might be because the cyclical earnings are at a peak. Or not. Time will tell.

There are plenty of AI related names that look cheap on price versus earnings levels.

The stock market might be telling us that this is the top.

The rotation away from the crowded AI names into the rest of the stock market names is gathering pace.

Earnings can be cyclical indeed. The stock market is starting to care about that fact again. The Nasdaq 100 index is now the cheapest it has been in the last four years.

Eoin Treacy from Fuller Treacy Money;

“The mistake many people have been making is mistaking low P/E ratios as evidence that the shares are cheap.

Instead, when earnings surge and the P/E goes down, it reflects the resistance of investors to bet that the surge will continue.”

If everyone hates a stock that is sometimes a great buying indicator. Remember Facebook with their insane spending on the Metaverse. Or when Netflix reported its first subscriber loss in 2022?

In a similar manner if a lot of blog posts are pushing the same stock, everybody might already own it and that can be the top.

From FT Alphaville;

“If a slower US data centre buildout helps pull compute costs out of a hyper-deflationary spiral, might users stress-test their already fragile returns from AI spending? How soon would the neoclouds be consumed by their structural mismatch between short-term customer contracts and long-duration liabilities? What’ll happen if fewer vendor-financed GPUs sold on take-or-pay contracts are gathering dust in dark warehouses built using off-balance-sheet debt structures? And, given the incestuous levels of industry interconnection, how might contagion be contained if buyers don’t turn up for Anthropic’s IPO?”

Fair enough there is plenty to worry about. Isn’t that always the case though?

This week was another Mike Tyson stock market week.

“Everyone has a plan until they get punched in the mouth.”

When Tyson later explained his quote, he said;

“Everybody has a plan until they get hit. Then, like a rat, they stop in fear and freeze… How much can you endure, buddy? Most talkers, they can’t handle it.”

If you want to be a long-term buy and hold investor you got to have the stamina to stick to the plan even in stock market corrections of 5% or 50%. Time in the market is more important than timing the stock market.

Jensen Huang has a tendency for being in the right spot at the right time. Nvidia’s innovation has been relentless. The man knows about suffering after all the start of his company was touch and go.

One can argue that Steve Jobs was a lot better in his second stint at Apple after he was pushed out in 1985.

Maybe Nvidia will trade under 10 times earnings next year. Who knows? Or the share price might go up!

NVDA is finally reducing the number of shares outstanding (a share cannibal). Even the dividend is better these days, but still tiny.

The great news is that the stock market is super forgiving for mistakes of long-term investors.

If one buys the same dollar amount, diversifies properly and just let the investments run, the winners will grow so big the mistakes become rounding errors.

Obviously, this only works if you have enough positions (100 plus) ...

This experiment is not quite there yet.

Bettersification is still work in progress... For those who don’t pretend to know up front which investments will work out after 10, 20 or 30 years more diversification seems better to me.

I fully expect most of the crayon stock picks to be massive disappointments. Probably only 5% of the stock picks is going to shoot the lights out. But it is fun picking your own stocks!

The aim of investing is simply to make money. Ideally returns should be higher than inflation and taxes at a minimum.

Some stocks will go up more than 100% and compounding is fantastic. Disappointing stock picks will go down 100%.

More upside than downside is math that Holland Park Capital London likes a lot.

This “Beat The Stock Market Experiment” started in May 2019. Two investments are picked every year like clockwork.

The project has been running over 7 years now.

Dividends have not been tracked and have been excluded from the portfolio return tracking. Realistic returns would have been even higher with dividends included.

Sixteen stocks in the crayon and monkey portfolios is work in progress in earning the free diversification lunch.

The blue marker for the monkey portfolio landed on the stock Allstate.  

As always, the monkey portfolio picks a new stock randomly and the crayon portfolio follows. Just to be clear these are paper portfolios, but Holland Park Capital London Ltd has equity positions in both stock picks.

The 16th position will have a new position value of about $5000 according to the “no capital gain taxes growth investment plan” in the book ‘Beat the Stock Market Casino’.

Have you bought the book “Beat the Stock Market Casino” yet on Amazon?

ALL had a high of $262.54 so far yesterday. A paper trade buy of 19 shares of Allstate at the price of $262.54 was recorded today for the monkey portfolio.

NVDA had a high of $194.9 so far today. The crayon portfolio adds a paper trade of 25 shares of Nvidia at $194.9.

Stock prices are sometimes set by crazy buyers and crazy sellers so who know what will happen in the future.

Share prices long-term do like to follow earnings though but predicting at what valuation a stock will trade in the future is a fool’s game and predicting earnings is an equally difficult.

Some companies manage to successfully re-invest retained past earnings in higher future earnings and that is the reason a diversified basket of stocks can be expected to compound.

Compounding is fantastic. Please let the charts of my stock picks go from the lower left to the higher right in the future!

May the force be with you as you make your own investment decisions. Come on crayon and monkey portfolios!!!

Below is the boring disclaimer.

This is not financial advice. Do your own research please.

This article is for information purposes, educational purposes and entertainment purposes only.

Both paper portfolios have 16 holdings now. Slowly but surely the portfolios start looking a little like diversified portfolios. May the force be with both paper portfolios. 

Thanks for reading this blog.

Holland Park Capital London hopes you enjoyed the information in the blog. This is not a financial promotion.

Holland Park Capital London Ltd is not receiving any compensation from anyone to write this blog (excepting the paid subscribers). Holland Park Capital London is long the stocks in the crayon portfolio and the monkey portfolio. Holland Park Capital London Ltd just doesn’t have the same number of shares per holding as the paper crayon and monkey portfolios. The purchase prices are also completely different. Holland Park Capital London Ltd is long the S&P 500 index (equal weighted version).

Holland Park Capital London has no business relationship with any company whose stock is mentioned in this blog. Holland Park Capital London expressed its own opinions.

This is not financial advice. This blog is for information purposes only.

Make your own decisions please. Do your own research. Please go and see an authorized financial advisor before making any investment decisions.

What works for Holland Park Capital London may well not work for you and your personal situation is unknown to Holland Park Capital London. Stocks go up as well as down and you may get back less than you invest. Your capital is at risk when you invest in stocks. In other words, you can lose all your money by investing in stocks. Any information in this blog should be considered general information and not relied on as a formal investment recommendation. This blog is for information purposes only and helps Holland Park Capital London expand on the books “Beat the Stock Market Casino” and “Stock Market Blah Blah”. Both can be bought on Amazon.

This brings extra discipline in the investment process. Holland Park Capital London Ltd is not liable for any mistakes in this blog. This blog cannot be a substitute for comprehensive investment analysis. Any analysis presented in this blog is illustrative in nature, limited in scope, based on an incomplete set of information and has limitations to its accuracy. The information upon which this blog is based was obtained from sources believed to be reliable but has not been independently verified. Therefore, the accuracy cannot be guaranteed. Any opinions are as of the date of publication and are subject to change without notice. This Substack is not financial, investment, tax, legal or professional advice. Nothing in this publication is a recommendation, offer or solicitation to buy, hold or sell any investment. Individual stocks might have a higher risk and higher volatility than companies or investments your financial advisor is comfortable with.