My investment manifesto

Ten core beliefs that explain my portfolio.

When researching the holdings of many funds and other Substack investors, I couldn’t help noticing something: an overlap of just 2 out of 10 companies is about as high as it gets. Why do I end up with such an unusual portfolio? That got me thinking.

The simple answer may be that some of my core investment beliefs are a bit different. They explain why I end up owning the companies I do - and they might also be a good starting point for discussion.

So, here is my investing manifesto!

1. Look (a)broad and focus on cheap markets

When defining your investment universe, don’t let home bias define your view of the world. If I limited myself to large companies in Europe and the US, I would end up with a more expensive portfolio and higher valuation risk. I still limit myself to democracies, but democracy doesn’t end in the West.

The world is much bigger than Europe and North America, economically, demographically and in terms of listed companies. Don’t assume that growth, good companies or good governance stop when you leave the West. Reading Factfulness, digging into demographics via populationpyramid, democracy via democracyindex and looking at the right world map are good ways to broaden your perspective.

Most importantly, starting valuations between markets can be very different. Look at South Africa, Indonesia and the US today (world PE-ratios). Where are you more likely to find hidden gems? Overall cheapness makes investing easier. I try to fish where the fish are - and gladly lay my nets where net-nets are more likely to be found.

Most investors disagree in practice, or simply don’t bother. They stick to their home market, perhaps expand to Europe and North America, and then stop. I don’t. And if you’re an active value or growth investor who knows what you’re looking for, I find that a bit difficult to understand.

Example: Right now I find most value in South Africa, the Philippines, Indonesia and Greece. They are generally cheap markets, so that’s no coincidence. In five years, other markets may be cheaper, and I would probably own more there instead. I try to go (a)broad!

2. Use your small-investor advantage

The next step, after deciding which markets are in your universe, is deciding which companies within those markets to look at. As a private investor, I have one big advantage: I don’t have that much money. I can buy almost any listed company I want. Most funds cannot.

So I try to use that advantage. I look for smaller, illiquid and really cheap companies. Funds tend to start with the largest and most liquid companies and stop early. As a small investor, why not start at the other end? According to an old Grandeur Peak presentation, 79% of the capital is chasing just 5% of the opportunity. Why compete for the same 5%? Even going to markets that IBKR doesn’t cover can be an edge if you are willing to go the extra-broker mile.

Institutions are obsessed with liquidity because they have to be. I am not. High family or founder ownership can mean low free float and poor liquidity, making an otherwise attractive company difficult or impossible for a large fund to own. For me, that’s an opportunity rather than a problem. There is also a statistical foundation behind this approach, more on that later! But where do you find most inefficiencies? Exactly in the parts of the market that institutions ignore.

3. Cheap for the right reasons

I actively prefer cheapness caused by things like:

• small size

• illiquidity

• lack of analyst coverage

• unfashionable geography

• high insider ownership / low free float

• boring business

• low market access

That means overlooked and underfollowed. Not hated locally. Just ignored. The most important part of the process is: Why is it cheap? Especially when going to foreign markets, it’s important not to be naive, to get a basic understanding, and to remember that you are a tourist investor, even if you get to know the country. There should be no obvious reasons to avoid the company, and no good explanation for the cheapness (except being overlooked and underfollowed).

4. Don’t compromise on quality or valuation

If you look broadly, at perhaps 40,000 companies in theory and 10,000–15,000 in practice, you have far more options than if you restrict yourself to 1,000 larger, well-known companies. Quality is relatively easy to find. Quality at a genuinely cheap price is much harder. But a larger universe, combined with a concentrated portfolio, means fewer reasons to compromise on either.

I also define quality quite broadly. Low or no debt is important to me, both as a sign of financial strength and as downside protection. I prefer companies with some kind of niche, market leadership or durable competitive position. I also keep a growing rejection list of 130+ companies because certain risks or characteristics simply make them uninvestable for me.

Quality is not only about ROE, margins and growth. A business built around gambling, vaping or cigarettes may have excellent numbers, but large regulatory risks hanging over it. Is that really a high-quality business? For me, it isn’t. I want at least a neutral societal impact and low to neutral regulatory risk. Cyclicality also lowers the quality in my eyes. I prefer businesses that are not heavily dependent on commodity prices, economic cycles or other things beyond their control.

Concentration is another part of not compromising. If I have doubts about my 11th-best holding but not my 10th, why own the 11th? When you search across many markets and are willing to concentrate, the bar can - and must be - very high. At the same time, concentration makes downside protection even more important.

5. Absurdly cheap good businesses still exist

Sometimes 30 seconds is enough to make you want to buy a stock, the numbers are so good that the only big question is if something is wrong. And then you spend the next 30 days deciding if it is. It’s either completely mispriced or you have missed something.

Many say that you can’t invest like young Buffett or Graham today. But they are wrong. You can, just not if you look in the usual places. In their time, it was enough to look close. Today, you have to look broad, deep and close. The opportunities DO exist. You just have to look harder and in more unusual places.

Don’t start with the usual suspects. If it’s well-known and easily accessible, it’s almost guaranteed that it’s not cheap enough. And all this talk about: what’s the catalyst? No catalyst is needed if there is real cheapness. That’s enough. But to find absurdly cheap stocks, you must do something different and think differently. Almost be absurd, in other people’s eyes. These stocks are few, so I make “high-risk bets in low-risk stocks”.

Example: Argent is trading at P/E 8, P/E 6 ex-cash, EV/EBITDA 4, P/B 1 and an FCF yield of around 15%. Primeserv is at P/E 6.5, P/E 3 ex-cash, EV/EBITDA 2.5 and an FCF yield of 25%. Are these bad businesses? No, there is growth in both revenue and EPS, and good ROE. In fact, looking at these businesses since 2017, it’s hard to argue that they are not high quality.

6. There are different ways to 15%. Mix styles.

I want to get 15% a year from every holding. But there are different ways to achieve that and many roads to Rome. There are different combinations, with emphasis on growth, value, deep value, revaluation or hidden assets.

I think you will become a better investor over time if you look at investments from different angles. You will be more diversified, and the portfolio will be more robust if there are around 10 stocks, but 2–3 types of bets, and different ways to win (and lose). If I only did deep value or only growth, my portfolio could be more one-dimensional and I might become a bit narrow-minded (at least more than today).

I am mostly in deep value, but also GARP. It depends on what I find and, when it comes to growth, how sure I am about future growth. For GARP stocks like Karooooo, there are other risks, mostly stalling growth and lower future multiples.

Example: I have both Primeserv and Karooooo in the portfolio. Karooooo grows revenue and EPS by 15%–20%. Primeserv’s revenue grew by 2% last time, but EPS grew by double digits, the dividend was hiked by 72% and 50% of the market cap is in cash. They can co-exist, but they are different animals.

7. Think in probabilities and look at what has worked

What has influenced my investing style most in recent years is the report Liquidity as an Investment Style. Historically, value, small size and low liquidity have all been associated with higher returns. I think these are fairly timeless principles, even if index investing might create some distortions. I also try to think in probabilities rather than in terms of being 100% right or wrong. I regularly look at the median company in my portfolio and ask how a change would move the needle. If I invest in statistically attractive parts of the market, I should at least be improving my odds.

I also like high business predictability. That’s why I mostly own non-cyclical companies and market leaders. I believe in blueprints. Some companies give me a sense of “I know it when I see it” or “I’ve seen this before,” even if you should always remain sceptical.

Global investing is partly about finding similar but cheaper bets, or successful business models at an earlier stage. If ice cream works in Sweden, Greece and the US, why shouldn’t it work in the Philippines as well? If the serial-acquirer model works in Sweden and the UK, why not look at one trading at a 5–10x lower valuation with large UK exposure? Good companies and good investments often have common denominators. Investing is more universal and timeless than it first appears.

Examples: Compare RFM Corp with Unilever/Magnum Ice Cream, Ultrajaya with Danone, and Argent with Swedish serial acquirers. There is a blueprint to follow. It’s not a guaranteed way to print money, but if you see enough similarities without the same risks - go for it!

8. Own market leaders and think in three M’s

Almost every company I own is a market leader in some niche or category. Many are hidden champions, or unknown market leaders. I like boring, proven, predictable businesses. It’s a bit like “don’t compromise” as before, but this is about products, customers and moats: the quality of the business, not just the numbers.

When thinking about the future of every company I own or have on my watchlist, I think about the three M’s. How will they evolve? Market growth? Market share growth? Margin growth? A growing market is good, but matters little if the company can’t capture that growth. Scalability matters, but competition can erode margins. A moat is often crucial to protect them.

It’s wonderful to find companies that can benefit from all three M’s. And ultimately, those margins need to become cash. Management must allocate that cash sensibly and preferably strengthen both the market share and the moat. Overall, my point is that it’s not enough to just look at a company in isolation. Market growth and competition must also be considered.

9. Be a reluctant owner. Be sceptical.

I am a reluctant owner of every stock I own. Being aware of, and trying to counterbalance, confirmation bias is extremely important. My thinking is that I should own the stocks that I would have bought if I were “starting over” every day (otherwise it’s a sell). But it’s not that easy; that’s the theory. One difference is that I know the companies very well, but I might also be affected by confirmation bias.

I have spent a lot of time on corporate governance. I judge past behavior. I try not to be naive. I am aware that I am a tourist investor in certain countries, even if I have started to gain some local knowledge. Incentives are very important. I like founders, families and other owners with meaningful skin in the game, but ownership alone isn’t enough. I want a history of treating minority shareholders fairly. Strong control with the wrong incentives can be worse than no controlling owner at all.

The sceptical part is also about geopolitics. I don’t like, as a Westerner, having money in Hong Kong or China, for instance. Nothing might happen, but I take geopolitical risk very seriously, and if the world becomes more divided for whatever reason, I don’t want my money locked on the other side. Also, I won’t invest in any hybrid regime or authoritarian state. I don’t like these risks, because the downside in a bad scenario can be much more severe. And if it’s a country I wouldn’t visit, I won’t invest there.

10. Be a no-trarian, not a contrarian

I don’t think you should try to be a contrarian. Being contrarian means taking the other side of a widely held view and believing the consensus is wrong. That’s hard.

I’d rather be a no-trarian: look at companies where there is barely a consensus at all. Small, obscure and really cheap companies, preferably a bit illiquid. I don’t need to prove everyone else wrong if almost nobody has an opinion in the first place. At least that works best for me.

No-trarian investing tries to find situations where the consensus itself is weak or nonexistent. That’s a much easier game to try to win. So go where others don’t. Use the advantages you actually have. Demand both quality and cheapness. Improve the odds. And remain suspicious of yourself both before and after you’ve bought any stock. Know yourself. Know your limits. But keep improving them.

Opinions?

That’s my investing manifesto - at least for now.

What do you think? Which of these principles do you agree or disagree with? And, more interestingly, what are your own core investment beliefs?

And remember: find your own style. Don’t copy me. If anything, copy yourself.