Performance & Holdings
2024 Proved another good year for markets. My ISA stock portfolio posted a decent gain of +22.54% (in sterling), inclusive of all dividends and net of all fees. The US S&P500 index in sterling terms delivered a marvellous +26.9%. The FTSE Allshare delivered +9.3%. Fundsmith Equity was off the pace at +8.7% & Berkshire Hathaway was up +25.4% in dollar terms.
The portfolio is now roughly two thirds' US equities, with most of the remainder UK. When I started recording my performance against the Allshare the portfolio was exclusively invested in UK Stocks and funds hence the Allshare was an appropriate benchmark. Now as the portfolio has drifted more towards US equities the S&P500 would be a more suitable benchmark (or maybe MSCI World or similar), but for continuity I've stuck with the Allshare in the tables. It's worth noting however that the US market has thrashed the UK market in recent years and a US tracker fund would've outperformed my efforts.
Current holdings and performance below:
Top 5 risers (highlighted green above): Netflix (+83.1%), Meta Platforms (+65.4%), Meituan (+58.3%), Flutter Entertainment (+48.6%) & Amazon (+44.4%).
Top 5 fallers (highlighted orange): YouGov (-64.8%), Intel (-60.10%), Estee Lauder (-48.7%), Mony Group (-31.40%) & Adobe (-25.5%).
It's a rarity that no new positions were instigated during the year. Also, no positions were fully disposed of.
A special mention for Apple as towards the end of last year it became my first ever Ten Bagger investment (i.e. an investment that has gone up tenfold since initial purchase.) I first bought Apple during 2016 hence the ten bagger was 8 years in the making and achieved an average annual return of c. c. 33.34% per annum over the time period to deliver that result, testament that patience is definitely a virtue when holding stock in quality businesses. Notably around half the result was due to their earnings per share tripling, and the other half was due to valuation tripling. Apple's EV/Ebit multiple was 10.7x in 2016 and now it is 30.5x. A 3x in earnings growth multiplied by a 3x valuation expansion has created a double whammy lollapalooza 900% share price increase from $25 to over $250.
The way things are going Google/Alphabet looks to follow suit before long. A shame that not all holdings perform so well.
Valuations
Last year I lamented about the valuations of some US holdings, some of the stocks mentioned kept rising during 2024 and have become dearer still relative to the underlying earnings of the businesses. Costco now sits at a forward PE of 50.7x. Netflix 44.4x & Apple 32.9x. In response I have sold down the majority of my Costco stake and have begun selling Netflix and Apple too. They're all great companies but those valuations reduce the chance of a great outcome going forward. Some of the proceeds I've reinvested into existing holdings on lower valuations and also 2.26% of the portfolio sits in cash and money market instruments.
Options
My options portfolio is up 42% over the year, although the disparity between the individual holdings has been extreme (as expected). Some of the Disney options have already expired worthless thus losing 100% of the premium(bet). The saving grace has been my PayPal options which are currently up 182.9% and still have until December the 19th 2025 before they expire. If PayPal can make another decent gain this year (up 39% during 2024) these options could prove very interesting. There is a narrative that Apple/Google Pay is killing them but this really doesn't seem to be the case (yet at least). The majority of PayPal's revenue is from merchants not from consumers and many people are using unbranded PayPal services without knowing they are doing so. Transaction volume is still growing nicely year on year (as evidenced by their turnover growth below - plotted in $ millions). 2025 will see a rollout of many new initiatives such as Fast Lane Checkout and advertising via the platform which hopefully will provide additional tailwinds. Even Paypal's competitor Adyen (another portfolio constituent) has agreed to collaborate and use Paypal's Fastlane tech across its platform.
During the year I instigated two small new options positions in Warner Bros. Discovery and Alibaba, two stocks that I already own in my ISA portfolio that are extremely bombed out and unpopular. Both are long term options contracts with strike prices higher than the share price at point of purchase. A bet on share price mean reversion.
The options portfolio is relatively small in size, less than 1% of my ISA portfolio, I'm still viewing options as a risky side experiment rather than part of a long-term investment strategy.
As an options side note, IG Group have integrated their options trading platform Tasty Trade into the IG platform in the UK and it appears decent. They appear to have a duopoly in this area with Interactive Brokers. Both companies make great returns on capital and are growing nicely. Rolling out Tasty Trade globally should prove a good move for IG.
Other reflections:
AI continues to be the investment buzzword of the moment. Nvidia, the company which makes the majority of chips dedicated to AI processing, is jostling with Apple for the title of world's biggest listed company after its share price catapulted upwards 171.2% during 2024 (following a 238.9% gain in 2023). This return contributed c. 25% of the S&P500's growth over the past year. Other chipmaking and chip design stocks have done well too. Arm up 64.2% in 2024, Broadcom up 107.7%, Taiwan Semiconductor up 90%.
Unfortunately, I own none of the above (except via some tracker funds within my pension) which is the main reason I've underperformed the S&P500 index. The only horse I have in the chip race is Intel, and despite some good news from them this year their share price is down heavily. I am dismayed by the recent exit of their CEO Pat Gelsinger. It appears he was pushed by a board who haven't a clue what they're doing. One online blogger, Doug O'Laughlin, likened the decision to get rid of Pat just before his capital expenditure plans were coming to fruition, to "quitting the final round of chemotherapy in cancer treatment", a gritty but accurate comparison.
The two CEOs prior to Pat were the real cause of Intel's derailment, but this doesn't seem to be appreciated. They effectively sat on their laurels and underinvested to flatter Intel's bottom line whilst competition was stealing a march on them. The timing of the exit is appalling as Intel's new foundry operations are now coming online and a few large clients (Amazon, Microsoft, US Government) have signed up to use their new 18A process which could prove superior to TSMC's best technology. Instead of focussing on executing this, the board seems more intent on carving up the company and selling off assets. The derailment could turn into a trainwreck the way things are going. The shares are now trading below net asset value so hopefully the worst is already in the share price, I'm mindful to hold for now and monitor.
Intel's story demonstrates how precarious the chip business is. Buffett and Munger have both previously commented that they liked owning businesses that could withstand some poor management, this patently is not the case with chip manufacturing. Intel had two bad CEOs and a poor board and now face potential obsolescence.
At the moment Nvidia look unstoppable, but some of their biggest clients (think Amazon, Alphabet, Meta, Microsoft for their AI/Datacentre projects) are actively looking for cheaper alternatives to Nvidia chips as they represent such a big proportion of their capex. Both Microsoft and Amazon have signed up to produce their own chips on Intel's 18A process. Nvidia are going to have to stay significantly in the lead to warrant the gigantic 66% EBIT margin they are forecasting this year. Also, when Intel start manufacturing their own Gaudi chipsets (which compete with Nvidia) on their new high tech 18A process (not any time soon unfortunately), there is a chance they could close the gap enough to take market share from Nvidia.
Even if the current chip winners keep winning, and Intel becomes a distant memory, their valuations aren't exactly cheap. Definitely not a buy for me at these prices, with the possible exception of Taiwan Semiconductor.
Adobe shares were down over the year over fears that AI could disrupt their software products. There is a distinct possibility that this could happen, but so far, their figures remain solid, and my design and marketing friends who use their packages professionally are all still all choosing to keep paying Adobe's monthly fees for the software. Assuming they don't get disrupted the shares look reasonably priced.
There is also a worry that AI LLM's (Large Language Models - GPT4, Perplexity AI etc) will impact Alphabet's search business (Google), yet so far there is no sign of this, and Google's own LLM, Gemini, seems to be as good as products from other providers (hence no need to open a new internet tab to use a competing product). Google has also attracted some anti-trust scrutiny over its search monopoly, and they've been told they must cease paying Apple c. $20bn a year to be the default search engine on Apple devices. This is being legally contested but could be bad news for both companies if they have to abide. That $20bn payment constitutes approximately 16% of Apple's bottom line. If Apple aren't allowed to accept the payment, will they still use Google as the go to search engine? There are serious implications for both companies.
Streaming
I've held Disney and Warner Bros. Discovery for a while now, and I'm only up slightly on Disney and down c. -25% on Warner Bros. Hopefully 2025 will usher in a change of fortune for these stocks. Their streaming competitor Netflix began a password sharing clampdown in the first half of 2023 and also hiked its prices and its shares are up around 200% since. Disney are now executing the same playbook so hopefully we shall see a positive reaction in their share price.
Warner Bros. Discovery have indicated that they wish to spin off their legacy TV business, this could prove be a catalyst for a re-rating as at the moment they're trading well below book value. They're rolling out their MAX streaming app in Europe over the next few years and I expect that it will be very popular due to the depth of content that they own. To name a few franchises, Harry Potter (new series due), DC Universe (Batman, Superman etc), Game of Thrones, HBO shows, Discovery Channel, TNT Sports and CNN. The company does carry a large amount of debt following the purchase of WB from AT&T which I'm wary of, but they're making inroads to paying it down to a sensible level.
Weight Loss Drugs
GLP1 weight loss drugs are rapidly gaining in popularity, the two main purveyors are currently Novo Nordisk (Danish) and Eli Lilly (US). Lilly appears to have the superior product of the two but both drugs appear to work very well, and both companies are struggling to make the stuff fast enough to keep up with demand. Eli Lilly shares look expensive on a forward PE of 58.3x, Novo shares look more sensibly priced at a forward PE of 26.3x, but forecast growth for Novo is slower (albeit still 20%+ per annum for years to come). Other pharmaceutical companies are lining up to launch competing products.
I don't currently plan to buy shares in either business but I am wondering what effect these drugs might have on my consumer staples holdings over the long run. The drugs make people feel full/queasy and diminish the calories that people consume. This could be problematic for all my holdings that effectively sell calories (Starbucks, Diageo, Unilever, Domino's Pizza, PepsiCo). There are also trials underway to see whether GLP1 drugs can help smokers stop smoking. All things to monitor going forward.
The UK Budget & Energy
I was dismayed by Labour Chancellor Rachel Reeves' first budget, which lived up to the Labour stereotype of plundering the private sector and ensuring that no-one in the public sector has to contribute towards their increased spending plans. The rise in employer's NI seems particularly myopic and will surely cause many insolvencies among businesses that were already struggling for survival. Following the budget many UK listed businesses issued revised profit guidelines estimating that the NI increase would hit their bottom lines to the tune of 100's of millions.
Ultimately share prices follow profits.
Of course, MP's probably don't care much for share prices as they have generous salary based pensions to look forward to.
Another point of concern is that we have the dearest commercial electricity rates of any developed nation in the world. This isn't Labour's fault obviously, but the current Energy Secretary Ed Miliband appears intent to double down on a flawed strategy. The combination of an anti-business government & expensive energy doesn't bode well for the domestic economy. Luckily most of my ISA holdings are global businesses and the UK is only a small part of the overall picture.
I've gone off on a bit of a tangent and will leave it there for this year's review. All the best for 2025, if anyone has any queries, please contact me via twitter @mattbird55 or via the comments section of the blog or at mattbird55@hotmail.com. As usual none of the above constitutes advice. The above investments are risky, could fall heavily, and may not suit your circumstances.
