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How to Create & Maintain a Large Share Portfolio

May 16, 2024

The power of this chart of the Nasdaq Composite index is amazing. In over half a century there have been four significant downturns. The rest of the time it marches steadily higher. Over the whole period, it is up over 3,000 times. Much of that is inflation, which also makes equities useful as an inflation hedge.

Let me show you an even stronger chart.

This chart is almost pure inflation, up 1,280 times in just 20 years. It would not look so good if measured in US$ instead of Argentine pesos. The huge advantage for the US when they have inflation is that the US dollar is the world’s reserve currency so dollars are always acceptable.

As it happens they have a right-wing, Gladstonian liberal economics firebrand in charge in Argentina now and he is taking a chainsaw to the country’s bloated bureaucracy, closing down whole departments. Is he a man after my own heart? We shall see but I am watching his progress with interest.

Just in passing, I should note that we have an important chart breakout on the UK stock market.

This is intriguing ahead of an expected Labour landslide in the next general election. Maybe Sir Flip-Flop Boring Starmer will nationalise large chunks of the FTSE 100 funding massive investments in what remains; who wants to own ‘British Rail’, after all, only a bunch of wild lefties indulging in a triumph of hope over experience.

My way of finding exciting new stocks is proving astonishingly productive. Most days I find at least one new classic 3G stock. Where possible I like to see groups of stocks doing well since this reinforces the idea that a strong following wind is driving the businesses forward.

Search for New Stocks Astonishingly Productive

Let me explain how I am using this discovery process to build my own portfolio. As I will discuss in a forthcoming webinar this is based on chart breakouts but not any old chart breakouts. On a strong day in the stock market, there will be loads of chart breakouts but the ones I like are special. That is why most days there may only be one or none which fits the bill.

I know what I am looking for – classic 3G with some magic and often something new. When I find such a stock it makes sense to buy some and that is what I do. So my portfolio is both constantly growing and based on new names, shares in companies which I had not come across before.

It also helps me paint a picture of where the stock market is going, which stocks are leading and which falling back. And that in turn leads to other insights. I will give some examples of exciting new stocks (new to me) below.

I don’t confine myself to new names. I am also on the watch for exciting familiar names breaking higher. Alphabet (GOOGL) would be an example of a much-recommended share which has again staged an impressive chart breakout. There are even signs that the US-quoted Chinese names, which have been in the doldrums for so long, may be about to enjoy a second wind.

One way in which I measure the performance of my portfolio is by the number of holdings. My target is to have 100 holdings. Like my Spotify list, these all have to be shares in companies with exciting prospects.

Growing the number of shares in the portfolio is not all I do. When shares behave well, produce good news or do something to reinforce the reasons for my initial selection I buy more so not only does the portfolio grow in size but individual share weightings also grow. Already my biggest shareholding is five times the size of my initial investment.

This is one of the reasons why my portfolio can appreciate in value so rapidly. I am like the ultimate momentum investor rebalancing my portfolio on almost a daily basis in a way similar to that in which QQQ3 is rebalanced daily. This, incidentally, makes me an incredible client for IG so I don’t need to feel so bad about leaving them with such a huge loss on ICZoom.

I rebalance on the downside too. I expect volatility but if a share consistently fails to perform I will move on. I don’t tolerate dead money.

Why I Love Leverage

One of the things which makes my strategy so aggressive is that I use leverage. So when my portfolio rises in value it creates the spare equity which can be used for further purchases. This becomes more important as the portfolio scales. In the early days, you will need cash to fund the portfolio but over time, if all goes well, it should become self-funding.

You don’t have to use leverage. I have a share account because some shares cannot be bought with leverage so I buy them in a share account. If you don’t feel comfortable with leverage you can buy all the shares in a share account but this will tie up cash and the gains and losses are less dramatic.

The shares I choose are intended to be great long-term performers so an unleveraged approach can still produce satisfying gains.

Individual Shares With Multi-Bagger Potential

This chart illustrates the importance of resistance levels, something about which I will write more in future alerts. These shares are testing an area of resistance between $35 and $40. If and when they break through that they will be off to the races. Meanwhile, there is no harm in buying a few now supported by a golden cross buy signal on the moving averages.

Swiss-Based On Holdings in the Running for World Domination

When Olivier took his first strides in the prototype of what would become the original On shoe, he felt something that he had never felt before. He seemed to be floating above the ground—it was like running on clouds. As a three-time world champion and six-time Ironman champion, Olivier had already run a total distance further than circumnavigating the globe, but never like this.
To validate his experience, Olivier invited his friends Caspar and David (and eventually Marc and Martin)—all of us amateur runners who had been battling with running injuries —to try his shoes. We were so impressed that we started to dream of bringing these shoes to runners around the world, and empowering them to have more fun on the run. Eleven years on, we believe that we are a favorite brand of many runners, worn by Olympians and world champions, and one of the fastest-growing sports companies.
On is an innovation company at heart.
We founded On based on an invention—a completely new cushioning technology, CloudTec—and have since created many more innovations and patents. On exists at the intersection of performance, design and impact. Changing the game with Swiss engineering, we focus our development efforts on three main areas: increasing performance for athletes and consumers, smarter design, and innovating a path to a more sustainable future where On’s growth is decoupled from resource depletion. Under the guidance of the founders, a highly talented team of biomechanics, engineers, materials experts and designers is constantly dreaming up new products. The result is technology that you can see and feel —no longer just in running shoes but also in performance-infused footwear, sportswear and accessories for the outdoors and for an active lifestyle—all amplified with new digital and physical experiences that we believe create value for our fans and give On an edge over the competition.
We live by the explorer spirit.
The breakthrough success of the first invention encouraged us to continue challenging the status quo. Today, we still believe that doing things differently will continue to give On an advantage. How? By taking a contrarian view, questioning, and debating—something we ask of our teams, no matter what function they are in. We also believe that before you can create something, you have to be able to dream it. So we allow our teams to dream big. We will continue to make calculated, courageous moves when venturing into the unknown, whether that is with new territories, new products, new materials, new business models or new consumers.

Letter from the 5 partners, On Holdings website

The force is with them.

Martin, Marc and I are in great spirits as we had a fantastic start to 2024. With net sales of CHF508m in the first quarter, On for the first time surpassed the $0.5bn mark in a single quarter.

We have continued to grow very substantially, just shy of 30pc on a constant currency basis and made great progress in every region, channel and category. What makes us especially proud is that we are achieving this growth at ever higher profitability. Our gross profit margin of close to 60pc in the first quarter underscores the power of our strategy to be the most premium global sports brand.

Caspar Coppetti, co-chairman and co-founder, On Holdings, Q1 2024, 14 May 2024

They have serious focus.

At On, everything starts with running. The lightning and rain strategy, winning on the racecourse with next level innovation, and gaining market share with everyday runners, continues to deliver for the On brand. Three weeks ago, Hellen Obiri won the marathon in Boston for the second time, the first woman in two decades to go back to back. She was running in On head to toe, including a groundbreaking new footwear technology, which On will reveal in Paris this summer.

Caspar Coppetti, co-chairman and co-founder, On Holdings, Q1 2024, 14 May 2024

The buzz from this company is incredible.

In Q1, we opened stores in Berlin and Portland, Oregon, which brings us to over 50 stores globally, 34 of which are owned and operated by On. Stores in Paris, Champs-Elysees, Milan and Austin, Texas will open in the coming months.

On the wholesale side of the business, we continue our disciplined strategy of being very intentional in choosing the right partners and adequate door footprint, with a clear focus on performance and young consumers.

On our road to becoming the number one running brand, we continue to win market share in run specialty stores. While Dick’s Sporting Goods provides us with access to high school and college athletes, who On resonates with particularly strongly. In Q1, we went live with Zalando in our EMEA (Europe, Middle East & Africa) market, an important digital marketplace in the region to connect the On brand with additional younger consumers.

Last, not least, we have also made strong progress on our apparel initiative, through resizing our entire collection to fit more customers in a consistent way. We have significantly increased our addressable market. Just a week ago, we introduced FKA Twigs as a new creative partner and the face of our upcoming training collection that will be launched in August.

Over the past weeks, we have also rolled out our first apparel collection in tennis and fans can now wear the same key looks as seen on Ben Shelton and Iga Swiatek. Particularly, apparel showed extremely strong demand in our D2C E-com and our own retail channels, with apparel contributing around 25pc of purchases at, for example, our Paris Saint-Germain store. You can tell that after such a strong start, we are very optimistic for the remainder of the year with many more highlights to come, not least being the Olympics in Paris.

Caspar Coppetti, co-chairman and co-founder, On Holdings, Q1 2024, 14 May 2024

These guys are on it with the whole digital thing.

The majority of growth has again come from the strength of our direct-to-consumer (D2C) channel, resulting in a significant increase over our D2C mix by almost 500 basis points from 32.6pc in Q1 2023 to 37.5pc in Q1 20 4. D2C net sales grew by 39pc versus the prior year period contributing CHF190.5m to our top line.

Martin Hoffmann, CFO and co-CEO, On Holdings, Q1 2024, 14 May 2024

Everywhere is on fire for these guys.

Our sales in Brazil, for example, doubled compared to Q1 2023. We also see incredible momentum in the Asia Pacific region, which for the first time in our history made up for more than 10pc of our overall business. Growth of 68.6pc compared to the prior year period led to net sales of CHF52.4m in Q1.

On a constant currency basis, growth was at an amazing 90.7pc year-over-year. With the unprecedented demand levels across the region, it is difficult to call out a specific highlight. But if I had to pick one, it would be the acceleration we are seeing in Japan. If you’ve been to Tokyo recently and visited our store, you would know what we are talking about. The store alone has more than doubled net sales year-over-year, a true testament to that brand heat in the region and the success of our own retail execution.

Martin Hoffmann, CFO and co-CEO, On Holdings, Q1 2024, 14 May 2024

Regarding our business and financial outlook, we are optimistic and excited about our momentum and pipeline and what is in front of us for the rest of the year. At the same time, we remain prudent in the way we plan for the future, always taking into account the dynamic macroeconomic and consumer environment.

The continued high demand for the On brand across the globe and the strong order book for the second half of the year, however, give us a lot of confidence to reiterate our full year constant currency net sales growth rate expectation of at least 30pc.

Martin Hoffmann, CFO and co-CEO, On Holdings, Q1 2024, 14 May 2024

It is only now I realise that my wife and I both own On running shoes and used them for years. Now I own the shares too.

Modine Shifts Towards Faster-Growing, Higher-Margin Businesses

I’m pleased to report another successful quarter highlighted by very strong margin expansion and earnings growth. Our results this quarter further demonstrate our ability to improve our earnings profile as we shift towards faster-growing and higher-margin businesses. Despite all of our early success, I continue to believe that we are in the early stages of our transformation and are just beginning to realize the opportunities we’ve identified in each of our core market verticals. In many cases, we are recommitting our focus on operational excellence, adding additional resources for lean manufacturing and supply chain to improve productivity, quality, and cost realization. Coupled with the success of our commercial team, this approach, enhanced by 80/20* will help to support our ongoing progress towards our goals.

*The Pareto Principle is very simple, yet very important. It is named after Italian economist Vilfredo Pareto, who, in 1906, found that 80pc of the land in Italy was owned by 20pc of the population. What was most important about Pareto’s finding was that this 80/20 distribution occurs extremely frequently. For example, in general, 20pc of your customers represent 80pc of your sales. And 20pc of your time produces 80pc of your results. And so on.

Neil Brinker, CEO, Modine Manufacturing, Q 3 2024, 31 January 2024

Modine is an acquisitive company.

Earlier this month, we shared some very exciting news about the purchase of the IP and select assets of TMGcore, a specialist in single-and two-phase liquid immersion cooling technology. This expands our global data centre product offering, allowing us to support the future requirements of our customers as they manage the demands of high-density computing. Our investment in immersion cooling technology, along with the internal development of a cooling distribution unit, or CDU, allows us to expand our product portfolio to address technology gaps while accelerating our ability to be prepared for the technology needs of the future.
Further, this new technology will complement our existing high-performance products that maintain the temperature in the hall and add additional opportunities for the development and integration of a complete hybrid data center cooling system.

Neil Brinker, CEO, Modine Manufacturing, Q 3 2024, 31 January 2024

Modine looks like a management story with Neil Brinker coming in as CEO in December 2020. Since January 2022 the shares have been rocketing higher from less than $8 to over $100.

Another fantastic chart, which has broken sharply higher in the last two years and has been climbing strongly since 2012.

IES designs and installs integrated electrical and technology systems and provides infrastructure products and services to a variety of end markets, including data centres, residential housing, and commercial and industrial facilities. Our more than 8,000 employees serve clients in the United States.

IES website

IES Improving Margins Across the Board

The latest quarterly results were good.

“Our focus on improving procurement and other processes has contributed to improved margins in all of our businesses, particularly in our Infrastructure Solutions and Commercial & Industrial segments. At the same time, our investments in upgrading and expanding capacity in our Infrastructure Solutions business have allowed us to materially increase capacity while adding new product offerings. Our Commercial & Industrial segment will continue to pursue margin expansion through improved contract terms, material purchasing, and labor management processes while managing contract risk. As our Residential segment nears the completion of the reorganisation started a year ago, it now will refocus efforts on profitable growth, including through the organic expansion of the HVAC (heating, ventilation and air-conditioning) and plumbing trades.”

IES Holdings, Q2 2024, 3 May 2024

Just how good we can see from the numbers.

  • Revenue of $706m for the second quarter of fiscal 2024, an increase of 24pc compared with $569m for the same quarter of fiscal 2023
  • Operating income of $77.7m for the second quarter of fiscal 2024, an increase of 146pc compared with $31.6m for the same quarter of fiscal 2023

The company had this to say about the strong performance.

“We are pleased with our financial performance in the second quarter of fiscal 2024 as the investments we have made to support the organic growth of our businesses positioned us to take advantage of continued strength across our end markets. Despite elevated interest rates, demand for residential housing has remained firm, which benefited our Residential segment, while strength in the data centre market positively impacted our Communications, Infrastructure Solutions, and Commercial & Industrial segments. Our margins continued to benefit from process improvements, operating leverage from our increased scale and strong project execution across all four segments. We expect continued strong performance across our four segments for the remainder of this fiscal year, while continuing to monitor our housing markets for any signs of slowing activity.

“Our strong financial position has enabled us to pursue both organic growth opportunities and strategic acquisitions. On April 1, 2024, we completed the acquisition of Greiner Industries, based in Mount Joy, Pennsylvania, which both adds new product offerings and expands capacity for our existing Infrastructure Solutions business. Further, during the second quarter of fiscal 2024, we leased a fabrication facility in Rock Hill, South Carolina to provide additional capacity to support our Infrastructure Solutions segment. Together, these actions reflect our strategy of expanding the geographic footprint of our custom power solutions products to better serve our customers.”

Jeff Gendell, Chairman and Chief Executive Officer, IES Holdings, Q2 2024, 3 May 2024.

The company is a story of strong management and excellent execution.

Our focus on improving procurement and other processes has contributed to improved margins in all of our businesses, particularly in our Infrastructure Solutions and Commercial & Industrial segments. At the same time, our investments in upgrading and expanding capacity in our Infrastructure Solutions business have allowed us to materially increase capacity while adding new product offerings. Our Commercial & Industrial segment will continue to pursue margin expansion through improved contract terms, material purchasing, and labor management processes while managing contract risk. As our Residential segment nears the completion of the reorganization started a year ago, it now will refocus efforts on profitable growth, including through the organic expansion of the HVAC and plumbing trades.”

Matt Simmons, chief operating officer, IES Holdings, Q2 2024, 3 May 2024.

CEO Jeff Gendell has been CEO since 1 October 2020 and positively impacted the business. He is a high-powered guy for a firm which began as a group of community-based electrical contractors.

Mr. Gendell is the Chief Executive Officer of the Company, a role he has held since October 1, 2020. Previously, Mr. Gendell served as Interim Chief Executive Officer from July 31, 2020 to September 30, 2020. Mr. Gendell has also served as a director and as Chairman of the Board since November 2016. He is the founder and managing member of Tontine Associates, L.L.C., which, together with its affiliates (collectively, “Tontine”), is a private investment management firm and the majority shareholder of the Company. Mr. Gendell formed Tontine in 1995 and manages all of the investment decisions at the firm, where he has built an extensive record in public and private investing across industries. Prior to forming Tontine, Mr. Gendell held senior investment management positions at several other private investment firms, including Odyssey Partners, L.P., and began his career in investment banking over 35 years ago at Smith Barney, Harris Upham & Co. where he was involved in capital markets, corporate finance and M&A activity. He holds a Bachelor’s degree from Duke University and a Masters of Business Administration from the Wharton School of the University of Pennsylvania.

IES website

As well as having a fabulous chart Watsco is a little like IES as a business.

Watsco, Inc. is the largest distributor of air conditioning, heating and refrigeration products in the Americas.

Watsco, website

Watsco Using Acquisitions to Consolidate a Fragmented Industry

Our industry remains highly fragmented, and we will continue to pursue other great companies to grow scale in our $64bn North American market. Watsco’s technology advantage, industry-leading scale, equity culture and the strength of our balance sheet are all great reasons to join the Watsco family.

Our focus remains on the long term. Our balance sheet is strong, and we stand ready to invest in the right growth opportunity. We have an immense technology advantage, and we are investing to grow that advantage. Watsco’s broad array of products and brands is also a competitive advantage that allows us to serve contractors in most any environment. And we are also fortunate to operate in an industry that benefits from regulation changes and fundamental catalysts that will play out in the years ahead.

Al Nahmad, Watsco, Q1 2024, 24 April 2024

Why market leadership matters.

The performance over any reasonable timescale is stunning.

Strategy – Take Opening Positions in All These Stocks

The basic strategy is to make equal investments in all these stocks as part of a rapidly growing portfolio. If you do it for cash it will absorb a good amount of money but remember that you are creating a superb portfolio suitable for all investors including widows and orphans.

If you want to be more aggressive buy with leverage which is a whole other ball game and, of course, what I do. I do pump cash into my account but as the portfolio grows in value, assuming the stocks do well, which is likely if, as now, we are in a bull market, purchases can be funded by the spare equity created by an appreciating portfolio.

It is amazing how much can be achieved with a surprisingly modest starting capital and if, like me, you do it all in a spread betting account, then all gains are tax-free.

Just to give you the flavour, I began this 100-share-target portfolio strategy just weeks ago, when I had recovered from the ICZoom shock, and already I have 25 shares in my portfolio. My gains would already be in capital gains tax territory if I were not spread betting. This is a powerful way of generating wealth against the background of a bull market.

Think of it, not as Investing but as Playing Poker

I believe in the US especially many professional poker players make a good living from what appears to be a chancy activity. I increasingly regard myself as the equivalent of those poker players but my game is the stock market. I am in this game to make money. Even with some spectacular disasters which I hope not to repeat I am well up this year and it is still only May.

My daughter groans when I make these analogies but you don’t have to do what I do. You can build an old-school unleveraged portfolio which should serve you very well. Do what I do if you want a thrill ride.

Share Recommendations

Alphabet. GOOGL Buy @ $174

On Holding AG ONON. Buy @ $36.40

Modine Manufacturing MOD. Buy @ $106.50

IES Holdings. IESC. Buy @ $168

Watsco. WSO. Buy @ $473

Wisdomtree Nasdaq 3X Daily Rebalanced. QQQ3. Buy @ $193.59

The trick with QQQ3 is to keep the faith, which I don’t always do. The chart above is plotted with 6M candlesticks. On a 12M candlestick chart, the shares have just given a buy signal so I have bought a few to keep in touch.

There are no certainties in stock markets but there are theories, such as GenAI triggering a global productivity revolution, which could support a tsunami-powered bull market. If that were to occur these shares would explode.

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