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A portfolio for the 21st century

April 26, 2020

The chart above is of the US Nasdaq Composite index. The Nasdaq was founded in 1971 as the world’s first electronic exchange and attracted many exciting companies including technology businesses to list there. It has a current market value around $10 trillion making it the world’s second largest exchange by value after the New York Stock Exchange. The index includes all the shares listed on the Nasdaq, which means it has around 3,300 constituents. It started at 100 in 1971 and is currently 8,634.51. At the February peak it was up nearly 100-fold on its starting level.

To avoid confusion there is a company called Nasdaq Inc, which owns the exchange, operates as a business and is itself quoted on the Nasdaq. It is a great business with an inspirational female CEO, Adena Friedman, and is listed below. Not least of the reasons why it is a good business is the strong performance of the shares on the exchange and the related indices. There are many IPOs, many other companies raising risk capital and many investments linked to the various indices measuring the performance of the Nasdaq. All these activities generate revenue for Nasdaq Inc..

The Nasdaq 100, is based on the 100 largest stocks in the Nasdaq Composite index but with almost no financial shares making it even more technology weighted. It was launched in 1985 with a starting value of 125 and is currently 8,786.60, which means it has overtaken the Nasdaq Composite. It actually accounts for 90pc of the performance of the more comprehensive index so the smaller caps in the latter act as a drag.

The market weighting has a dramatic effect. Some indices are equal weighted so every stock counts for the same but this is not true of the Nasdaq 100. The eight largest companies account for 50.228pc of the index. The only one of these eight not in the QV for Shares portfolio is Intel. The top 20 companies account for 69.7pc. If we treat the two classes of Alphabet stocks that are counted separately in the list as one share then 10 of the top 19 stocks are in the QV for Shares portfolio.

In a sister publication, QV for ETFs, I keep recommending shares in QQQ, an ETF (exchange traded fund), which tracks the performance of the Nasdaq 100. The reason is the performance of the index, which is up 70-fold in 35 years. I also suggest that investors could do worse than invest a regular sum in QQQ every month. It is one of the closest things in investing to a sure-fire, can’t lose strategy.Warren Buffett suggests the same for SPY, an ETF, which tracks the S&P 500 index. It is not a bad idea. It is a way of investing in America and the index is up 4.2 times from the 2009 low point. but QQQ, the Nasdaq 100 tracker, is up 8.5 times, so regular purchases of that fund look an even better idea.

Last but not least in the focus on technology is the Nasdaq 100 Technology index, which only consists of technology shares and has done even better again. It is up 10 times since the 2009 low point.

I am not only impressed by the past performance of the Nasdaq 100 index but expect that strong performance to continue for the foreseeable future. The 70-fold rise since inception is more than double the performance of the Nasdaq Composite index, which is up 34-fold over the same period. Since 1989, the FTSE 100 is up 3.3 times.These statistics make the case for why US shares have become much more appealing investments than UK or European ones and why the QV for Shares portfolio is dominated by US-quoted shares.

It works for me because I started following US shares as a fund manager in the early 1970s and have kept following US markets ever since. Subscribers to my other publications often tell me they want to focus on UK shares and wish I would tip more of them. I tell them I am market driven and go where the action is and that takes me to the US, its stock markets and its fabulous selection of world-beating growth shares. Anyone who wants to build a great 21st century portfolio needs to do the same.

Given my views on the importance of the technology revolution and the fact that the beating heart of this revolution is located somewhere in California you can also see why I expect the Nasdaq 100 to continue to outperform, perhaps even more dramatically in future. Not only does the US dominate with its high tech behemoths like Apple, Microsoft, Amazon, Alphabet, Netflix, Nvidia, Adobe Systems and Tesla (all QV stocks) but the second and third waves of exciting technology companies growing even faster than these giants (many are listed below) are mostly American too.

As I said in a recent headline for my Chart Breakout publication there are three key sectors driving the US bull market, technology, technology and technology. All the earnings growth of the corporate sector since 2009 has come from technology shares. I personally don’t own a single share, which is not in the list below and which cannot be described as a technology share.

Quentinvest for Shares has now been going for long enough to have a considerable list of shares that have been recommended. This is enabling me to adopt more of a portfolio approach. The list below, similar to the methodology used in creating the very similar list that featured in the 14 April issue, is of shares in the list plus some new names, which I believe are 3G (great story, great growth, great chart) and which have that special bit of magic that I look for in all stocks I recommend. I would love to own all of them and it you are putting together a portfolio I think these shares would make great constituents. I would hope they will perform at least as well as the Nasdaq 100 and hopefully better.

Incidentally I am never influenced by considerations of value. I don’t ever want to buy the world’s cheapest share but always shares in the world’s most exciting companies.

I would caution that not being in the list below doesn’t mean I am saying the stock should be sold. There are stocks like Liontrust Investment Management, which is an excellent business but I like to see the share price doing well and they are a bit flat at the moment. There are also stocks in the list of past recommendations (not the list below) that have died a death like Access, NMC Health, Inogen, WeightWatchers and others. It is usually obvious when a business has serious problems and should be sold. I am a fair weather friend. If a stock is obviously struggling and no longer 3G I move on.

I believe that building QV for Shares around a portfolio approach will be more helpful for subscribers than just throwing share tips at you, although I may well do that as well in future issues. What you need from me are the names of the shares I like. Once identified it is obvious that they are exciting businesses so there is no need for a huge amount of research. I would go further and say that if it is not obvious they probably are not exciting businesses.

It is the big picture that counts. Apple shares have kept growing so well despite the huge size of the business partly because the iPhones division is being supported by strong growth in wearables (things like Apple watches and AirPods) and strong growth in services (things like iTunes and the App Store). Big as it already is there are analysts who see the path for Apple to become much bigger and similar arguments can be made for all the stocks listed below. They are often big but whatever size they are now it is easy to see them becoming dramatically bigger in coming decades and it’s the long view that helps you win as an investor in volatile stock markets.

You may find it surprising but i am being influenced in my approach by a lady called Marie Kondo. She has what you could almost call a mania for decluttering. She says you should only keep things which give you a spark of joy. She applies this to everything – your home, your office, your desk, your books, your desktop and she is right.

I have a huge master list of all the shares I have recommended in all my publications over many years. It had become huge and full of dead wood. Not any more. A few days ago I Kondod the list, yes, her name has become a verb and now it is much trimmer, much more exciting and literally only includes shares in companies that give me a spark of joy. Thank you Marie; you have done me a huge favour.

The list below is the result of applying a similar approach to the Quentinvest list of recommended shares. The ones listed below are the ones that give me that spark of joy. As I find more I will add them to the list; that’s why I think it forms a good basis for anyone’s portfolio. Indeed, I urge you to look at your portfolio and get rid of any share that does not give you a spark of joy.

Abbott Laboratories/ ABBT @ $94.06 (new entry)
Activision/ ATVI @ $66.65
Adobe/ ADBE @ $344.1
Advanced Micro Devices/ AMD @ $56.18
Alphabet/ GOOGL @ $1276.6
Amazon/ AMZN @ $2,410.22
Apple/ AAPL @ $282.97
Atlassian/ TEAM @ $152.32
Avalara/ AVLR @ $85.11
Beigene/ BGNE @ $160.20 BILL @ $48.74
Boohoo Group/ BOO @ $318.4
Cadence Design Systems/ CDNS @ $80.52
Carvana/ CVNA @ $92.24
Cloudflare/ NET @ $23.28 (new entry)
Coupa Software/ COUP @ $163.27
Crowdstrike Holdings/ CRWD @ $72
Docusign/ DOCU @ $105.07
Domino’s Pizza Inc./ DPZ @ $367.29
Epam Systems/ EPAM @ $203.03
Etsy Inc./ ETSY @ $66.19
Fisher & Paykel Healthcare/ FPH @ A$26.32
Five9/ FIVN @ $97.29
Frontier Developments/ FDEV @ 1370p
Games Workshop/ GAW @ 5165p
GoDaddy/ GDDY @ $67.39
Halma/ HLMA @ 2079p
HelloFresh Group/ HFG @ €33.76
Hermes/ RMS @ €674.4
Intuit/ INTU @ $263.66
Intuitive Surgical/ ISRG @ $514.93
London Stock Exchange/ LSE @ 7440p
Lululemon Athletica/ LULU @ $214.55
LVMH/ LVMH @ €341.8
MercadoLibre/ MELI @ $571.27
Microsoft/ MSFT @ $174.55
Nasdaq Inc./ NDAQ @ $105.63
Naspers/ NPN @ ZAR2904.00 (£122)
Netflix/ NFLX @ $424.99
Nvidia/ NVDA @ $289.59
Okta/ OKTA @ $155.35
Paycom Software/ PAYC @ $211.80
Paypal Holdings/ PYPL @ $120.18
Pinduoduo/ PDD @ $49.57 (new entry)
Plus500/ PLUS @ 1254p
Polar Capital Technology/ PCT @ 1690p (new entry)
Repligen/ RGEN @ $116.43 (new entry)
Ringcentral/ RNG @ $238.73 (new entry)
S&P Global Inc/ SPGI @ $283.94 (new entry)
ServiceNow/ NOW @ $302.94
Shopify/ SHOP @ $643.19
Smartsheet/ SMAR @ $50.99
Spirax-Sarco Engineering/ SPX @ 8614p
Splunk/ SPLK @ $128.63
Square Inc/ SQ @ $62.01
Team17 Group/ TM17 @ 570p (new entry)
Tencent/ 700 @ HK$406.4 (US$52.4)
Tesla/ TSLA @ $725.15
The Trade Desk/ TTD @ $256.63
Veeva Systems/ VEEV @ $187.63
Xero/ XRO @ A$76.13
Yougov/ YOU @ 660p
Zoom Video Communications/ ZOOM @ $158.8
Zscaler/ ZS @ $67.50

All the shares listed above have two things in common. They are all 3G (great story, great growth, great chart) and I like them. If I don’t already own them I would like to have them in my portfolio. As many of you know I am an incredibly aggressive investor. I buy on IG and I typically operate with maximum leverage so I get margin calls the whole time, which I frequently disregard. Nevertheless I am frequently forced to sell and when that happens I typically liquidate the entire portfolio and start again, often buying back into shares I have just sold. I make money by doing this because my stock selections are good ones but not nearly as much as I would do if I didn’t have to keep buying and selling.

I want to change but something in my temperament makes it very difficult. Hopefully my subscribers don’t have my problem. I seem to get bored with investing unless I am going absolutely flat out even though I know it is not the ideal strategy.

If you showed me your portfolio and it contained all the names listed above my reaction would be – wow! I would expect you to do very well, in the medium and long term and probably in the short term as well. As noted earlier, I don’t hold any shares that are not listed above.

At the moment I don’t hold any Tesla although I regard it as an incredibly exciting business with one of the greatest share charts I have ever seen, which is why I am showing it to you again here. If these shares went to $10,000 one day I would look at this chart and would not be surprised. Well, I would be surprised because that would value the business at $1.85 trillion but given the potential for Tesla to dominate the TaaS (transport as a service on a subscription model) business that may emerge in the future anything is possible. Elon Musk is almost as scary as he is exciting, like a loose cannon who might do anything but he explodes with energy and is surely one of the geniuses of our times. If we can dump fossil fuel cars and frankly I can’r wait, London is wondrous without them (well, down to very few) he will be one of the reasons, even though his business progress often feels like a series of episodes of ‘The Perils of Pauline’ (a famous serialisation from the days of silent movies) .

There are eight new entries in the list. Abbott Laboratories is one of the unsung heroes of Wall Street. Since 1968, including the value of Abbvie, a pharmaceutical business spun off to Abbott labs’ shareholders on a 1:1 basis, the shares are up 1,110 times. Even that understates the total return to shareholders over the years because Abbott Labs pays dividends. Among current drivers of share price performance the company has an antibody test for Covid-19. Abbvie itself is in the QV portfolio but has proved a consistent disappointment.

Cloudflare is a recent issue, which is part of the enterprise software sector, which has been the best performing sector in global stock markets generally and US stock markets particularly, since roughly January 2017. It is full of companies, which are using the infrastructure of cloud computing and a subscription as a service (SaaS) approach to disrupt traditional ways of doing things. They are called enterprise software companies because their customers are other companies and governments rather than Joe Public. Cloudflare uses the cloud to deliver cyber security solutions to its customers and is growing at an explosive rate. Q4 2019 sales grew 51pc.

Pinduoduo is a bit like Tesla, scary but exciting. It is a Chinese e-commerce business that is growing at an insane rate. Its 40 year old founder, Colin Huang, is already worth $25bn and has joined the pantheon of Chinese high tech super stars like Alibaba’s Jack Ma, to whom he could be seen as a rival. Pinduoduo mixes e-commerce and social media so customers interact with other customers to buy at best prices. The more customers you can persuade to join you in whatever you are buying the closer the price comes to zero. Latest Q4 2019 results showed the company had 482m active users and GMV (gross merchandise volume) transacted on the site grew 113pc to over RMB 1 trillion (US$140bn). Chinese e-commerce stocks can crash and burn but Colin Huang looks like a man to watch. This is what he said about Pinduoduo in his 2018 shareholder’s letter:- “Pinduoduo is not a conventional company. We founded Pinduoduo when the China market accepted the status quo of the existing e-commerce landscape and thought its formative phase had come to an end. Within three years, Pinduoduo has attracted over 300m active buyers and over 1m merchants through a new shopping format and experience. This exponential growth shows the unlimited potential of our platform. As our three-year-old platform is still burgeoning, we know we face many obvious challenges and uncertainties ahead. This explains why are we bringing Pinduoduo into the ebbs and flows of the capital markets so soon?”

Polar Capital Technology Trust was recently featured in Quentinvest for ETFs, even though it is an actively managed investment trust rather than a passive exchange traded fund. It is invested in global technology shares, most of them located in the USA. It has consistently outperfomed the Nasdaq 100, which is the entire reason for buying the shares. The managers are clearly focussed on the right sector and very good at what they do.

Repligen is an exciting bioservices company. It even sounds like something out of the film Bladerunner, which I am going to watch soon since I am having a bit of a Harrison Ford season. This is their description of what they do: – “Repligen is a bioprocessing-focused life sciences company bringing expertise and innovation to our customers since 1981. We are inspiring advances in bioprocessing through the development and commercialisation of high-value products and flexible solutions that address critical steps in the production of biologic drugs.” I love it because having read it I still have only the vaguest idea of what they actually do, which is almost my definition of a sexy high tech business. (Warren Buffett says you should only buy shares in businesses you understand. I say only half joking that I believe the opposite. If I can understand what they do I shouldn’t buy the shares because they are not sufficiently high tech.) Whatever it is they do, it is delivering results. Profits are forecast to grow from $7.25m for calendar 2017 to $81.8m for 2022. CEO, Toby Hunt, had this to say about the 2019 results: All three franchises accelerated in 2019 as we benefited from customers scaling up on mAb (monoclonal antibodies) processes and new customers implementing our technologies, especially in the area of gene therapy, where we now have greater than 50 significant customers today and just as many smaller customers.”

I am baffled as to why RingCentral is not already in the QV portfolio. Somehow I missed it. I even bought the shares some time ago but still failed to alert them for QV. It is a 3G classic and part of the enterprise software sector. This is what they do:- “RingCentral is a leading provider of global enterprise cloud communications, collaboration, and contact centre solutions. More flexible and cost-effective than legacy on-premises systems, the RingCentral platform empowers employees to work better together, from any location, on any device, and via any mode to serve customers, improving business efficiency and customer satisfaction. The company provides unified voice, video meetings, team messaging, digital customer engagement, and integrated contact centre solutions for enterprises globally.” No surprise that they are seen as positive beneficiaries of the stay-home economy. In 2019 the company “surpassed its long-term goal of $1bn annual revenue run rate ahead of schedule. This is a significant achievement for RingCentral,which [they claim] continues to be the largest and fastest growing pure-play UCaaS (unified communications as a service) vendor.

S&P Global Inc., is another in the same mould as existing QV favourites, London Stock Exchange, MSCI and Nasdaq Inc. These are all companies involved in bringing technology and data analytics to bear on financial markets, capital raising and investment management. I believe they all have an outstanding future. S&P Global, famous for such familiar indices as the S&P 500, is arguably the pick of the bunch. The shares are up from around $17 in 2009 to $283 currently. The following quote gives the flavour of what is going on at the company:- “As we continue to build for the future, we made substantial progress on our 2019 growth investments. In China, we launched a rating agency and started a market intelligence franchise. Across the company, we substantially expanded our ESG (environmental, social and governmental) activities and applied automation and AI (artificial intelligence). We added unique benchmarks, data and analytics with acquisitions of 451 research live rice index, enter data, and the pending acquisition of branch associates. We also bolstered our ESG capabilities with the acquisition of the ESG Rating Business, from RobecoSAM. With the progress achieved in 2019, we’re well positioned to advance our strategic initiatives and financial targets in 2020.”

Team17 “is a leading video games label and creative partner for independent (“indie”) developers. The group supports both owned first party IP (intellectual property) and third party IP – through partnering with indie developers globally – in the development and publishing of games across multiple platforms typically for a fixed revenue share. The group focuses on premium, rather than free to play games.” Video games businesses generally are seeing a massive boost from the stay home economy, which has energised the whole sector. The group operates in a way, which generates high quality recurring revenue:-“90pc of the group’s revenues are generated from digital sales, which facilitates a high level of control over pricing and game lifecycle management, with minimal additional development costs post launch. Team17 has released over 100 premium games during its history, including the highly successful Worms franchise, which has continued to generate approximately £5m in annual revenue between 2009 and 2017. Due to the group’s diverse portfolio of owned and third party IP, coupled with its approach to lifecycle management, a substantial portion of revenue has been generated from back catalogue sales (revenue from titles released in previous years accounted for 52pc of 2018 revenue). In addition to this a material proportion of new releases are new titles from existing franchises (follow-on titles from existing franchises with proven audiences).” The business is clearly in great shape:-“Team17 is in great health and strategically well positioned with our portfolio to drive growth in the year ahead. The board remains confident in continuing to deliver shareholder value in 2020 and well beyond.”

Just as a recap below is what I said when I recommended 58 shares to buy in the 14 April issue. The 57 left out Amazon, which was recommended separately so didn’t feature in the list.

“There are 57 stocks in the list. I am not saying it is comprehensive but it is not far from being a Quentinvest Live list of what I think would be a good portfolio based on existing QV selections and my whole 3G approach.
Why now? I think we are starting to see the light at the end of the tunnel for Covid-19 and its effect on the global economy. There is a huge amount of fiscal and monetary stimulus in the system, which is going to have its effect as the world returns to normal. Great businesses are still great businesses but now, in many cases, you can buy the shares considerably more cheaply than they were a couple of months ago.
Yes, momentarily many of them were even cheaper in the initial stock market panic but at that stage there was no light at the end of the tunnel, only the lights of an oncoming train. I think the stock market has hit bottom and will now back and fill its way higher until the pundits are able to tell us that the secular bull market has fully resumed.
Subscribers to QV for ETFs will know that I have done something similar there, recommending buying virtually every ETF in the portfolio to take advantage of what I believe will come to be seen as a temporary setback to share prices, a temporary interruption to a massive, long-running bull market focussed on America and its leadership in the technology revolution.
Some companies have seen demand disappear completely, cruise lines, airlines, cinemas and the like and that is hard to deal with but the businesses mentioned above don’t have problems remotely on that scale.
If I am totally wrong, the pandemic is not coming under control and the global economy goes into a sustained deep freeze there could be another down leg to the bear market and that would be tough. Even then though it is great businesses like those above, which will come through it best and recover fastest.”

I am also making a definite shift to a portfolio approach. The idea is to help people who want to use Quentinvest either to manage their portfolio or at least to manage a portfolio based on QV. It is what I would like to do myself albeit there are technical reasons why I cannot do it as effectively as I would like.

I was thinking of calling this issue ‘snakes and ladders’ to reflect the way the stock market has been behaving since 2009, especially on Wall Street. It forges steadily higher for many months at a time, climbing the ladder, then crashes, slipping down a snake. I know subscribers find these snakes hard to deal with, me too; but all the experience since 2009 suggests that the best strategy is to weather them. Decisions on individual stocks should be taken on the basis of what is happening at the business.

As can be seen by looking at the long-term chart of the Nasdaq Composite index time and again even setbacks which feel scary at the time just become yet another in a long procession of buying opportunities. Always remember that stock markets can only fall at all because investors are scared they are going to fall much further. The bears keep telling us we ain’t seen nothing yet just as they are saying now but they are almost always wrong. The key to success is to hold your nerve, focus on buying and holding the right stocks and not being loyal to shares that don’t deserve your loyalty. Believe in the good ones, dump the duds.

I imagine there are people and institutions in this country that still hold shares in businesses like Marks & Spencer and Barclays. They should have been sold decades ago. Times change, portfolios need to be managed and built around the stars of the future, not the familiar names from the past; that’s why when you look down my list, especially if you are new to Quentinvest, there may be many companies with which you are not familiar. Those are just the stocks you should be buying because 10 years from now they will be household names.

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