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To obtain better than average investment results over the long pull requires a policy of selection or operation possessing a twofold merit: 1) it must meet objective or rational tests of underlying soundness; and 2) it must be different from the policy followed by most investors or speculators
Benjamin Graham, The Intelligent Investor
North Tech Capital’s investment approach draws heavily from the father of value investing, Benjamin Graham.
He warns investors that in order to be successful (better than average), you must avoid mainstream investment approaches.
Being better than average may not seem like a high ideal, but according to the Financial Times, the average retail investor loses money in financial markets.
Following the herd is sub-optimal.
Even central bankers are guilty of herd-following mediocracy as noted by Dario Perkins:
independent monetary policy is where everybody waits for the Fed to give them permission to cut rates
Graham emphasizes that the achievement of above-average investment results over the long haul requires an alternative approach.
In today’s post, we will discuss how you can achieve superior investment results without increased risk by exploring how North Tech Capital employs a unique investment approach combined with skilful portfolio management.
The safety of large-cap stocks
“If we assume that it is the habit of the market to overvalue common stocks which have been showing excellent growth or are glamorous for some other reason, it is logical to expect that it will undervalue—relatively, at least—companies that are out of favor because of unsatisfactory developments of a temporary nature.”
Benjamin Graham, The Intelligent Investor
In the section “The Relatively Unpopular Large Company,” from his book ‘The Intelligent Investor’, Graham outlines an investment strategy for achieving above-average results from investing in large-cap stocks going through a period of temporary unpopularity.
Graham’s central thesis is that large-caps have the resources and intellectual capital to navigate through adversity and recover to a satisfactory earnings base.
He also points out that financial markets respond swiftly to improvements in large-caps, rather than small-caps because the smaller companies carry a higher risk of permanent value loss.
Investing in large caps is safer.
North Tech Capital: a focus on tech
If large-caps are better designed to bring about investment success, specialisation in tech stocks amplifies it.
Technological innovation is the key driver of global economic growth, a trend gathering momentum every week. It makes sense to concentrate on stocks in the global technological ecosystem.
Your odds of achieving above-average investing results increase when you focus on global tech because:
- It becomes easier to develop deep domain knowledge and expertise in a narrow field
- you refrain from spreading yourself thinly across all of the global financial markets
- the NASDAQ 100 (tech) has outperformed the S&P 500 (the market) by a large margin
Global technological large-caps are our bread and butter here at North Tech Capital and we will not have it any other way.
Keep an eye out in the mainstream financial press also. Journalists can obsess about the products and services of tech businesses as well as the private lives and social media accounts of their CEO’s which makes the job of fundamental research straightforward.
Market-moving news in the small-cap space is not so easily ready to come by.
Top tip: never underestimate how the conduct of CEO’s on social media can influence share prices.
Tractors, television sets, the telephone, the mobile phone, social media companies, search engines, chip makers, data centres, PC manufacturers, artificial intelligence companies – they have all revolutionised the way we live and work.
Right now artificial intelligence is centre-stage.
Venture capitalists who invest at the embryonic stages of tech businesses seem to have a never-ending supply of capital and continue to invest in start-ups, especially teams that incorporate AI is a meaningful way.
Artificial intelligence represents 45% of all US venture capital deal-making year to date (2024) which benefits large-cap tech businesses according to Blackrock:
…the high costs associated with gathering large datasets and training sophisticated models pose challenges for startups with limited capital. As a result, technology mega-caps are leading in AI development, driving their valuations and public market performance even higher.
Portfolio management – the secret ingredient
If you scour the internet, you’ll soon learn that portfolio management can mean:
- overseeing a group of investments to meet an investor’s financial goals and risk tolerance (Investopedia)
- the process of creating and managing your investment account (Vanguard)
- managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios include one or more financial instruments. (FCA)
- devising and implementing investment strategies and processes to meet client goals and constraints, construct and manage portfolios, make decisions on what and when to buy and sell investments (CFA Institute)
That’s good copy to satisfy the legal department.
Here’s a more accessible definition of portfolio management:
Portfolio management is simply the stocks you buy, how many you buy, and how much of each stock you buy, to mitigate, as far as possible, potential declines in portfolio value.
In other words, be careful what you buy because you could end up losing money.
From my experience, global economic shocks are the most critical aspect of portfolio management.
I credit Jeff Cox’s article from CNBC in December 2021 for prompting me to sell a large part of my portfolio and hold a large cash position throughout 2022.
According to Slickcharts, the S&P 500 declined 18.11% in 2022.
The alarming nature of CNBC’s news headline had nothing to do with tech stocks per se, but everything to do with the state of the global economy and the impact it would have on the value of ALL stocks, not just large-cap tech.
A carefully cultivated news inflow will help you spot these potentially seismic events that influence the direction of the market.
As for how many stocks to buy in a portfolio and how much, North Tech Capital concentrates its portfolio on 15 of the largest stocks in the NASDAQ 100 and uses its discretion to take larger position sizes in the most promising stocks.
As of this post, the NASDAQ 100’s top 10 constituents and their respective position sizes are as follows:
- Apple (AAPL) 8.69%
- NVIDIA (NVDA) 8.22%
- Microsoft (MSFT) 7.76%
- Amazon.com (AMZN) 5.61%
- Meta (META) 5.10%
- Broadcom (AVGO) 5.06%
- Tesla (TSLA) 4.43%
- Costco (COST) 2.67%
- Netflix (NFLX) 2.44%
- Alphabet (GOOGL) 2.41%
If by your careful analysis, you decide that Nvidia, Microsoft, and Amazon have the greatest potential to outperform all other large-cap tech stocks, you can increase their position size to reflect your conclusions about their potential:
- Nvidia (NVDA) 15%
- Microsoft (MSFT) 15%
- Amazon.com (AMZN) 15%
The rest of the stocks can be equally distributed in your portfolio.
Portfolio protection from global shocks and analysis-driven position sizing are the two main ways North Tech Capital achieves market outperformance.
Copy this technique to pursue above-average results and avoid being an average retail investor.
How to profit from the global technology ecosystem today
The investing techniques in this post are some of the ways in which you can start to differentiate yourself from the average investor.
If you’d like deeper insight into profitable tech stock investing, consider joining Tech Friends, an online private community bringing together large-cap tech investors and enthusiasts to outperform Wall Street.
In the Tech Friends community, you can become part of a private community, receive real-time trade alerts (buys or sells) via text, email, or in-app notifications, and ask me questions about specific transactions.
There’s also complete access to the portfolio constituents.
