It’s been another fine quarter for the portfolio. Total return year-to-date now stands at 35.98%, representing an increase of 14.86% for Q3 2017. By comparison, the FTSE All-Share Total Return index has returned 7.75% in 2017 so far. Since inception in August 2015, the portfolio is up 57.47%, against 17.9% for the FTSE All-Share. A healthy 39.57% premium to my designated benchmark. You can view the current portfolio here.
If you read any of my company valuations posts, you’ll know I like to incorporate a discounted cash flow model when looking into the merits of a business. Make no mistake however, this is but one tool to be used when investigating a company, and obviously does not work under all circumstances (i.e. companies that don’t generate positive free cash flow). A discounted cash flow valuation can be as simple or as complicated as you want. I’d like to explore that idea a little bit.
The worst kept secret of the year was finally unveiled tonight. Apple are indeed releasing a ten-year anniversary iPhone, dubbed the iPhone X (Ten). This will sit alongside (or above, given the price) the standard range update of the iPhone 8 and 8 Plus. No doubt there will be 64,000 articles written on this by the end of the week, and I’d not be so presumptuous to assume I offer any new insight, but as a shareholder of AAPL I have a few thoughts.
The essence of value investing is in buying things which are out of favour. When these things decline further in price, we get excited and buy more. It is for this reason that I don’t place stops on any of my un-leveraged positions, and as it stands, Gilead Sciences is a case in point.
This past week I have read two somewhat opposing thoughts on valuation. Both are an attempt to consider whether you can pay too high a price for a company. The first is an excerpt from Scott McNealy, formerly of Sun Microsystems, talking about the irrationality of paying ten times revenues for his company.
The second is a valuation of Microsoft in 1990, attempting to determine what a fair multiple would have been to pay to obtain a sufficient rate of return on your investment.
With thanks to Twitter users @jtepper2 and @BadaBingCapital.
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