A quick update on a recent purchase in my portfolio. This time, another new position in my portfolio.
As I read and learn more about investing and valuation models, I have come to realize that paying higher attention to Return on Invested Capital (ROIC) (and other similar metrics such as ROE, FCF etc) and qualitative aspects of a company present a better probability of finding compounding machines. A good read on this topic is a blog post from Intrinsic Investing about finding the next ROIC machines. As outlined towards the end, investors should look for companies that have economic moats, owner-operators, intrinsically understandable & sound business model, and value accretive to all stakeholders. I believe this new addition to my portfolio checks all those boxes and is a good candidate for a long term compounder.
I initiated a new position in Ferrari N.V. (RACE) with 25 shares @ $157.30. Ferrari barely needs any introduction as it is one of the world’s most recognizable & adored brands. I initially ignored it a couple of years when the company IPO’d after the Fiat spinoff. But the more I read about it, the more it made sense as has all the markings of a long term compounder investment.
Ferrari has a lot going for it: a global brand recognition, a seemingly endless demand, strategic scarcity & exclusivity creation, pricing power etc. Some analysts have also floated the idea of Ferrari as a recession-proof company — the reasoning being that it is to be viewed as luxury goods rather than other auto company (it certainly trades at a luxury multiple on the market). The customers are the ultra-rich, who aren’t too affected by a recession, or so the theory goes. While I agree that it is not to be treated as a regular auto company, I would still take the recession-proof point with a grain of salt.
Nevertheless, instead of rehashing the long thesis, I will point to a few of good reads outlining the case for investing in Ferrari:
- Joining the winner’s club with Ferrari by Intrinsic Investing
- Ferrari 2018 Update by Gordon Investing
- Ferrari: Notes from the Form F-1 (from 2015) by Just Value
- The Crisis Fiat Faced as It Lost an Indispensable Leader from Bloomberg — an article about the death of Sergio Marchionne, but puts some things into overall perspective
What are you thoughts on the purchases above. Leave a comment below.
Full Disclosure: Long RACE. Our full list of holdings is available here.
