Objectives, Investment Policy & Strategy

Objectives

The portfolio aims to provide long term capital growth.

Target Return

Outperform the S&P 500 index over the long term.

Target Risk

Maintain an eToro Risk Score of less than or equal to 5.

The eToro Risk Score represents the volatility of the portfolio. A score between 4 and 6 is considered by eToro to be 'medium risk'.
To reduce the volatility of the portfolio, my objective is to maintain an average Risk Score of below 5. This will not always be possible, especially during turbulent market conditions, where we have previously seen the Risk Score temporarily increase.

Copiers should be aware that there is no guarantee that these objectives will be achieved, and your capital is at risk.

Investment Policy

The portfolio will only invest in stocks and ETFs. This is a long-only portfolio and leverage will not be used. The portfolio will be relatively concentrated, holding approximately 20-30 stocks at any one time. No more than 10% will be invested in a single stock, ensuring the portfolio does not become too concentrated.

Investment Strategy

This is a long-term strategy, focusing predominantly on long-term trends in technology and strong consumer brands. Stock selection will favour high quality, ESG-friendly companies with a significant competitive advantage and with the potential to grow their revenues and earnings over many years.

These companies will have the ability to maintain high margins and earn sustainably high returns on their capital, reinvesting their profits to compound their returns over time.

A small proportion of the portfolio may also be invested in thematic equities, such as renewable energy or other industries, providing some further diversification.

This will be a global portfolio, favouring investments in US, European and UK markets due to their higher standards of corporate governance vs. companies listed in the developing world.

Quality, Growth & Value

Quality

When analysing a potential investment opportunity, my main focus is on the ‘quality’ of a company. Quality companies will be well-run businesses that are already winners in their field. They will have high barriers to entry, with significant competitive advantage or brand value. This will enable these companies to maintain high margins and earn sustainably high returns on their capital.

Growth

Another important consideration is ‘growth’ - I’ll be looking for companies that have the potential to grow their revenues and earnings over many years, with the ability for them to reinvest their profits and compound their returns over time.

Value

I don’t consider traditional ‘value’ as an important factor, for example by looking for stocks with a low P/E ratio or for those paying a high dividend. In my view, whether or not the valuation of a business is reasonable will depend entirely on the quality of the business and the expected future growth of its cash flows.

As a long-term investor, portfolio turnover will be relatively low - owning these stocks means you’ll own part of a business. With this mindset, the trajectory of the underlying business becomes much more important than the short-term volatility of their share price or the market. There will, however, be an element of technical analysis to complement the fundamental analysis - making sure that we only invest in stocks that are likely to outperform the market.

Further Reading

“Buy good companies. Don't overpay. Do nothing.”

This article elaborates on my strategy and investment process.

The sectors and investments I generally avoid

This article explains why I tend to avoid specific sectors.

Thought Experiment on the Valuation of Remarkable Companies

This article considers how to value quality companies.