Portfolio Review: July 2022

In ’real life’ I’ve had a good (albeit quite stressful) year so far. However, in the worlds of geopolitics and investing, 2022 seems likely to go down in the record books as a pretty terrible year, as the extent of the self-inflicted damage from the lunacy that has prevailed for the past couple of years has begun to reveal itself. Oh yeah, and Russia decided to start a war in Europe. For the US stock markets it was the worst first half since 1970. This seems appropriate as the high inflation, rising interest environment has felt reminiscent of the 70s. My portfolio has has its worse ever first half too – down almost 25% (though it has since recovered 5%-odd over the last couple of weeks).


The performance of my portfolio (QSS) is shown against its benchmarks in the table below. My main benchmarks have been the FTSE 100, the S&P 500 and a portfolio of the top decile of UK shares according to their Stockranks. I’ve also continued to benchmark my portfolio against a handful of professional fund managers I rate highly.

This portfolio review is a bit behind schedule so the six month performance avoids the first couple of weeks of January (which were bad) and so is better than my YTD performance.

This quarter saw a continuation of my portfolio’s underperformance against its benchmarks, as my orientation towards growth held it back. I marginally outperformed the S&P but was well behind the FTSE, which benefited from its exposure to energy and commodities.

On the plus side I made further ground on my buy-and-hold benchmark, at one point briefly pulling in front. This was largely due to my greater allocation to cash and away from some of the higher-rated stocks that have really come crashing down. However, I feel this could have gone a lot better had I been prepared to hold more cash from earlier on and perhaps not always felt compelled to make new purchases immediately after my sales.

Over five years I’m still ahead of my benchmarks, but only just. Most of my historic outperformance now comes from more than five years ago. Hopefully it will soon get back on track!


My patience in sticking to a strategy of investing only in quality growth stocks is being sorely tested but I’m not tempted to deviate from it quite yet. The events of the past couple of years have given me a greater appreciation for Warren Buffett’s approach and the slower-growing cheap and boring quality businesses he often favours. As a result Berkshire Hathaway has held up relatively well this year.

If you want the excitement of higher potential returns that higher growth businesses offer (I do) then there are pitfalls that come with this. These investments can be volatile as excessive exuberance is followed by disproportionate suffering during crashes, amplifying the trends faced by the stock market as a whole. The more speculative unprofitable glamour stocks rightly bear the brunt of this, often getting hyped up to implausible valuations that implicitly assume rapid growth can be sustained far into the future. However, those high growth winners that eventually do live up to their hype also face a lot of volatility. Look back at the share price chart of most long term winners and you will find big drawdowns of 50% or more, sometimes a lot more. The share prices of this sort of business can be highly cyclical even if the underlying fundamentals are not.

The question is whether you can do anything about this. There is definitely potential for outperformance, either from precautionary actions that anticipate a turn in the cycle, or from reacting quickly to it when it comes. However, these sort of actions are costly and there are lots of false alarms. I’m not sure how possible it is to formalise simple rules. It seems tricky judgment calls are required. I’ve now made mistakes in both directions: both selling near the bottom and failing to raise more cash near the top. However, I’m not really satisfied with the idea that there is nothing one can do other than buy and hold. What has been frustrating over the last year or so is the feeling of watching a slow motion car crash with an obvious cause (high inflation and rising interest rates) and effect (long duration assets suffer) but without having the conviction to more decisively shift my strategy to mitigate the damage. I did a bit, but too little too late. Late last year was when I should have been getting more decisively cautious. Hopefully, my experience over the last few years will help my judgment improve. I think I need to be more patient and flexible, particularly in how much cash I hold, and a bit less mechanical. In particular I think I need to relax my compulsion to always be fully invested in 25 holdings.

Recently I have been gradually reinvesting the cash I raised not that long ago. While the macro outlook is gloomy, there are positive signs at the moment for growth stocks: valuations have come down and are more reasonable, pessimism is high, share prices are firming up and the dollar and interest rates are showing signs of possibly rolling over. I expect a significant rally is in the offing but may raise cash again if this doesn’t pan out and the downtrend resumes.

In the near term I think the optimal time for buying cheaper, defensive, slow-growth stocks may have passed. I’m prioritising two types of opportunity at the moment: i) growth-oriented stocks that have fallen a lot and now look too cheap, and ii) stocks with the strongest momentum that have already rebounded strongly and look set to continue. Another tactical point to watch out for is the impact of the recent moves in exchange rate eg the strength of the dollar will benefit European and UK businesses that sell in dollars but may hurt US businesses that sell internationally. This seems obvious but I still doubt it has been fully anticipated by the market.

Individual shares

My cash balance is now down to around 10%. My portfolio currently lacks clear favourites but is quite evenly spread across several frontrunners. Below is a quick review to identify candidates where my current conviction is highest to reinvest my cash balance when the time comes, as well as weaker positions to swap should other opportunities arise.

SDI (6.2%): SDI’s latest results are hot off the press at the time of writing and they are very good. SDI has continued to trade excellently even after some one off Covid-related benefits for some of its businesses and still seems to have a very active acquisition pipeline. The share price, on the other hand, has been languishing. The valuation now looks too cheap to me and I’ve been taking advantage of this opportunity by adding to my holding.

Xpel (5.6%): there is little new to say since my recent update. I took a bit of a chance in taking out a large position in Xpel. It seemed very undervalued for a rapidly growing business and the share price was showing promising signs of recovering quickly. So far this seems to have paid off (fingers crossed) with my shares up around 25%.

Games Workshop (5.1%): Games Workshop’s end of year results are due to be announced next week. Given the update last month I’m not really expecting any surprises but we might hear a bit about how trading is going so far this year. I’m cautiously optimistic about how Games Workshop is currently trading but much more confident that the current share price represents excellent long term value after the excessive falls this year. I’m happy with my current allocation.

Cerillion (4.9%): Cerillion is still on a roll, regularly winning new contracts and growing at a rapid rate. It is one of very few growth businesses whose share price has prospered this year despite the wider carnage. It has recently broken out to new highs. It looks likely to be resilient to the wider macro environment. Given the strength in trading and the share price I decided to add to my position over the past quarter but am not now looking to add further.

Microsoft (4.9%): the share price continued to slide over the past quarter along with the wider markets. The business continues to make steady progress, though is not immune to macroeconomic conditions. Indeed, Microsoft has warned that the strong dollar is likely to depress its profits this year. This doesn’t give me much cause for concern and I’m happy with my position at this cheaper valuation. However, I don’t think the immediate prospects are that great so I could be tempted to take more profits at some point if I need funds for something else.

Fortinet (4.8%): Fortinet has continued to go from strength to strength, buoyed by the boom in cybersecurity demand. The share price has continued to consolidate over the past quarter, declining but by less than the wider market. It all looks quite promising but the valuation is quite high so I intend to wait and see for now.

Bioventix (4.6%): there is not much new to report on as Bioventix hasn’t released any news over the past quarter. The share price has been performing relatively strongly and I’m cautiously optimistic about the next results, given Bioventix should benefit from resumption of normal healthcare services post-Covid and should also benefit from a stronger dollar. It should be resilient to recession. I also think it looks cheap and have been building up my position.

FICO (4.5%): FICO is another very recent purchase that I wrote up in my last update. I have added to my position quite quickly as it seems a safe bet at the current valuation and the share price is recovering strongly.

Judges Scientific (4.1%): Judges is another recent purchase, though of a business I know well and have held several times in the past. Judges has been performing well and the shares got a big boost from news of a relatively large acquisition of Geotek, following a quiet period for acquisitions. The share price since gave back those gains along with wider market weakness, resulting in what looked like a good opportunity for me to reestablish a position at a reasonable valuation. This is a relatively high conviction long term position for me and it should be fairly resilient in the face of a weakening economy, but I’m not particularly looking to add more at the moment.

Intuit (4.1%): Intuit is trading well and upgraded its guidance in its last results. My initial purchase near the beginning of the year was ill-timed as the share price carried on sliding quite a bit further. However, I did manage to average down around the lows and a small recovery in the price over the last month or so has almost got me back to break-even. I’m not sure about Intuit’s short term prospects but long term I think it is a very solid steadily growing business trading on a reasonable valuation.

Sartorius (4.1%): Sartorius is another company that just issued results. These beat expectations, showing consistently strong growth even as it laps the pandemic boom years. Undoubtedly growth will slow here and the valuation is quite high but I still think seems reasonable for such a high quality business. However, I’d ideally hope for a dip before buying any more.

MasterCard (4.0%): Mastercard’s last results were good as cross-border transaction volumes (where it earns a higher fee) were more than expected. I’m hopeful this tailwind will continue but various other macro factors can also affect Mastercard’s fortunes. While I think it could benefit from inflation, it may suffer if consumer spending falls and from the strong dollar. I’m not really sure what will happen in the short term but in the long term I have a lot of conviction in the business so am happy to just hold on and see what happens.

London Stock Exchange (3.7%): LSE has been holding up well over the past quarter and the share price is near its highs again, having not really gone anywhere for over a year. Its last trading update was a little while ago now but was positive, suggesting that its transformational acquisition of Refinitiv was going better than initially feared. I’m happy to have this as a more resilient long term investment rather than something that is going to shoot the lights out.

Copart (3.5%): Copart’s business relies on vehicles being written off after accidents. The current macroeconomic environment is affecting this in various ways but the last results back in May suggest that the business is resilient to these factors. The overall amount of driving has largely recovered following the pandemic (more driving means more accidents). High used vehicle prices and fewer replacement vehicle being available has meant fewer vehicles were being written off but these trends are reversing. Oil prices coming down again should also be beneficial. A recession that leads to higher unemployment would negatively affect Copart but after seeing it sail through the pandemic has made me confident that it should be pretty robust. The share price has dipped over the last few months along with other growth businesses but is now starting to recover and the valuation seems reasonable. The more I look into Copart the more I like it – it has a rock solid competitive position and so much scope to generate further scale economies. I’d be keen to add more to my position here.

Alpha FX (3.5%): Alpha updated on trading recently, showing good progress in the first half and announcing that it was on track to ’comfortably’ meet expectations this year. While my long term conviction in Alpha is relatively low compared to many of my other holdings, it is growing fast with plenty of runway and seems to be on a roll. I’m happy to hold and see what happens.

Lululemon (3.2%): Lululemon’s results at the beginning of June were good, continuing its stretch of comfortably beating expectations. In spite of this the share price has languished over the past quarter as growth-oriented retail has particularly borne the brunt of the recent angst. While Lululemon could well be susceptible to a wider slowdown in consumer spending I am fairly confident that the current share price presents good value given the long term growth prospects.

JD Sports (3.1%): I bought back some shares in JD Sports very recently, partly because the share price was showing signs of breaking its downtrend, but mostly because it seemed to have got very cheap, despite the business continuing to trade strongly. JD is overhauling its corporate governance which I think is no bad thing.

Calnex (3.0%): Calnex’s end of year results were good as expected. It is one of very few growth businesses that has done well this year. As I mentioned before, while I think Calnex is a good business I am a bit concerned that trading might be ’lumpy’. Given how well the share price has performed and the weakness in the wider market, I decided to cut my position in half with the share price near its highs. Since then the price has dipped a bit before bouncing back. I’m minded to wait to see how trading this year is going before adding any more.

Beeks Financial Cloud (2.9%): Beeks was one of my largest holdings at the time of my last review. Since then I slashed my position as the share price came plummeting down. I don’t think there is any good reason for this other than that the shares are illiquid and wider market sentiment has been very unfavourable to small cap growth. There hasn’t been much news recently so as far as I know the business is still firing on all cylinders. This looks like a good opportunity to add to my position.

Broadridge Financial Solutions (2.8%): Broadridge continues to make steady progress. The last results were ahead of expectations. The share price has performed relatively well, recovering much of its losses from earlier in the year, and the valuation seems reasonable. I’d be happy to add to my holding here.

Veeva Systems (2.8%): Veeva is another fairly recent purchase and there is little new to say on it since my last post.

Keystone Law (1.8%): last quarter I was pleased to have bought shares at the low point after the incorrect read-across Knights Group profit warning. Unfortunately the shares have fallen back after an initial rebound (though I did manage to sell a few before they fell back). There hasn’t been any news over the past quarter but I assume trading is likely to be going OK and the fall is simply due to the illiquidity of the shares. I’ve seen updates suggesting some of the Magic Circle firms have been trading well which seems promising for Keystone, though fortunes can vary widely across law firm. Overall, I think this is probably a good buying opportunity but am a bit ambivalent so might just wait for the next results in August.

Gamma Communications (1.5%): I recently bought back a small position in Gamma as the shares looked very reasonably valued for what should be a pretty defensive business. However, the share price has fallen pretty relentlessly over the past year and I’d want to see signs of this stabilising before adding to my position.

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