Portfolio Update - 09/05/2022
Portfolio returns (in €)
2019: +30.2%
2020: +41.8%
2021: +47.4%
2022 YTD - Q2: -29.7%
Global stock markets (and my portfolio in particular) continued to plunge during the second quarter of 2022 and beyond. The truth is that seeing my wealth decrease by a third from just half a year ago is not a pleasant experience (and even more so when one is in the process of building a house for his family and that money would have gone a long way in speeding up the process). Investing in the stock market is, in my opinion, one of the most rewarding games ever, but one must accept the rules of the game in order to enjoy it. If one’s intention is to invest during the next 10, 20 or, hopefully, 30 years, experiencing uncomfortable periods, like the one we are going through, is unavoidable.
The second quarter of the year has posed a clear opportunity to get rid of second-tier businesses and invest more decisively in those with higher terminal value, better unit economics and still able to reinvest and compound FCF per share at double digit rates for years. My investment account hadn’t seen a period of such activity for a while, and it probably won't happen again anytime soon. There are companies I want to keep in my portfolio for the next 5, 10 or hopefully 15 years, and they are trading at multiples I had not seen in a long time. I might be wrong, but I believe this portfolio I have built is the one I have felt the most comfortable with in years.
As usual, I’m sharing all my portfolio activity during this quarter below with paying subscribers. Among other things, I wanted to explain why I am no longer a shareholder of RCI Hospitality’s shareholder base. After publicly sharing my opinion on the pros and cons of the business (Link 1, Link 2), it is only fair for me to provide explanations on the main issues that have motivated my decision. Since I bought my first shares in 2020 at around $23 per share taking advantage of the uncertainty surrounding COVID, I have enjoyed watching the evolution of both of the company’s segments - its gentlemen clubs and Bombshells. The share price has reflected all this development, and I am grateful to the entire RCI Hospitality team. However, I neither understand nor share some recent strategic decisions made by the management team. Additionally, Leatt Corp, one of my top holdings (Link 1, Link 2), reported results just a few weeks after the end of the second quarter. I also wanted to update subscribers on my opinion and my decision-making process after pondering over the numbers reported.
I think the latest addition to my portfolio is also worth a few words. It’s a company I have been following with admiration for quite some time, and I have finally had the opportunity to invest in a great business at a more than reasonable price. The company meets all the requirements on my checklist for new investment ideas: a resilient business model with a recurring and predictable revenue stream, high returns on invested capital and a long-term oriented management team that is truly focused on creating shareholder value.
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