Librarian Capital's Monthly Ranked Top Buys - March 2024

Portfolio Strategy: Our "Select 15" portfolio is now up 31.8% since the start of 2023. We recap on key news and make one substitution.

A Recap on Our Series

This is the March edition of our "Monthly Ranked Top Buys“ series, designed to present a model portfolio based on a selection of our most-preferred stocks, which we call our “Select 15” model portfolio.

The “Select 15” model portfolio provides an additional level of transparency into our thinking. It is a more selective list of names among the Buy-rated stocks in our published research, and the weights of different positions further illustrate our level of conviction for each name. Being limited to a monthly trading window, it is also an example of how investors can achieve good returns without being full-time portfolio managers.

Our investment strategy focuses on making money from owning a small number of high-quality businesses that compound their value over time. Our real-life portfolios closely mirror the “Select 15” model portfolio and, while we trade far more actively day-to-day, most of our trades are tactical exploitations of short-term price moves in the same stocks that we hold long term. Our research focus has therefore been on knowing a small number of sectors but knowing them well, and our published work reflects this focus; our “Select 15” model portfolio likewise only changes infrequently.

These dynamics present a challenge for our Substack proposition, including for this “Top Buys” series. Some of you may rightly question why you will now have to pay to see a model portfolio that can stay unchanged for multiple months, or indeed to read about the same dozens of companies over and over again in our wider research. Unfortunately this is a philosophical challenge for our entire industry, and I can only give you the same answers that Warren Buffett gave:

“You wouldn’t go to a doctor whose pay was totally contingent on how many pills you took.” (The Snowball)

“What witch doctor has ever achieved fame and fortune by simply advising ‘Take two aspirins’?” (1987 Berkshire Hathaway shareholder letter)

We are in the investing business (helping people’s health), not in the media business (prescribing pills and periodically rotating to new exotic ones to justify our fees).

For many readers, our Substack is the equivalent of “two aspirins” – simple, boring and cheap (only $10), but actually what is needed to give you the best outcome. While it may seem counter-intuitive that a low-turnover portfolio of established large- and mid-cap stocks can deliver better returns than portfolios that are constantly populated with new stocks that you had never heard of, the stellar performance of Microsoft and Alphabet (both in our model portfolio) within The Magnificent Seven provides supportive evidence, as do older Buffett/Munger picks like Coca-Cola and Costco.

For professional investors, our Substack has a further use case, which is to enable opportunistic investments into “quality” companies whose share prices have corrected substantially after temporary “glitches” (to use that well-known Terry Smith term). We track a small number of “quality” companies closely over time and, while we can be surprised by occasional “glitches”, we do understand their fundamentals well. Our research thus offers a way for you to get up-to-speed quickly to take advantage of share price corrections after “glitches”, potentially achieving even better returns than we do. (Examples last year included Admiral, which we timed well, as well as Bank of America and RTX, where we were too early but ultimately right.)

Incidentally, in case you have not seen it, I would recommend reading our full transcript of Fundsmith’s 2024 AGM, where Terry Smith talked about many of the same points discussed above. While Terry Smith’s philosophy is not necessarily unique or even original – he himself has described this as a “synthesis” of ideas from people like Cedar Rock’s Andy Brown – he expresses it much better than almost anyone else in the industry. It is not easy to retain clients on a 1.50% annual management fee (on the R Class) when one third of your investment mantra is “do nothing”.

We now return to the regular content of our monthly letter, which follows the usual structure of a performance update, market commentary, update on existing holdings and portfolio changes. We are making one substitute this month.

Introduction

The “Select 15” model portfolio gained 2.9% in February to reach a year-to-date gain of 3.7% as of month-end:

We have gained a further 3.0% in March 1-25, which means our "Select 15" portfolio is now up 31.8% since its inception at the start of 2023. Beginning with a notional $1m, it is now worth $1.318m:

This is a good result in its own right. While we are behind MSCI World, our chosen benchmark, as well as the S&P 500, we have achieved our returns with a portfolio of higher-quality, more resilient businesses. We expect the performance of “Select 15” to catch up over time, and indeed our personal portfolio (which predates this model portfolio) remains ahead of the MSCI World index for the period since 2019.

Compared to the end of January, as of February 14, the largest share price increases (in local currencies) among our holdings were in NatWest (+15.5%), Admiral (+12.5%) and Otis (+12.0%). Six other stocks have seen their share prices risen by 5-10%, including Bank of America (+8.4%). Only one stock has fallen in price, Rightmove (-1.8%).