Despite the portfolio’s poor performance in 2026, since inception we continue to significantly outperform the market. But not only that: we are also taking advantage of discounts in various parts of the market to initiate and increase positions in good companies trading at a discount.

As you know, whenever we talk about returns, I like to focus on the alignment between the person explaining their portfolio and the copier. In my case, my own wealth is invested alongside my copiers’ in my portfolio. Remember that you can copy my portfolio, if you aren’t already, on eToro.

Beyond this, we are living through a period in which the market is valuing different parts of the market very differently. One euro in one part of the market is not worth the same as one euro in another part of the market. At least, that is what the market’s behaviour suggests.

But not to me. One euro is one euro, wherever it is.

That is why, as you know, I have been staying away from the spotlight of Wall Street for some time, focusing my portfolio on forgotten parts of the market.

We can talk about payment providers, currency-conversion fintechs, or even Chinese companies. And this is where I want to focus my monthly letter.

As you know, last week I shared two investment ideas involving Chinese-listed companies. One trades in Hong Kong, and the other in both Hong Kong and the United States. The first, whose thesis you can read here, trades at 0.2 times book value.

If you follow me, you will already be familiar with these companies trading at a deep discount to book value. Last year, I told you about Argan SA, a logistics warehouse company that was trading at around 0.5 times book value. The result was that a competitor came along and acquired it, resulting in an almost immediate capital gain of 30%.

In the case of Hang Lung Properties, the discount is much larger, but I would not hold out hope of a third-party acquisition here. However, it is true that with such a large discount and a dividend yield of more than 8%, any small piece of good news in its sector could multiply its current share price many times over.

As for the second company, Noah Holdings, the company’s net cash (that is, the money in the bank minus debt) is greater than its market capitalization. This means that for every euro we pay for Noah Holdings, we receive more than one euro in cash.

On top of that, there is the business itself. A very capital-light business, which is usually the best kind, since a small investment in growth can return many times the money invested. If they declare a dividend similar to last year’s, as management has indicated they intend to do, we will receive a 10% dividend yield from a very high-quality company.

Of course, investing in China is not for everyone, but wherever there is fear, very good investment opportunities are always created. And right now, there is a lot of fear in China. And therefore, very good opportunities.

But what makes you think they won’t remain cheap forever?

It is a question I get asked very often. And the truth is that it is very common in bear markets, such as the one we have been seeing in China over the last few years.

But the answer is very simple: if a company grows, buys back shares, and pays dividends, then even if its multiple remains constant, the growth in earnings and share buybacks increase the value of your position day by day. And, on top of that, you receive a very high dividend while you wait.

In the cases of Noah and Hang Lung Properties, we are now earning returns of 10% and 8%, respectively, simply from dividends. This return alone will outperform many active managers over the next 10 years.

But in addition to that, we have businesses that are increasing their operating profits and generating a lot of cash year after year. Pessimism has already significantly reduced the multiples the market is willing to pay, so all it takes is a small change in market sentiment to generate a large return from multiple appreciation.

Am I expecting any substantial change soon?

The truth is, no. It is not part of my investment thesis for these companies, because human psychology is unpredictable. The companies’ own shares alone offer more than significant returns through these investment theses. Any improvement in sentiment will be a very welcome bonus.

But of course, it is not all about China. I have also been increasing positions in the US, but in small, forgotten companies that are not even covered by analysts. If you want to see my theses, just follow me. I will be publishing them over the coming weeks.

That’s all. As always, remember that patience is the most valuable virtue in the market. We already know what our companies should be worth, we already own them, and now all that remains is to wait for the market to stop being myopic and look at the entire market equally.

After all, one euro is one euro, regardless of where it is.

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General Publication Information

No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. At the time of writing, as disclosed in the article, CCalle has a position in the company.

The problem I have with those people is not that they sell a course. Good for them. The issue is that they advertise it as “earn $100 dollars a day” or “make this your way of living”. That’s plainly a lie.

Just How Much Individual Investors Lose by Trading:

In the research “Just How Much Individual Investors Lose by Trading1,” the COMPLETE trading history of ALL investors in Taiwan from 1995 to 1999 is studied. One of the findings is that individuals who day trade reduce their aggregate portfolio return by 3.8% per year. That means that they lose money. 27% of those losses come from trading losses, 32% from commissions, 34% from taxes, and 7% from poor market timing.

These losses, according to the study, mean that Taiwanese day traders lose 2.2% of Taiwan’s GDP (gross domestic product) per year. Comparing those losses to different things, day traders lost 33% of the total private expenditures on transportation/communication in a given year, 85% or expenditure in clothing/footwear, and 170% of the expenditure on fuel/power.

“But I know a guy who makes a lot of money”

Or that is what they say on social media. Because remember, people tend to project an image that is not completely (or not at all) real in social media just to be perceived better by other people. But again, let’s check stats.

In the study “The cross-section of speculator skill: Evidence from day trading2”, they studied the data from Taiwan about day traders. On average, 450.000 people day trade every year. Of them, only between 1,000 and 4,000 people, depending on the trading costs, earn a positive alpha every year. That’s 0,22%-0,88%. However, the top 500 day traders earn consistent alpha that cannot be explained just by luck. Some people are skilled, but that’s 0,1% of the people.

Is it possible that “you know a guy who makes a lot day trading”? Well, it is remotely possible, but highly unlikely.

Can you day trade for a living?

Ben Felix points out in his video about day trading3 that of the 1,551 individuals who day traded for more than 300 days in Brazil from 2013 to 2015, 97% of them LOST money. Of the rest, 1.1% (17 people) earned more than the Brazilian minimum wage of the time (16 dollars), and only 8 people (!!!) earned more than the initial salary of a bank teller, which is $56 a day. All this data can be found in the Study “Day trading for a living?4”. They also found that the longer people trade, the less likely they are to make money.

That particular study concludes that “it is virtually impossible for an individual to day trade for a living, contrary to what brokerage specialists and course providers often claim. The previous literature was not so clear about this.”

“I’m doing it to learn”

You may think that you are trading to learn how to be one of those 0.1% priviledged people. But guess what, there’s also a study for that. In the research “Do Day Traders Rationally Learn About Their Ability?5”, the authors conclude that “most experienced day traders lose money and nearly 3/4ths of day trading can be traced to traders with a history of losses. Persistent trading in the face of losses is inconsistent with models of rational learning. So, too, is the decision to try day trading when ex-ante expected lifetime profits are negative. For prospective day traders, “trading to learn” is no more rational or profitable than playing roulette to learn.”

Institutional investing

Even if all this data is not enough, we have the issue of institutional investing. Institutions actually make money in day trading, mainly using high-frequency trading or providing liquidity to the individual investor. They have an edge: the technological edge. This is supported by the evidence found in “Just How Much Do Individual Investors Lose by Trading?”, where they found that, unlike individuals, institutions make about 1.5% by trading. We can find clear evidence of this in any institutional investing firm, which consistently reports great profits from these activities.

Also, remember that this study was carried out until 1999, and since then, the technology for institutions to take advantage of small investors has only improved. This leaves the small investor, a.k.a. you and me, in a worse position to day trade.

Conclusion

No, you probably cannot make a living out of day trading. The only reason you should approach this activity is to lose money or to feel the excitement of gambling. If you think that day trading will make you money, evidence shows that you’re most likely wrong. If you want to make more than the Brazilian minimum wage, research shows that you have 98.9% chances of failing.

Compelling? I don’t think so.

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CCalle is a value investor and former CFO with more than 10 years of experience in finance. More than 2,000 people copy his investments with several million dollars of assets under copy.

You can visit his public portfolio here.

Learn more about CCalle here.

General Publication Information

No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. At the time of writing, CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

Ronald Read turned his salary into more than $8 million in wealth during his life. Without a college background, no connections in the investing industry, and no Bloomberg platform to dig into financials, how did he do it?

Mr. Read was born in 1921 and worked as a janitor and gas station attendant. He bought exclusively stocks of companies he knew well, such as Pacific Gas and Electric Company, CVS Health, and Johnson & Johnson. He avoided companies he didn’t understand, like tech companies, and although he owned shares of Lehman Brothers when the company went bankrupt, he still managed to turn his savings into an $8 million fortune.

Accumulating these shares for his entire life and investing his savings for decades, he accomplished the goal of retiring as a millionaire even with a blue-collar worker wage. His life was an example of frugality and rational investing.

Out of those more than two million people who died in 2014, many of them probably earned more money than Ronald Read. However, his fortune was among the top 0.1% of them.

What can we learn from him?

Stick to your circle of competence

Although the stock universe is huge, you don’t have to know everything about every stock. As Charlie Munger and Warren Buffett say, you can have a pile of companies classified as “too hard to understand.” Not because you’re a dummy, but because they are outside your circle of competence. And there’s nothing wrong with it.

There will always be enough companies that you know well, whose details and ways of making money are familiar to you, and for which you don’t need the most detailed discounted cash flow model in the world to know whether they will be a good investment or not.

Staying within what you know minimizes mistakes. Of course, this doesn’t mean you won’t make mistakes. Ronald Read himself owned shares of Lehman Brothers when the company went bankrupt during the financial crisis. But the rest of his portfolio more than compensated for what he could have lost in that position.

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Don’t do stupid things

We often see people selling after feeling fear about the stock market, or jumping into a crazy bubble about to explode. Psychology plays a role, and you have to resist emotional tests in investing. If you avoid doing stupid things in times of extreme emotions, you will do well.

When we talk about Read owning shares of Lehman Brothers, we know (with hindsight, of course) that Read made a mistake. But that didn’t lead him to sell all his stocks because he failed when selecting one company. Mistakes happen, and we have to internalize that they will keep happening. However, we cannot allow those mistakes to cloud our judgment and push us into doing something stupid.

Let your stocks compound and be patient

Patience is one of the most important attributes in investing. And one of the biggest challenges is maintaining a position even if it has been performing poorly for years. Peter Lynch used to say that it took stocks several years to deliver strong performance. And we have to sit tight waiting for them.

During my years managing my portfolio publicly on eToro (you can check it here), I’ve seen dozens of people start investing thinking about the long term and, after a 5% loss (which can be considered normal market volatility), stop investing forever. If you don’t allow your money to work for you for long enough, much of your effort will have been in vain.

Think about when you started in your job, or when you launched your first business. Did you reach your current way of working quickly? Did you become excellent at your job immediately? Probably not. It was the result of doing your work well and improving every day. The same happens with investing: you have to let it work over time.

You can commit mistakes

During an investing lifetime, you won’t have all your investments working well. Failure is part of the process, and you have to learn to deal with it. Even if we commit mistakes along the journey, it shouldn’t imply that we quit. We have to be resilient and maintain our process working for us. If it is good, it will pay out.

In summary, we can learn from Read to be consistent and patient, invest in companies we understand, and avoid doing stupid things. If we do this, we will have a high probability of becoming successful investors.

What do you think about this story?

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And if you are thinking about starting to invest and you’re not sure whether to invest everything at once or start investing a little each month, this article may help you.

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General Publication Information

No Investment Advice

This file or any content on this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy.

It does not constitute a general or personal recommendation and does not take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in this document may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in this document may occur.

Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this document. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this document or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. At the time of writing, CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

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The total return of the portfolio since inception until December 31st, 2025, is 190.69%, compared with 124.72% of the S&P 500. This makes the compounded annual return of the portfolio sit just below 20%, with 19.76%, compared with 14.25% of the S&P 500.

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Risk, Beta, and Alpha:

Risk, beta, and alpha are usually terms that professional investors use to describe how good their returns have been, adjusted by volatility. I never pay attention to beta or alpha, which makes me a big contrarian in the industry. These words don’t come out of a bad year. On the contrary, my Beta in 2025 has been 0.02, which means that my portfolio wasn’t correlated with the index, and my Sharpe Ratio was 1.43 (usually, above 1 is good).

What I pay attention to is the risk that we are assuming in our portfolio, but not from a volatility perspective. Instead, I focus on business criteria: balance sheet risk, earnings risk, and valuation risk.

When I analyze a company, the first step is checking its balance sheet. Even a wonderful business becomes riskier when there is leverage in its balance.

It is actually easy to understand. If you think of a restaurant, you may be interested in buying the best one in your city, which generates a lot of cash for its owner. But if the owner is a fool and obtained more debt for the restaurant than what it can pay down with its earnings, then you probably don’t want that business anymore.

The same happens with earnings. When an industry or a company has record sales, we need to ask ourselves if those earnings are sustainable or just respond to a market trend.

Let’s go back to the restaurant example again. There’s a huge difference between a good restaurant that is always full and a new restaurant that is very trendy now, but will probably fall into oblivion next year. In the market, there are these two types of companies, too. Paradoxically, Mr. Market is usually willing to pay a higher price for the trendy restaurant, since its earnings are booming. There’s always hope that they can keep growing for many years. But that’s also the source of big money losses: fast growers that become a bust.

Hence, we need to differentiate between sustainable earnings, potential sustainable earnings growth, and momentary earnings growth.

In the end, we have the valuation risk. This is probably the easiest to understand, since the price we pay is directly linked to the return we will have. The lower the price, the higher the return. I’m probably not a suspect of avoiding growth at all costs, since I’ve bought companies like Games Workshop, Celsius, or even Wise recently at a high PE ratio. But to pay for growth, I need to be sure that growth will be in the cards for many years. Otherwise, I prefer having the option of growth for free.

Portfolio’s movements:

Sales:

Many people ask me when and for what reasons I sell the companies I hold. It’s completely normal, since many people try to explain when to buy, but not so many explain when to sell. Let me tell you my approach.

First, I differentiate between good businesses and bad businesses. If you were lucky enough to buy a good business at a good price, you probably won’t want to sell it. Never.

But I do.

Bad businesses, though, usually require a very low price and a catalyst on the horizon to own them, since you don’t want to be stuck with a bad business in the portfolio. In the case of bad businesses, when the price reaches my fair value estimate, I’m out. Simple as that, because I don’t want to be an investor in a bad business for too long.

But good businesses… that’s another story. Some, as I said before, never sell them. That’s arguably one of the biggest mistakes Warren Buffett has committed during his investing journey. When he owned Coca-Cola at the end of the 1990s, he didn’t sell, even when the price was ridiculous. Hence, until after 2016, he didn’t recover what he could have made back then (disregarding dividends).

I’m personally not willing to sit for over 16 years to make money. Hence, when the market is willing to overpay for a good business, I’m willing to sell. Of course, I won’t sell it immediately after it reaches my fair value estimate. After all, good businesses always surprise on the upside. But if the market is willing to pay for many years of growth today, I’m out.

Then I come to my sales this year. I only sold three positions in 2025: in February, I sold Google and Rightmove, and in July, I sold Amadeus. I sold these businesses at

GOOGLE: 184.7 dollars per share

RIGHTMOVE: 666.8 pence per share

AMADEUS: 71.02 euros per share

Google finished the year at 313.8 dollars per share, which made me miss a profit of 69.8%. Rightmove finished the year at 519.60 pence per share, which made me miss a loss of 22%; and Amadeus closed 2025 at 62.84 euros per share, which made me miss a loss of 11.5%.

Needless to say, all three of them are still on my radar, but I’ll only buy them back if the price is attractive.

At this point, I want to reflect about missing profits when selling good businesses. Yes, that’s a risk. And every strategy has its own risks. For me, it is clear that I won’t buy the next big thing, since it will seem expensive to me. I will also miss the supposed next big thing that finally goes bust. The trade-off is worth it for me, since I not only chase performance, but also capital protection.

I’ll also miss when great businesses become highly appreciated by the market. It has happened in the past, with companies like TransDigm, Google, Meta, and many others. And it will keep happening in the future. That’s never been an issue in obtaining a good performance, though.

The trade-off here is also worth it for me. I won’t participate in market exuberance, probably missing some profits. But I won’t participate in the disillusionment part when everyone is disappointed with some business, sending its valuation to low PE ratios. I may miss some profits sometimes, but I will certainly miss the losses, too.

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Purchases:

There’s little difference between my portfolio at the end of 2025 and the beginning of the year. Of course, the three companies I sold are not part of the portfolio anymore. The new companies in the portfolio are: Fortinet, LVMH, and Bank of Georgia.

Fortinet finished the year with an allocation of 1.46% of the portfolio, LVMH with 2.22%, and BGEO with 6.21%, after a spectacular return since I purchased it.

But the most important change during the year has been the increase in the weight of Argan SA. You can read my thesis here. Argan finished the year with a weight of 14.03%, from 2.78% at the end of 2024. This increase in weight answers mainly to two factors: Argan is widely undervalued, offering safety for our investment, and it also offers a high dividend yield, which rewards us while we wait for its value to be recognized by the market. In a market where growth has a high price, and speculation drives prices, finding businesses with these two characteristics is like finding an oasis in a desert: strange and rewarding.

The market, overall:

People focus too much on the market as a whole. I prefer a bottom-up research, focusing on a company’s strengths and weaknesses. There is no point, in my opinion, in debating about the economy as a whole if you want to invest in individual businesses.

Still, it makes the headlines. And money managers tend to feel forced to talk about the economy, even if it adds little value. Especially, I would say, when they have a bad year.

This said, I do think that the US market is expensive. Lately, I’ve seen people adjusting the price of the index for the quality of the businesses, or even discounting several years of growth. But the truth is that when you need to adjust too much to justify a price, you’re probably overpaying.

Will the market fall like a rock? Who knows. But I do know that I want exposure to good businesses at reasonable prices, and not to good businesses at too high prices. Otherwise, I may finish needing to wait for a decade to recover what I once had.

Last words:

To finish this brief recap, I want to thank all copiers of my portfolio for their trust. To me, it is a blessing that more than 2,000 want to invest exactly like I do. Thank you.

Next month will be my 72nd month investing publicly on eToro, and I will share more thoughts about these 6 years of investments. Remember that you can still follow me on eToro.

Yours sincerely,

Cristià Calle Mercado.

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General Publication Information

No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. At the time of writing, CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

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The permanent portfolio is a screenshot of the portfolio I owned at a point in time. I will be studying the return of that untouched portfolio compared with the active portfolio I have managed. The idea comes from the annual investor meeting of Horos Asset Management, one of the best value funds in Spain. Without further ado, let’s dive in.

First of all, let’s start by saying that the portfolio has generated better results than the market, especially during the past 3 years. Out of 6 years, the portfolio has beaten the S&P 500 in 5 of them. Only in 2021 has the portfolio not returned more than the S&P 500. That means that for the past 4 years, in a row, the portfolio has outperformed, in some years widely, the return of the index.

2020:

Hence, the portfolio has generated value for me and my copiers. But has activity generated value?

In 2020, the portfolio was heavily concentrated in stocks like Games Workshop (20% of the portfolio), DELL (9%), and Berkshire Hathaway (7%). There were some other quality names like Google, FFIV, and Facebook (now META), to name a few. This portfolio, untouched from 2020 to the 26th of November 2025, would have returned over 155%.

In the same period, the active portfolio, with the changes I make regularly in it, has returned over 190%, which is an excess return of 35%. To the question, has activity generated value? The answer is a clear yes.

But not only that: stock picking has also generated value, since the return of the permanent portfolio has also beaten the S&P 500.

2022:

But I’d like to analyze the same for different periods. In this case, let’s analyze the portfolio from the start of 2022. I already had a big concentration in Alibaba, the main holding today, too. But I had already included names like Monster and Vistra.

In this scenario, the permanent portfolio returns over 100%, while the active portfolio has returned over 11%. Again, activity generates value.

2023:

Now studying the permanent portfolio of 2023, which brought to the top holdings companies like Crocs, META, and LVMH, the return of the permanent portfolio was +108%, compared to +132% of the active portfolio. Once again, activity has generated value.

In summary, the portfolio has generated value through stock picking and through activity. The compounded annual return stays at over 20% per year, with a total return since inception of over 190%. But I wouldn’t like to finish the analysis here. Let me share with you some more insights:

Further considerations:

The active portfolio didn’t generate a lot of value compared to the permanent portfolio from 2022. And I wanted to analyze why that was happening.

One of the top holdings of 2022 was Vistra, which was acquired because the value of its assets was worth more than the value of its market cap. After obtaining a return of over 50%, I sold the shares.

However, the stock has jumped considerably since then, passing from trading at less than 1 times book value to over 21 times book value. The current PE ratio sits at above 60 times earnings. When I bought: less than 10. This stock, which has come to an unreasonable valuation by any means, has accounted for over 40% of the performance of the permanent portfolio.

This basically means that a stock that is probably in a frothy territory decreased the value added of activity.

And that’s OK with me. When I buy a business, I want to buy it for less than it is worth, and I’ll only sell it if someone is willing to pay me more for it than it is worth. Hence, I will lose any returns that may come from bubbles, but I will also not be exposed to bubbles when they occur. That’s a performance I’m willing to lose to avoid permanent losses of capital due to holding businesses for much more than they are worth.

Other than that, only META has had a contribution of over 30% of the total gains to a permanent portfolio: the permanent portfolio of 2023. However, it also had a huge impact on the active portfolio, since I took the weight of META to over 10% when it was widely understated by the market.

A call to caution:

I’ve also committed my share of mistakes during this time. Several of the companies I’ve bought not only haven’t generated returns that are better than the market’s, but also have generated negative results.

Biogen is the clearest example, which has generated a negative return of less than -20% for the permanent portfolio. This business actually generated a profit for the active portfolio, since I sold when their Alzheimer’s drug was approved, which was the peak of its valuation. However, the revenues of this drug are a lot less than I expected, which was a mistake. You can also make money even if you’re mistaken, but you need to learn not to commit that mistake again.

Amadeus has been another company that has returned -2% since I first bought it. The return for the active portfolio has, too, been low.

Finally, a mention of Crocs. At some point, its weight in the portfolio has been close to 10%. Since the start of 2023, the return of Crocs is almost -30%. However, the business is really cheap, and I think it will perform well in the future. As we’ve learned from Alibaba’s case, sometimes it takes a long time for the market to recognize the value of a business.

CCalle is a value investor and former CFO with more than 10 years of experience in finance. More than 2,300 people copy his investments with several million dollars of assets under copy.

You can visit his public portfolio here.

Learn more about CCalle here.

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General Publication Information

No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. At the time of writing, CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

This means that $50,000 invested in the portfolio at the beginning of 2020 would have turned into $131,852, compared to $95,074 of an investment in the SP500.

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Despite the strong outperformance since inception, the SP500 returned 2.17% in July, compared to 1.39% for the portfolio. This relative underperformance came due to large US companies reporting solid earnings, which impulsed the market higher, even for optimistically valued companies.

This has exacerbated the generous overvaluation that we discussed in this article.

The current allocation of the portfolio to US companies accounts for slightly less than 20% of the assets. This reflects the demanding multiples that the US market is trading at. Our focus on delivering double-digit absolute returns forces the portfolio to pivot away from highly priced securities. This is not an attempt to time the market, but a reflection of the low return expected in the US from current prices.

Portfolio movements

During July, we’ve kept increasing our position in Wise (you can visit this link to check its valuation). To do so, we’ve exited our position in Amadeus, a solid company with good returns on capital employed, but with lower growth prospects ahead.

Growth can add value to a company’s valuation or detract from it. In Wise’s case, since the growth comes with a high return on capital employed, there’s a significant part of the company’s value in growth, which the market is missing.

We’ve also increased our exposure to ARGAN, whose valuation is here. While Wise adds value via growth, Argan offers an anchor to the portfolio, adding value from a book value perspective. Both companies have a wide margin of safety, which is why we invest in them, but one gives it from future earnings (Wise), and the other one from the real assets it owns (Argan). Hence, we can expect Wise to be much more volatile than Argan, but also much more rewarding.

The art of selling

Selling is a rare circumstance in our portfolio. As I’ve explained here, there aren’t many reasons to sell a good business we own. But still, it happens. You can expect us to sell our positions when:

• The price no longer offers a margin of safety (either because the price has gone up or because the value of the business has gone down).

• There are better opportunities.

The latter is something we don’t like, but it’s necessary. We may leave some money on the table, but it’s only because there is an alternative with less downside risk and a higher upside. This has been the case with Amadeus.

The future of the portfolio

The portfolio is always built looking forward. Past returns are nice, but those are already behind us, and we can only look at them through the rear mirror. Basing our decisions on what the price has done in the past is foolish.

Hence, every time you see any stock in our portfolio, you can be certain that we expect to obtain a double-digit return for the coming years out of it. Of course, no one has a crystal ball, but with due diligence and a conservative approach to valuations, we are putting all odds in our favor.

CCalle is a value investor and CFO. More than 1,700 people copy his investments with several million dollars of assets under copy.

You can visit his public portfolio here.

Learn more about CCalle here.

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General Publication Information

No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. At the time of writing, CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

But first, these are the quarterly results:

• Revenue increased by 18% to $76.4 billion in Q4 2025

• Operating income grew by 23%, to $34.3 billion

• Net income increased 24% to $27.2 billion

• Diluted earnings per share increased by 24%, to $3.65

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The red flags:

Free cash flow conversion:

FCF conversion has historically been high for the company. In fact, it has consistently been above 100%, since the company has been collecting money in advance, increasing the “unearned income” of the company consistently. However, since June 2021, the company’s CAPEX has been eating into the company’s free cash flow.

This has historically been seen as a sign of reinvestment into the business and its growth, but it is a red flag to be aware of. In the end, what we as investors will get is the cash that the company generates.

A possible terrible consequence for the company’s future free cash flow is a stagnation of growth while CAPEX stays high. In this case, unearned income will start hurting the FCF, instead of increasing it, and both accounts (CAPEX and decreasing unearned income) will lower the FCF. This is just speculation, but if this happens, it will also be a sign of Microsoft turning from an asset-light business to a lower-quality business.

Return On Invested Capital:

Microsoft’s ROIC has consistently been high. This shows how strong the company is and has been for many years. However, there’s something worrying that favors the narrative of a worsening business: lower incremental ROIC.

As you can see, the company’s ROIC has been decreasing slowly during the past few years. This shows clearly that investments for the retained capital are not as profitable as they used to be. Of course, Microsoft is investing in future growth, but if these initiatives are not as profitable as the market expects, this can turn ugly rather quickly.

Again, nothing extraordinarily worrying, but lowering such a high ROIC means that the ROIC of current reinvestments is considerably lower than the current 28% ROIC (since new investments’ ROIC and old investments’ ROIC are averaged in the whole ROIC calculation).

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Receivables:

Revenue and receivables have usually grown together for Microsoft. As per the image below, both have grown 11.5% yearly since 2015.

However, this year, receivables have outpaced revenue growth significantly more than they used to. Revenue has grown $11.714 M, while receivables have grown $12.981 M. In the previous couple of years, the difference wasn’t more than a couple of hundred million.

Also, there’s a tendency in the company to increase receivables significantly at the end of the financial year, probably to push higher revenues for reporting purposes. This “over-recognition” is usually reversed in the first quarter of the following year. So the latest bump may be reversed.

Regardless, the incremental growth in receivables has consistently been at least over 2% higher, every quarter except in December 2024, than revenue growth.

My conclusion:

All of these red flags, individually, may not be a big thing. However, when you put them all together, the picture may be a little different. If I were an investor in Microsoft, which I’m not, I would be vigilant of the evolution of these metrics in the future.

Time will tell, but an aggressive accounting towards receivables accounts (overestimation of revenue), and a low incremental ROIC are not two good things to couple. Despite this, Microsoft remains one of the best businesses in the world.

Personally, I prefer avoiding Microsoft. These risks, plus the operational risk that every company faces, together with an eye-popping multiple on earnings of over 40 times earnings (over 50 times free cash flow), make me think that people are willing to pay too much for this good business. Probably, even disregarding the risks of the investment. Hence, unless the price goes down (considerably), I won’t buy Microsoft any time soon.

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No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. At the time of writing, as disclosed in the article, CCalle doesn’t have a position in the company.

This is what you can find in this post:

1.- Overview
2.- The Business
3.- Fundamentals
4.- Valuation
5.- Full year 2025 review

Games Workshop is a relatively unknown compounder. The company has returned over 2,000% in the past 10 years, all of it carried by an improvement of the fundamentals, not multiple expansion. In a graphic, these are the main metrics of the company:

As you can see, there has been a PE expansion, but the net income CAGR of 32%, and a ROIC sustained over 30% have been the main contributors to the share price increase over the years.

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The business:

I’ve spoken many times about Games Workshop. Basically, their business is selling miniatures to people who enjoy the hobby. They also license their intellectual property to third parties, who develop games, movies, and series, mainly. Here, there’s a point to highlight: their agreement with Amazon to create TV series and movies for Amazon Prime. There isn’t much news about the development of any of these, but Games Workshop released a news update in December 2024 saying that both companies had reached an agreement on “creative guidelines”.

For anyone looking to expand further on what the company does, you can read my previous analysis here, an overview in Spanish here by , and a historical analysis here.

Fundamentals:

When I study any company, I like to focus first on the balance sheet of the company. Frankly, Games Workshop’s balance is one of the simplest and strongest I’ve ever studied. The business is quite simple, and that’s reflected in its balance sheet, too.

Despite paying out a significant part of the profits yearly (over 70%), which takes the dividend yield of the company to over 5%, one-third of the assets are cash and equivalents. Since the company does not have any financial debt, the balance is rock solid, and before a major shock event, the company is well protected, limiting its risk.

In the full year 2025, the total cash and equivalents are 132 million pounds, compared with a total assets figure of 383 million pounds.

The company’s profits have been evolving robustly, showing not only the strength of the brand but also its amazing pricing power and profitability.

In 2025, the company generated a net profit of 196.1 million pounds, up from 151.1 million pounds in 2024. Free cash flow conversion stayed over 100%

Regarding free cash flow conversion, which may be a concern for some investors, FCF tends to be higher than net income. This has its reflection in the accumulation of “unearned income” in the balance sheet of the company, mainly caused by long-term IP contracts.

Valuation:

The company is currently generating over 210 million pounds in operating profit from core activities. If we apply a 25% tax rate to that profit, and use a multiple in line with the market of 30 times earnings, given the quality of the business and its growth, we obtain the current market capitalization.

This means that we get for free the licensing business.

During the last year, the operating profit of the business was over 49.5 million pounds, and in the previous year, 27 million pounds. To be conservative, and given that in 2025 (fiscal year, ended in May 2025) the company has been very active in licensing, I consider 25 million to be a fair, sustainable operating profit for this side of the business.

As before, applying a 25% tax rate and a multiple in line with today’s market capitalization, we obtain a margin of safety of about 10%.

This may not be enough for everyone, but with a solid and sustainable growth of double-digits, some operational leverage, and a 5% dividend yield, the company is a solid cornerstone of every quality-oriented portfolio.

Hence, in a base scenario, we could see the share price grow by 15% yearly for the foreseeable future, with the optionality of a better-than-expected licensing revenue, which translates directly to profits. All this, while sitting in a safe 4% dividend yield.

Full year 2025 (May 2024 - May 2025) review:

The financial highlights of the company during its 2025 fiscal year have been outstanding. All metrics are at an all-time high.

Tariffs:

In 2025, we can barely speak about any business without mentioning tariffs. In the case of GAW, the company estimates that tariffs can have an impact of 12 million pounds for its fiscal year 2026 if they don’t do anything. That’s 4.5% of their current operating profit. However, the company is taking some countermeasures to reduce this percentage, and the management expects tariffs to only impact its gross margin by reducing it by 2%.

Reducing costs:

Manufacturing costs have been reduced from 5.2% of core sales to 4.7%, showing the company’s effort to reduce costs, even when they are growing healthily. That’s something you want to see in every company you invest: cost discipline, even while they are expanding.

Warehousing costs have also been reduced, from 5.9% to 5.7% of total revenues.

Community:

The biggest part of the company’s value is its community. Hence, it’s great news that the community keeps growing and keeps being engaged. These are the highlights:

• My Warhammer users (online store): 735,000 active users, up from 565,000 a year ago

• Warhammer+ (subscription Netflix-like): 232,000 paid users, up from 176,000 a year ago.

• Email subscribers: 678,000, up from 598,000 a year ago.

These are the numbers that the company reports, but you can also see how the engagement of the community is high and valuable. In Reddit, the Warhammer community is within the top 1% of Reddit, even in unofficial pages:

The company has also increased the number of stores globally, with a net opened count of 22 stores (570 total stores compared to 548 stores a year ago). Most of these stores are single-staffed (424 out of 570), which shows a cost-effective management.

All in all, a great year for the company, which keeps strengthening its IP and creating value for shareholders.

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CCalle is a value investor and CFO. More than 1,700 people copy his investments with several million dollars of assets under copy.

You can visit his public portfolio here.

Learn more about CCalle here.

General Publication Information

No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. At the time of writing, as disclosed in the article, CCalle has a position in the company.

One of my first investments was an index fund of Germany. I remember at some point during 2016 when the return on my investment, which I increased monthly diligently, was over 20%.

—SELL EVERYTHING!!

That’s what a coworker (a boss, actually) told me during a lunch that we had.

—It has gone up already. Sell everything. Wait until it goes down and buy again. That’s how it works.

I didn’t sell, of course. At some point, it did fall, but the price kept going up for some time. If I hadn’t sold at all until today, I would have had a return of about 150%. Not bad, for about 9 years.

But selling because it has gone up is a common (mis)conception. Hence, many people leave a good deal of performance on the table, regardless of the asset they are buying.

For instance, in the 2023 QAIB Report of Quantitative Analysis of Investor Behavior, the average equity fund investor has performed 3% worse than the SP500 yearly for 30 years. That takes quite a bite to your potential wealth over such a long period of time.

Not only that, the average fixed income investor has LOST –0.14% per year, while the bond index has increased by 4.55% per year. Worst yet, before 2022, in every time period the average fixed income fund investor has lost money.

You can find the study here.

In this same regard, Fidelity Magellan Fund, which used to be managed by Peter Lynch, achieved an outstanding return of 29% per year from 1977 to 1990. However, according to research done by Fund, many of its investors actually lost money trying to predict when the price would rise and when it would fall.

In this regard, I’ve been checking Berkshire’s returns during Warren Buffett’s tenure (1965-2024). His average return has been 19.99%, of which:

• 11 times the yearly return has been lower than 0%

• 11 times between 0%-10%

• 8 times between 10%-20%

• 11 times between 20%-30%

• 7 times between 30%-40%

• 2 times between 40%-50%

• 8 times between 50%-100%

• 2 times more than 100%

In the same period, the SP500 has returned:

• 13 times the yearly return has been lower than 0%

• 10 times between 0%-10%

• 15 times between 10%-20%

• 12 times between 20%-30%

• 10 times between 30%-40%

• 0 times between 40%-50%

• 0 times between 50%-100%

• 0 times more than 100%

So basically, the moral of the story is that because a stock, fund, or index fund has gone up 10% or 20%, it doesn’t mean it can’t go up higher. Besides, trying to time the market not only doesn’t help to obtain better results, but also harms the performance of investors consistently. Hence, stay invested and invest for the long term.

CCalle is a value investor and CFO. More than 1,700 people copy his investments with several million dollars of assets under copy.

You can visit his public portfolio here.

Learn more about CCalle here.

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One Up On Wall Street

If you're just starting out, this is your book. It explains investing in simple terms.

If you've been investing for a while, it can help organize your ideas.

It's probably a book for all levels of investors.

A gem.

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Investing For Growth

By Terry Smith. A collection of writings that summarize the philosophy behind his well-known investment fund.

Value Investing: From Graham to Buffett and Beyond

It’s the book on which Columbia’s Value Investing course is based.

If you want to learn, this is your book.

Common Stocks and Uncommon Profits

A classic. You won’t find step-by-step valuation calculations, but you’ll learn A LOT about how to choose great businesses.

Quality Investing

Possibly one of the most sought-after investment strategies in recent years: quality.

If you want to understand why this strategy makes sense, read this book.

Behavioral Investing

The power of psychology in investing is often overlooked. But it's essential if you want to succeed.

The Outsiders

Stories of great investors. Not dense and very entertaining.
You won’t find much detail on successful investment philosophy, but you will get insight into the profiles of the greatest investors in history.

The Dhandho Investor

Written by Mohnish Pabrai. More of a story than a real business lesson. If you're looking for a light read, this is your book.

Competition Demystified

Perhaps a more advanced book. If you want to learn about strategy and identifying competitive advantages, you should read this book

Applied Value Investing

I didn’t know this book until I studied at Columbia.

With it, you’ll learn how Warren Buffett does his calculations to value companies.

Essential reading.

What I Learned About Investing From Darwin

A very interesting comparison between investing and natural selection. I think that this book has everything to be an entertaining reading and an educational book about investing.

The Education of a Value Investor

Guy Spier writes a sublime book about everything a value investor needs to know.

If you’re just starting out, read it.

The Intelligent Investor

Also known as the Bible of Value Investing.

If you’re interested in Value, this book is a must-read.

Almost 100 years after it was written, it still teaches the pillars of investing.

Invest in the Best

A not-so-known book.

Written by the manager behind “Buffettology.”

You need a basic understanding of accounting to fully grasp it, but it contains a lot of wisdom in just a few pages.

These are the books that have shaped my investing journey. Don’t hesitate to share the ones you like the most as well!!

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But let’s see why Wise is such a high conviction pick for me:

Wise’s business:

Wise’s main business is international money transfer. However, the company also generates money from cards (28% of its income in the last quarter) and from keeping money on behalf of its customers. This latest part is divided by the company in two segments: one, yield for the first 1% interest income, which accounts for 12% of the last quarter’s revenue, and income above the first 1%.

The income above the first 1% accounts for an extra income of 103.2 million pounds, in the first quarter of 2026 (total underlying income, excluding this income, is 362 million pounds).

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As we see, Wise goes way beyond being a mere company of international money transfers.

The moat:

Wise is building a durable and strong moat by eliminating intermediaries in international money transfers. This allows the company to charge less to its customers while making much more money than its competitors. Also, by reducing the number of banks that the money goes through, they’ve reduced the bureaucracy that needs to be filled out, and then, most of Wise’s transfers are immediate.

As we see, the speed of transactions has been increasing consistently since 2020, reaching an impressive 65% of instant transfers in Q4 2025.

At the same time, the company has been lowering its take rates. Despite this, their net income is not shrinking, but it keeps growing, as we will see in the financials of the company.

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The competitor: Remitely

According to the earnings call of Remitely, Wise’s competitor, Remitely’s take rate is 2.28%, which is “in line with their expectations”. That compares with 0.52% of Wise in their Q1 2026. What a difference!!

Remitely must be making a lot of money then, right? Well, the truth is they don’t!!! In 2024, they lost 37 million dollars with a revenue of 1,264 million dollars. WOW.

If I have to guess, when Wise can compete in the US market, Remitely will suffer a lot, both losing customers and widening their losses.

The valuation

I was surprised yesterday when I saw Wise’s numbers. They were great. Cross-border volume went up 24% year over year, although underlying income “only” grew by 11% because they are lowering their take rate.

Despite that, if we consider that Wise will maintain the same level of income as in the first quarter of 2026, their total income for the year will be higher than my best-case scenario, which I’ll show you here:

According to Wise’s latest update, if they get the same revenue during the four quarters of 2026, their total revenue will be 1,623 million pounds. Also, in my forecast, I’ve applied a 16% underlying operating profit, which is probably very conservative for 2026, since their 2025 underlying operating profit was 24%. However, 16% is consistent with what the management is guiding as a long-term goal.

In my forecast, I overestimated how much they would make on interest over the first 1%. The total profit before tax would be 528 million instead of 571 million, but as I said, the underlying profit is most likely higher than 16%.

Hence, I think that maintaining my forecast as a good scenario would be wise (punch intended). With a PE multiple of 30 times earnings, I get to a valuation of 26.6 billion pounds in 2030, which is a compounded annual return of over 19% (or 143% from here to 2030).

The risk:

This valuation relies heavily on growth, from revenue growth to a generous PE multiple. Also, stablecoins may pose a risk to Wise’s business. However, the company is pushing costs lower, and the cost of settling a transaction may be even lower than the cost of settling with stablecoins. The total “take rate” for Wise is likely higher than the settling cost of stablecoins, but the private companies that back a given stablecoin must make money too, and they’ll likely be subject to financial regulations, such as Know Your Customer, anti-money laundering, and so on.

Also, lower interest rates can hurt the company, since they are having a good profit due to their customers’ balances. However, they are offsetting this lower income with a larger number of customers and a greater balance.

Conclusion:

Wise is building a great business with a wide moat. Their customers float offer a good opportunity to add profitability to the company, while they keep gaining scale to outcompete all of their competitors. With enough scale, not even stablecoins seem to be cheap enough to justify the low price the market is currently willing to pay for Wise.

If you’re interested in reading about stablecoins, you can visit this. To know more about cross-border payments, you have the information here. To know more about Wise’s business, visit this link.

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General Publication Information

No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. At the time of writing, as disclosed in the article, CCalle has a position in the company.

Range of stock, bond, and blended total returns

This is a classic graphic of JP Morgan’s guide to the markets. I always find it interesting, since it shows that in a 1-year time frame, stocks offer the highest potential return and the highest drawdown (green line). However, in the long term, in any 20-year rolling period, stocks not only offer the highest potential return, but also the highest performance in the worst-case scenario. This demystifies the idea that “stocks are riskier”, since risk comes from having a short-term horizon.

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S&P 500 Index: Forward PE Ratio

The current valuation of the SP500 sits at 22 forward PE. This is considerably higher than its 30-year average of 17 times, and also higher than the average plus one standard deviation of 20.2 times.

Forward PE and subsequent returns

Starting from a high valuation, as we said before, 22 times forward earnings, returns for the subsequent 1-year and 5-year periods are slightly positive, but close to zero. This means that investors should lower their expectations of future returns, especially if they invest in an index fund of the SP500.

S&P 500 year-over-year EPS growth

Much has been said about “American exceptionalism” in the stock market. Needless to say, the past decades have been great for the US stock market. But it’s interesting to see how important margin expansion and revenue growth have been for the SP500 returns. From 2001 to 2024, revenue growth has added 4.9%, or 67% of the total return. Margin expansion has added 2.2%, or 30% of the total return.

Moving forward, EPS growth is quite optimistic for the coming years. But since we are at a point in time where profit margins are at the highest point of the past 25 years, I wonder if those estimates are too optimistic. Either revenue growth surprises on the upside significantly, or future EPS growth will fall short of expectations, since profit margins cannot keep expanding forever.

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PE of the top 10

The earnings percentage of the top 10 companies over the 500 companies in the index sits at an all-time high: 32%. The index concentration, hence, is quite high, since the weight of the top 10 companies by market capitalization is currently 38% of the total index.

Diversification is more an illusion than a reality in the current SP500.

Another observation I would like to make is that it is often said that the current valuation of the top 10 holdings reflects their quality. For that reason, people tend to justify the current PE ratio of the top 10, which is 28.8 times earnings, which is a premium of 39% over its historic average (since 1996). However, I don’t consider that the quality of the rest of the business within the index is much higher than it has historically been, and despite that, the remaining stocks of the index also trade at a 31% premium over their historic average (20.7 times compared to 15.8 times).

Performance of Magnificent 7

It’s no surprise that the Magnificent 7’s share of returns is quite high. From 2021 to 2024, the lowest share of returns of the Mag7 has been 33%, and the highest, 63%.

This has been caused by the higher earnings growth of these 7 stocks. However, people tend to forget that these businesses are also cyclical, as they proved in 2022. What works during the way up also works on the way down.

S&P 500 intra-year declines

There’s no year without decline. Even in years when the index has performed pretty well, intra-year drops are common and usually deep. But as we saw before, investing in stocks may be volatile with a short time frame, but it is rewarding in every scenario if the time horizon is long enough.

Sources of global equity returns

Coming back to the exceptionalism of the US stock market, I’m skeptical that it will be maintained in the coming 15 years. Don’t get me wrong, earnings and dividends will probably grow. My skepticism comes from the multiple expansions’ share of returns. In the US, during the past 15 years, a total return of 14.9% per year, about 5% has come from multiple expansion. That means that the current starting point is probably too high to be maintained, so in a best-case scenario, we could think of multiple expansions adding 0% to the future returns. I could see a future where multiples actually deduct returns for the coming 15 years.

It’s also interesting to see how, in shorter periods of time, multiples move the market. However, in longer periods of time, earnings and dividends are the most important factors.

Valuation by country

The US currently trades at the most expensive multiple valuation of the past 20 years. Also, every sector but healthcare trades at a premium compared to the rest of the world.

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This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

Investors speak often and extensively about when, how, and why they buy businesses. However, people tend to avoid speaking about when to sell, although it may be as interesting a topic as when to buy.

I’ve been reading a market commentary today about a fund that trimmed some positions during the tariffs panic to increase some others. They trimmed those positions that had fallen the least and increased those who went down the most. Of course, after the flash recovery, they had some better upside in those businesses; they increased positions, only because, as the risk “faded”, the rebound was stronger.

At a moment during the commentary, they were arguing that the positions they sold had barely fallen during the panic, so they sold at their sell price. But then you should be thinking: if they fell slightly, and still you sold at your “sell price”, why did you have that position? If you have a price, and the business reaches its price, you should sell, right?

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Enough about what they said. Let me explain to you how I’ve built my process over the years. I’m not saying it’s perfect, but it works for me and my personality. Investing is often said to be an art rather than a science. A craft for many. So there’s no universal truth in it, and you have to find the practices that work better for you, so you can maximize your strengths and minimize your weaknesses.

Before we jump into the selling, I think it is necessary to clarify when to buy. In my opinion, rational investing occurs only when you buy something that you consider to be at a discount to its fair value. Hence, I assume hereafter that, if you have bought any business, you think logically that it is worth more than the price you paid.

There are two types of businesses you could buy: good businesses and poor businesses. Let’s start with the poor businesses.

Poor businesses:

These businesses don’t deliver a return over their cost of capital, meaning that they destroy value over time. Said otherwise, they are likely to deliver poor returns over time, and you are probably better off investing somewhere else. One clear example of these businesses is airlines, since they tend to lose money over a whole business cycle.

Since these are not good businesses, and since we buy companies to become their owners, we should avoid these stocks. However, every now and then, some cigar butts, as Warren Buffett used to describe them, arise and are probably very attractive from a risk/reward point of view.

Say, for instance, that you find a company whose upside is 100%, it presents a good and plausible catalyst, and the downside looks protected because the company’s enterprise value equals its cash. Yeah, I know this is an unlikely scenario, but it’s only for the sake of the example.

In this case, if you think that the company’s value is 1$ and currently trades at 0.50$, as soon as the share price goes to 1$, you should be out of your position. You have a price target, and you don’t care about anything else. It is tempting to keep the position, especially if it looks like the share price has some “momentum”, but that’s not our game. We’re here to approach investing rationally.

Why would I sell immediately after it reaches our calculated value?

Because we don’t want to be long-term holders of bad businesses, since, by definition, they will deliver poor returns to long-term owners.

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Good businesses:

But what about those outstanding businesses that are so hard to find at reasonable prices?

At the beginning of my investing journey, I was on the side of never selling good businesses. I read this idea from Keith-Ashworth Lord, who argues that it is difficult enough to find a good business at a good price as to be doing it often. If you find a good company, you stick to it, through thick and thin.

Over time, my taste has been evolving towards what Vitaliy Katsenelson calls Active Value Investing. Yes, it is difficult to find good companies at good prices, but even great companies don’t deserve an infinite price. But I’m not willing to sell them slightly above my fair estimate either, since good companies tend to outperform on the upside.

For this reason, I don’t sell good companies when they reach my estimated fair value. Instead, I want the share price to discount one year of expected returns to today, and on top of that, I want the share price to absorb the impact of taxes as well.

Let’s see an example. Say that my fair price for a business’ share is 1$, and I expect it to grow its value to 1.1$ during the next year. Well, in that case, I want the share price to be 1.1$ today before selling. On top of that, I will calculate the effect of taxes.

Say that I bought the company with a 20% discount, that is, 0.80$. If the tax rate is 30%, I want to sell at 1.1$ net of taxes. Hence, I would have to sell at 1.228$ (I would pay tax for 1.228$ - 0.80$ = 0.128$). In this example, with this tax rate, the premium I’m asking for a company growing at 10% its value is 22%. It may look aggressive, but if someone wants to buy a good business from me, they have to pay a premium!

About trimming when a stock goes up, but doesn’t reach your target price:

Then I see many people trimming when a stock goes up 10%, to reallocate those funds to a stock that has gone down 3%. Let me give you my honest opinion about that: it is worthless.

Those investors usually argue that they add some performance because of that activity. Well, I’m very skeptical about that. But I’m sure about something: it triggers taxes. And that’s unavoidable.

Maybe they don’t consider taxes within their performance, but they should, if they want to increase their capital.

They can also argue that they can sell something to harvest some losses. Well, then in a given year your activity has helped you gain a total of 0$!! And you are likely restricted from buying back what you sold to harvest losses. From a particular investor's point of view, it doesn’t make sense, in my opinion.

Instead, I advocate being active when you need to be active: that is, when someone is willing to overpay for your good business, or to pay a fair price for the cigar butt you bought. The rest of the time, your time is better spent researching new businesses or the ones you currently hold.

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General Publication Information

No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

If you search online for Nike’s fragrances, you’ll probably find these perfumes. I’ve even had one of these when I was a teenager.

But this might not be what you think. There is no trace of the Swhoosh logo, Nike’s iconic brand element. And the reason is very simple: Nike fragrances are owned by a Spanish Company: Campomar.

Campomar registered “Nike”, in allusion to the Greek goddess, to be used as a perfume brand in 1940, way before Nike Inc. was even created. The small Spanish company has expanded worldwide with its trademark, and if you go almost anywhere in the world to buy a “Nike” fragrance, you’ll probably be buying one of their products.

The Spanish company and Nike even had a legal conflict in 2000. When Campomar tried to launch a new product in Australia, Nike Sports, Nike Inc. sued the company, alleging that they were taking advantage of Nike’s brand in sportswear.

The conflict was resolved in favor of Campomar: Nike couldn’t sell perfumes, due to brand confusion, but Campomar could not use “Sports” in its fragrances.

In 2009, Nike tried to register its brand in the US as well, but the company faced a company that had the trademark in perfumes: Fraas KG. The World Intellectual Property Organization ruled against Nike, once again, which has blocked the company from launching any fragrances in the country.

Some competitors of Nike, like Adidas, have their fragrance collections. However, Nike hasn’t been able to compete given that its trademark is already taken by different companies in different parts of the world.

Key Highlights:

• The company trades at a discount to earnings and book value.

• Book value is likely underestimated, and the company is selling its less profitable assets to develop or acquire higher-yield warehouses.

• The management owns 37% of the business

• I’m reinstating the company’s book value to know its true discount

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The business:

ARGAN SA is a French REIT. The company develops logistic centers and rents them to its clients, among whom we can find companies like Carrefour, Decathlon, DHL, or even Amazon. Mainly, they develop their logistics centers with a pre-let contract on their own land.

The company currently has 3.706.572 sqm of warehouses over 9.864.324 sqm of land. They also have spare land to develop new warehouses of 590.000 sqm.

Rentals:

The company has had an impressive history of increasing revenue. Of its portfolio, 43% of the leases have a duration of over 6 years, and 29% have a duration from 3 to 6 years. Their contracts are also indexed to ILAT, generally (index of rents for tertiary activities).

Argan has consistently increased its revenue with a mix of new logistic centers and price increases as per contract.

The Management:

One thing we always like to see as investors is the management team having a sizeable skin in the game. In this case, the family Le Lan owns 37% of the company and runs the company, which shows a clear and strong alignment between the management and the shareholders.

The obvious valuation:

The company is currently trading at 0.7 times book value. However, at the same time, the company claims to be selling its lower-yield assets to acquire or develop higher-yield logistics centers. These disposals, according to the company, are being made at fair value. Hence, without further math, we can see how the company trades at a 30% discount to a clear fair value: the value of its assets.

But if we look beyond book value, the company also has a strong revenue stream. In 2024, the company generated 137 million euros in Recurring Net Income. That leaves the company trading at almost 12 times NRI.

Personally, I find both multiples quite depressed. At least 1 times book value, or a multiple over recurring earnings of 15 times, is due. In both cases, the company trades at a discount of 25%-30%.

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But there’s more:

The company is disposing of its lower-yield assets, as we said before. So I went to check if the management's affirmation of “we’re selling at fair value” was true or not.

And what I found was surprising.

In October 2024, ARGAN sold its Wissous datacenter for 59.000.000 euros. That’s 2.615 euros per sqm (despite being a Construction Lease, and not a fully owned facility).

Then I went to remake all the valuations of the assets.

The company’s auditor establishes the fair value of the logistics centers by performing a discounted cash flow. I went to visit the current price per sqm of every one of their assets. The Wissous data center, by the way, was one of the most expensive assets (top 2), since I tried to be conservative and apply an average price per sqm.

Despite being conservative, my fair value for the company’s warehouses is 4.726.455.000 euros, compared to 3.978.464.000 euros that the company recognizes in its balance sheet. That’s a premium of over 18% to their current value.

Hence, if we adjust the company’s book value, we’re not only sitting at a company with a 30% obvious margin of safety; we are staring at a company with almost 70% margin of safety.

This is why I’m deciding to increase my exposure to ARGAN.

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To read about the risks of the investments, visit my blog on eToro about the company: RISKS

General Publication Information 

No Investment Advice 

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in  a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors. 

Disclaimers 

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage. 

CCalle has a position in ARGAN and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

June finishes and, with it, the portfolio has finished the first half of the year up 21.62%. Here are the main key highlights of the portfolio’s performance:

• Performance since inception: +160.09%

• Compounded Annual Rate: +19.30%

• SP500 return: +86.11%

During the month of June, the portfolio has stayed almost flat, going up by +0.52%. The SP500, in the same period, has gone up by 4.96%. The returns year to date are 21.62% and 5.50%, respectively.

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Portfolio return compared with the SP500

The SP500 has had a great month. Our portfolio has lagged behind because the US constitutes just 20% of our total allocation to countries, most of which comes from Crocs, with a weight of 10%.

For comparison, at the end of 2023, our allocation to Meta had almost the same weight as the total allocation we currently have in the whole US market. Our peak allocation to the US has been 56% in January 2024.

Source: Bullaware

This allocation doesn’t come from a macro analysis, but from a bottom-up approach. Said differently, the portfolio allocation comes naturally as a result of seeking good companies at reasonable prices. The US market in general is trading at the highest multiples of recent history, and when we analyze companies, especially those whose quality is widely known, we see high valuations. I would dare to say that even too high valuations, despite the high quality of the businesses.

Nowadays, more people are speaking about the end of “American exceptionalism”. I wouldn’t go that far. But it is true that in the past decade, part of the performance of the US index has come through multiple expansion. Today, at the highest PE ratio of the last 20 years, an optimist investor could only expect returns in line with earnings growth. A prudent investor, like us, would expect returns below earnings growth, since a multiple compression is highly likely.

For reference, from the end of 1999 to the end of 2009, when the market cap of the 10 largest companies peaked before 2020, the total return of an index investor was -25%. The earnings of the top 10 companies kept going up for some years, but the stock market corrected the overweight before the decline happened.

Hence, since we are looking to obtain double-digit absolute returns (meaning that we don’t care about what the market does), it is only logical to pivot towards companies and geographies trading at cheaper valuations, while still maintaining a high bar for quality.

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I would like to finish with some words of caution. Investing in stocks has been proven over time to be an intelligent decision. However, we cannot agree to pay any price and expect to make a profit out of it. Returns depend on the price you pay, so the more expensive you buy a business, the lower the returns you can expect. The market can keep overpaying and bidding up businesses, but in the end, the cash that those businesses generate will dictate their appropriate price.

Despite all market circumstances, we keep focused on delivering good returns while focusing on capital protection.

Cristià Calle Mercado.

General Publication Information

No Investment Advice

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors.

Disclaimers

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage.

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

In the following chart, by Visual Capitalist, you can check how much $1 has been worth during the last century. This graphic was up until 2020, so it doesn’t consider the last several years of high inflation.

Even disregarding the past years of inflation, time kills your savings. If you put $1.000.000 of buying power under your mattress in 1913 and woke up today, you would have about $31.000 of buying power today.

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But that is over 100 years. I’m not going to live that long, you fool! — you are thinking right now. I know, I know. What about 2000-2024? Would that work? At the end of the day, the 2000s seem to have started a few days ago! Well, if you’re ok with that, in that case, you would have only lost 50% of your wealth!!

So at this stage, what are the alternatives?? You don’t want to lose your money, right? Let’s dig a bit more into history then, so we can know what we can invest in to keep or increase our money! Luckily, Jeremy Siegel already did that work for us, going back to 1801.

As you can see in the pic, $1 invested in stocks would have had the greatest return, becoming over $2.000.000 in 2021. Over that same period of time, if you had held $1 in 1081, it would be worth $0.05 today. What a difference!!

If you had gone for the “safe” option of investing in bonds, you would have had a bit over $2.000 today. Not a safe investment, after all!!

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To wrap up, investing is not only advisable but also mandatory to keep your wealth, not only to grow it! If you’re afraid of losing your money, you definitely need to invest. Otherwise, losing your money is not an option, it is a reality!!

The above results show that $1 invested in the portfolio would have turned into $1.92 dollars, compared to $1.57 if it was invested in the SP500. 

Investing Philosophy 

Most people who manage money buy companies expecting the share price to rise sooner rather than later, and when it does, they sell and buy new companies. Rinse and repeat. I’ve always found this approach tiring, difficult, and the results are somewhat (if not completely) beyond my control as an investor. Most of the time, cheap businesses are cheap for a reason. 

I prefer buying businesses whose prospects are great while paying a low multiple for them. But the “buy and hold forever” mantra is not for me either. I like to be vigilant with the businesses I own, and thus I’m always checking if the business decisions that managers make are aligned with long-term value creation or not. I also like to be vigilant with the share price. Great businesses usually deserve better valuations than the average business, but not a crazy multiple on earnings.  

When I own a business, I have an intrinsic value for it. My assumptions turn out to be very conservative more often than not. And that is why I tend to stay invested even though I think the businesses are slightly overpriced. However, if according to historical average margins, the share price is pricing in abnormal margins and growth for a long time, I tend to trim my position.  

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That’s what happened with Meta in the first quarter of 2024, and the reason why I reduced the holding from 20% of the portfolio to slightly above 3%. The company can still have a great return in the long term, and that is why I’m still invested, but some risks may not be correctly priced into today’s stock price. I would be happy to make Meta a 10% holding again if the price is correct, as I did when the share price was at $90 at the end of 2022. 

Most of the time, I buy great companies and let them compound. But sometimes, if the share price is too high compared to the (my) company’s value, I’m happy to move on. Valuations are important in the investing world, and investors would be better off remembering it. 

Two other examples are LVMH and SCT. In both cases, the price rose beyond any rational valuation, and thus, I trimmed the position in the case of LVMH and sold it completely in the case of SCT. Sometime later, when the market realizes that the prices, he’s paying are overwhelming, I’m happy to buy back the businesses. Now, we have a holding in both companies. 

What we don’t need to have returns and what we do 

We own good businesses that are reasonably valued. Therefore, we need them to grow, improve their margins, invest in maintaining or increasing their competitive position, and buy back stocks. All of these actions are in the hands of the management. Thus, it is feasible. 

We don’t need our businesses to be included in a given index, to be part of a newly approved ETF, or generally, to attract the attention of the market. Our focus will always be on fundamental developments of the businesses, and not their stock price. If we pay any attention to the price, it is only to take advantage of the market’s mispricing mistakes.  

Most of the time, investors have a short-term horizon. Both professionals and non-professional investors tend to focus on the next quarter’s earnings. This attitude tends to depress in excess good businesses going through a rough patch. Since we are here to build generational wealth, I’m happy to buy good businesses going through tough times and hold for many years. Hopefully forever, if the business doesn’t become crazily overvalued.  

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This is the case of MATCH. Once admired by the market, which was willing to pay almost 200 times earnings, has now fallen in disgrace. The company’s price has fallen almost 80% since October 2021, although the company has more than doubled its net income. Currently, revenue growth is weaker than it was, but the company is trading at 15 times net earnings. If the company manages to bring back some growth, MATCH will be a bagger. 

To finish the letter, I would like to remember that the above returns are not possible without great patience. The market tends to test our conviction, and in some years, it has, indeed. Investment is simple, but not easy. And the difficulty comes from being able to sit patiently doing nothing. Sounds easier than it is.  

To the patient investors. 

Cristià Calle Mercado. 

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General Publication Information 

No Investment Advice 

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors. 

Disclaimers 

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage. 

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage.

The basis of the study is that God knows what the future returns are going to be and, thus, He’ll pick the best-performing stocks for the next five years. After those five years, they will rebalance and pick, again, the best-performing stocks.

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God, of course, would do great. No wonder, since He knows what stocks are going to perform the best! However, the standard deviation (volatility) would be higher than the index. The worst drawdown, though, would have been slightly lower.

The 29.37% yearly return would have come at a cost. And the cost is volatility. The biggest drawdown would have been in the period between 1929 and 1933, but in the 2000s He would have had two drawdowns of over 40%.

Not only the drawdowns would have been huge, but also He would have needed quite a lot of time to recover. After the drawdown of 2008, He would have needed 669 days to recover the previous peak. In 2000, He would have needed 1,125 days, and in 1929, 1,400. Quite some time of poor performance!

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Until here, all I’ve done is show you the results of Alpha Architect’s analysis, but let me tell you my conclusions:

• Even if you know that your return is going to be exceptional, you need to have the right temperament to outlive bad times. Otherwise, you would be doomed. It looks easy, in hindsight, but bear in mind that you may need through up to 1,400 days to recover your investment from the previous peak.

• This study has been done without leverage. If leverage were involved, God would have gone bankrupt quite some times, even knowing what stocks were performing better. Stay away from leverage!

• With God’s strategy, you would have obtained a return of 29,37% per year. Beware of those who promise more than God can achieve!

In the article, Alpha Architect presents a long-short strategy as well. But I’ll let them explain that one. Check the article here.

You can also watch AZ Valor’s video here.

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General Publication Information 

No Investment Advice 

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors. 

Disclaimers 

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage. 

As usual, Wall Street is focused on the next quarter and the next year's guidance. In the conference call, several questions were asked about shrink (or stolen goods by customers). The company is taking steps to address this issue, which turns out to be a continuous issue with retailers in the US.

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Overall, the company has done fine, increasing sales by over 15% year over year, 2.8% of which was due to the comparable sales increase. Diluted earnings per share went from $4.69 to $5.41. Despite the good numbers, the stock is falling over 10% after-hours, so what’s going on?

FIVE is leveraging its strategy of increasing the number of stores in the US. Currently sitting at 1,544 stores after opening 63 new ones in the last quarter, the company aims to have over 3,500 locations by 2030. And the market seems to be buying this vision.

Running some back-of-the-envelope calculations, if the pace they had during the last quarter is maintained in the future, they will end up 2030 with 3,056 locations. So they need to speed up if they want to deliver.

FIVE has found a model that works. New stores are getting a payback of less than a year, and you can see that in the healthy balance sheet of the company. However, the stock trades at 38 times earnings before the open, and over 30 times if the after-market crash materializes when the market opens.

The market seems to be willing to pay a good multiple for this business. Of course, you may think, since it has been proven really profitable. But as years pass, the market gets closer to saturation. There’s no sign of it, though, but that is a black cloud on the horizon that I think Mr. Market is missing. Another risk is that this is a “goddamn retailer”, quoting our beloved Charlie Munger. But people only realize this when it’s too late.

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As for me, a fair multiple would be closer to 20 times earnings. This means that the stock price should still lose another 30% after the 10% fall. To get this multiple, I’m basically assuming that the growth will deteriorate in the long term.

If we assume a 12% earnings growth until 2028 and 3% in 2029, with a 15 times earnings exit multiple, the stock price should fall another 40% before being fairly valued (or close to it).

So, it all depends on your judgment here. With the assumptions above, I’m assuming that the management falls short of their expectations of new stores. I’m also punishing slightly the net earnings per store. So that may be a very conservative scenario. However, with today’s price, the opposite is occurring. The company’s growth appears to be guaranteed, as well as its current profitability. As you can read in the post “The Quality Bubble?” by , quality businesses appear to be valued for perfection. And that rarely goes well.

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General Publication Information 

No Investment Advice 

This file or any content in this webpage is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This file is distributed for informational purposes only and should not be constructed as investment advice or a recommendation to sell or buy any security or other investment or undertake any investment strategy. It does not constitute general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in the file will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in the file may occur. Certain transactions, including those involving futures, options, and other derivates, give rise to substantial risk and are not suitable for all investors. 

Disclaimers 

There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this file. CCalle will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this file or webpage. 

CCalle may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on the webpage. CCalle has no holdings in this position at the time of publishing.