LUKE HALLARD | from 7investing
LUKE HALLARD | from 7investing
How can the allocation of your portfolio make or break your financial future? Luke Hallard from 7Investing delves into the intricate world of portfolio structuring and investment strategies, sharing his personal experiences and insights. Luke has a unique approach to portfolio allocation, which combines core and growth investments.
We take a closer look at how companies - from well-capitalized tech giants like CrowdStrike to innovative international banking platforms like Wise - are weathering the storm. We'll unpack why free cash flow is paramount in determining a company's sustainability amidst uncertainty and discuss the importance allocating only 2% of a portfolio to each new position.
We also explore the importance of having a cash allocation in a portfolio, exploring its role in decision-making especially when the market begins to dip.
This episode was based on the following tweet:
0:02:36 - Portfolio Structure (124 Seconds)
0:11:16 - Trimming Nvidia Due to High Valuation (67 Seconds)
0:20:38 - Cyber Security and CrowdStrike Importance (74 Seconds)
0:28:07 - Cash and Retirement Portfolio Strategy (73 Seconds)
0:31:05 - Fortunate Timing and Future Investments (79 Seconds)
0:34:53 - Long-Term Investing in Innovative Companies (82 Seconds)
Disclosure: The links provided are affiliate links. I will be paid a commission if you use this link to make a purchase. You will also usually receive a discount by using these links/coupon codes. I only recommend products and services that I use and trust myself or where I have interviewed and/or met the founders and have assured myself that they’re offering something of value.
0:00:01 - Chloe
Shares for beginners. Phil Muscatello and Finpods are authorized reps of Money Sherpa. The information in this podcast is general in nature and doesn't take into account your personal situation.
0:00:12 - Luke
I'm looking for companies that really are early in their journey. They've got incredible potential. Typically, they all have incredible founder teams, a culture of innovation and they've really got something to the story. But also these days I feel that they're at a reasonable valuation. My thesis for each of those kind of looks beyond the hype and sees a day where all of those companies potentially are generating, providing services or products that I feel the world will need more of in the future.
0:00:45 - Phil
G'day and welcome back to Shares for Beginners. I'm Phil Muscatello. How can you approach the market today? What place does cash have in your portfolio and what can bitter experience teach us? I'm joined today by Luke Hallard from Seven Investing.
0:01:00 - Luke
Hello, Luke, Hi Phil always a pleasure to be on the show.
0:01:02 - Phil
Now, 7Investing is an American company and you're an Englishman. Just tell us a little bit about your role in 7Investing and what you're providing.
0:01:11 - Luke
Yeah, I'm a lead advisor for the company. We have seven lead advisors. We've all got our own domains of interest. I guess I class I think of myself as the sort of FinTech AI innovation guy. I'm always looking for fun companies for my own recommendations and for my own portfolio that I feel are providing products or services that the world's going to need more of in the future. That's really what drives my own hobbies and interests, but also drives my stock recommendations for Seven Investing. Well, it's great to hear something.
0:01:45 - Phil
I mean, we're here in Australia, but it's also good to hear what's going on in world markets as well, because many, many people becoming more interested in investing internationally as well. Luke, you recently posted a Twitter thread reviewing your portfolio where you reflected on the performance and honestly appraised the role of each company in generating returns. His portfolio review thread is now closing in on half a million views and that's where you reviewed what was about 20 companies, luke, from memory, yeah.
0:02:10 - Luke
I did a bit of a transparent look back at the last 19 years of investing and picked out 20 sort of interesting stories that I tried to learn from as I was doing that review myself.
0:02:22 - Phil
And so after that, you received questions and commenters and you've had some valuable questions which generated another thread which we're going to go through today, because I believe it has valuable lessons for all investors, no matter your knowledge level. So the first question that you dealt with was how do you structure your portfolio?
0:02:41 - Luke
So and I've sort of backed into this over the course of many years and trying different things out, and this is what's worked for me. I actually think about the stocks in my portfolio as being in a number of different categories and those categories actually drive in percentage terms how much I invest into each one, how I think about them as a basket. So if you think, phil, about your own highest conviction stocks, maybe there's three or four or five that these define my portfolio and they're almost certainly going to be the largest allocations in your portfolio. But for me I term these my core investments and these are companies that have just executed almost flawlessly over the period I've owned them, extremely high conviction for me and that makes up the backbone of my portfolio. So those core stocks, they're about a 6% allocation each. I've got about six or seven of them, so in total they add up to about 40% of the portfolio. That really is the engine room. It kind of drives on my returns.
But if I look at the other end of my portfolio, i've got a bunch of investments I class as venture stocks, venture investments And those are tiny allocations, kind of up to about 1%, typically about half a percent each. And, if I'm really honest, i expect the majority of those to kind of go nowhere, probably to fail. But I think one or two of them are going to do well, hopefully deliver a significant return, at least a 10x, maybe even a hundred times return, and if just one of those can deliver that well, that's going to outweigh all of the other failed investments in that venture category. So I've got a few other categories but that's kind of two ends the barbell, if you like, of my portfolio.
0:04:40 - Phil
Can we just dwell on portfolio allocation for a moment? You mentioned that these core holdings are about 6%, each making up 40%. Is there any reason why you came to that kind of waiting? It's just as evolved.
0:04:55 - Luke
No, no, it's evolved a little bit, but there is some logic as well. So, and I think this is a good principle for all investors I'm sure you've heard of the term dollar cost average, dca. You can put yourself in a difficult situation. I've actually made this mistake myself with a company called C Limited. If you buy too big a position all in one go, you're really exposing yourself to volatility And for good or for bad, and in my case with C Limited, that really really hurt my portfolio because I bought a big allocation in one piece.
So what I prefer to do and I broke my rule with C is I prefer to buy, i say, in thirds, sometimes even though more than three pieces. So typically if I'm coming to take an initial position in a company, i've done some preliminary due diligence in. I think I've got a good handle on maybe I've read the 10K, i've read the most recent 10Q, i might have listened to a podcast with the founder. I feel like I understand the company and I want to add it to my portfolio, add a potentially a high conviction. Well, i'll typically not take more than a 2% stake initially And then I will try.
0:06:10 - Phil
So that's 2% of your overall portfolio. That's the case, exactly.
0:06:14 - Luke
So that number changes over time. You know, typically it's kind of generally going up. As the portfolio grows, those 2% become bigger. But that'll be my kind of day one allocation for a high conviction stock And then, once I've got that 2%, what I'll try to do is try and resist the urge of fiddling with it, messing around. I'll just try and give the company a couple of quarters to execute And if they execute in line with my investment thesis, i've always got a reason for certainly these high conviction stocks.
I understand why I own them And if I see that story playing out, then maybe after six months or a year I'll add And typically if the stock hasn't grown by itself, i'll add new money and I'll take it up to a 4% allocation And then if I'm really comfortable with the stock, you know if I'm seeing real green shoots for the future, in rare cases one of those companies becomes a core allocation for me and I'll perhaps add new money or I'll let it grow organically but I'll bring it up to a 6% allocation, so kind of 2% times 3.
That's what I got to my 6%. And I do have a bit of a rule which I don't think I've broken, which is I won't add new money to any position beyond 6%. So I've suddenly got some allocations that are way higher than that even today, but they've got there by growing themselves, as opposed to me sticking a lot of money in and kind of artificially buying myself to that position. Essentially, let your winners run and let the best stocks in your portfolio show themselves to you, reveal themselves to you.
0:07:56 - Phil
It's interesting, isn't it? that idea of letting your winners run, because there's always that temptation when it's 10% up, oh, if I sell now, i've made 10% or 20% up. I mean, i've recently had this situation myself where I've had a gold miner run up And I think it got up to about 60%. Now it's back at about 40% up And I'm just, for the first time in my life, resisting the temptation to sell it. And I think the quote that I've heard is why would you put Michael Jordan on the bench?
0:08:32 - Luke
I've not heard that metaphor, But yeah, I tend to think in terms of water the flowers and trim the weeds. But our instinct as an investor is sometimes to do the opposite Cut back our winners because we want to take some money off the table, We know. Protect our gains and add to our losers because oh, they've got to turn around. You know, they're so cheap, how can they possibly get cheaper? But time and again the market teaches us that those are the wrong things to do.
0:08:59 - Phil
So does the portfolio waiting shift around, like if one particular company becomes a lot bigger, then obviously going to you know if you do have a winner, it's going to suddenly become 8%, 10%. What do you do in that situation?
0:09:12 - Luke
Always my first instinct is to do nothing, let it run. It's only really if the thesis has changed. I'll give actually there's a caveat to that. So I won't trim if the thesis is intact, because the company is executing. It looks great.
But there are perhaps two situations where I will trim And I'll give two examples of this, actually from my Twitter thread. So one is a company Netflix which I owned through these sort of heady days where it actually delivered over a 200 times return for me 210 times return And you can't get that kind of return unless you let the story play out. And another example there was Shopify as well in more recent years. The stock's taken a bit of a hit in the last couple of years, but it really went on an incredible run through the late 2010s And I was there at the time as having it as actually the largest position in my portfolio. The rule I've come to for myself is driven by my own, really frankly, ability to sleep well at night If a stock gets to about a 20% allocation in my portfolio. So maybe I bought it up to 6% and perhaps it more than tripled So versus the growth of the overall portfolio. So now it's getting on to about 20%. At that point I'm really challenging myself to say well, really, i should be trimming this back because I'm too overexposed, and I've done that a number of times. Essentially, it's good portfolio management discipline, but then there's also I think I never used to use valuation strongly enough in my process, if I'm really honest.
For decades I was a story investor, strategic investor, looking at the thesis, looking at how the company was executing against it. But actually 2022 taught me some really hard lessons and valuation is important, is critical. So a company that I've trimmed in my own portfolio about five or six months ago oh gosh, not that long ago, that's about April, but I was a little bit early and trimming was Nvidia. So I came somewhat late to the party with Nvidia. I bought it twice in my own portfolio, i think June and then maybe July or August last year, but it really went on a tremendous run.
I got in before that AI story really started to be seen in the valuation And now every company is yabbering about AI and their earnings calls and they all want Nvidia's hardware and software to power it. So that's really driven the valuation to, in my mind, almost unsustainable levels. So that's my new process of the last year or so is actually to use valuation as well as part of my process And trim back as a result of that. Trim back my Nvidia allocation, but with a view I've still got Nvidia in my portfolio. It's now down to about a 2% allocation again, but I've trimmed it back with a view to hopefully adding if the valuation improves.
0:12:23 - Phil
Okay, so I just wanted to dig a little bit deeper into the idea of valuation. What are the metrics that you use to ascertain? I'm assuming that you're saying that, once a company like Nvidia becomes the subject of so much height that its value is not there anymore, is that kind of what you're looking at.
0:12:45 - Luke
I think in that case, the market is valuing it too highly. There's so much excitement and FOMO, frankly, built into the share price It feels like it's at an unsustainable level. Actually, i haven't looked at the numbers in the last month, but at the point where I was trimming it for valuation purposes in my own portfolio, i was really looking at the company on a price to free cash flow basis And it's one of my favorite valuation metrics right now, particularly because, potentially, the world is going into a recession. As consumers, potentially, we have less discretionary money to spend on fun stuff, but that happens to companies as well, and they'll have. The customers of Nvidia will have less discretionary money because their customers can't spend as much cash with them. So you have this big cascade effect and all the suppliers up the supply chain will start a struggle. So in some cases, we'll see that benefiting companies Companies like, for example, crowdstrike, where they are the unarguable leader in their field. They're very well capitalized and a tough macro environment is actually probably going to be a tailwind for them. It's going to help them because it's going to really hurt their competition and they've got enough money in the back pocket. They've got plenty of cash on the balance sheet and they're profitable, generating money every quarter free cash flow, which is essentially by definition. It's the money left over after they've paid all their operational expenses where the leadership team can decide how they're going to spend that money either invest it back in themselves, perhaps, make a dividend, or do a share buyback. But they can do some choices they can make there. So I think press to free cash flow is a really helpful metric right now because it tells us companies that are profitable. It tells us how sustainable their business model is if the world gets tough.
When I looked at Nvidia on a press to free cash flow basis back when I bought it, and really back for over a decade or two, the companies never really traded much higher than 50 times free cash flow, and about two months ago three months ago it was trading at 180 times free cash flow. So that just felt unsustainable to me. Even if all of the hopes and aspirations of AI investors play out, it's going to take a long time for an investor to see a return at such a high multiple. So that was my thinking for that particular company. You can't always use that metric. If you look at a very young company. It may not be generating real earnings, it might not be generating free cash flow, so you might have to look at it on a price to sales basis. Look at the multiple of the revenue it generates because it hasn't got to profitability. So there's some kind of different. It's a bit of an art really, but there's different metrics should apply depending on the nature of the company.
0:15:58 - Chloe
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0:16:15 - Phil
I know you like your gardening analogies and you mentioned green shoots previously that when you're looking at a company where you're investing 2% of your portfolio into, you're looking for green shoots before you commit any more money to it. What does some of those green shoots look like?
0:16:30 - Luke
Essentially it's just is the company executing against the investment thesis. So if we stick with the idea of NVIDIA back when I added it to my own portfolio at that time, coming up for about a year ago actually the company was making the majority of its money from its gaming segment. And if we think about what NVIDIA do, if you really boils down to it, they design GPUs, graphics cards, and smaller graphics cards go in like a regular PC or in like a handheld device I've got a NVIDIA graphics card on my computer right now And the gaming segment, which was essentially kind of home PCs and games, but also cryptocurrency mining, that was the dominant sector generating revenues for the company. But it was very clear to me and to many other analysts that wasn't the future of the company. The future of the company was data centers, which are a bit more complex, but essentially really big graphics cards, really big GPUs in clusters with some very clever technology to kind of hook it all together to do incredibly powerful parallel processing, which is fundamental to making AI work, essentially to run these large language models and generative AI that we're now seeing lots and lots of examples of across really all industries, and it was very clear to me a year ago that that was to be the future. So the green shoots that I was watching for the following nine months or so, until I trimmed were. Is the company executing against that data center strategy And are we starting to see growth there? And very quickly, data center became the dominant segment for generating revenue And it's now a very large part of the company's fortunes.
But there's also another little piece and I think it's quite interesting for a company like NVIDIA. We talked there about two of the segments. They have two other segments And one of those is the NVIDIA Drive platform, essentially autonomous driving. So we all think about Tesla. I've got a Tesla on the driveway and Tesla have got their own strategy for delivering autonomous driving And actually, if you're not Tesla, then you haven't got these incredible engineers and this vertical integration.
Well, actually you're probably if you're a Mercedes or a Ford or a Hyundai or over, else you probably partnered with NVIDIA to license the NVIDIA Drive platform, which is sensors that go in the car and the software and the really clever stuff in terms of AI technology to be able to sort of see what's happening in the world and then navigate the car. What anybody else is doing is using NVIDIA essentially, maybe apart from Waymo as well Alphabet Now, that's a tiny part of the thesis for NVIDIA. It's really not material to their numbers today, but that could be enormous. You know, that could even perhaps eclipse data center as a segment one day in the far future, when this stuff is commonplace And so I like to find sort of green sheets like that as well. Optionality does the company have these fun little interesting things that it's pursuing almost as a bit of a kind of side mission but could become something that's quite material in the future?
0:19:48 - Phil
You mentioned before one of your core holdings, which is CrowdStrike. What do CrowdStrike do Tell us about that company and where they're listed?
0:19:55 - Luke
One of my favorite companies. Actually. I literally just installed CrowdStrike software on my PC about a week ago just to get a better handle on it. But it's not designed for guys like me. It's designed for big enterprises and big companies. They're an end point protection company.
So in kind of cyber security And if we think about what's happening in the world huge increases in hacking, also state sponsored hackers you know you've got governments in different parts of the world with their own kind of hacking teams And so companies need to protect their data, which is essentially you know it's like mission critical. If you can't protect your data, your reputation is in tatters. You know your company could literally fall apart. So cyber security has always been a top two or three priority for CIOs across all industries. Well, it's essentially number one priority. Today I think it was dueling with remote working and, you know, keeping the lights on during COVID. Now the pandemic's behind us.
Cyber security is pretty much unarguably top priority for every CIO. I've used this phrase with colleagues before. I think they used to be a saying in the maybe the 1980s. Nobody ever got fired for buying IBM. Today I think you could arguably apply the same logic if you're a CIO to CrowdStrike. It's the forester and gardener leader in end point security, so I don't think anyone would ever get fired for picking CrowdStrike for their cyber security defense for their organization. And where are they listed? Are they NASDAQ listing? I believe so. Nasdaq, under the ticker CRWD. And actually, funny enough, that is one of my core stocks. I've got a 6% allocation to that for that Congratulations.
0:21:45 - Phil
Another one of your stocks is WISE And I think that's WIZEY listed as their ticker. Tell us about WISE.
0:21:55 - Luke
Yeah, have you used WISE by any chance? I know they're in Australia. I know my colleague Annabann now does.
0:22:02 - Phil
Yeah, i actually have just signed up because I've got to take payments from international payments. So, yes, i've become familiar with it And they're very, very impressive platform. In fact, i've been talking to other business owners who take overseas payments that have been using OFX, i think, and maybe should I WISE I think their fees are a lot better. Anyway, i'm just a newbie in this game.
0:22:24 - Luke
No, no, it's all well. I discovered WISE myself about a year and a half ago, when I started working for 7Investing and I needed to receive payments in US dollars And I thought, well, actually I need some international banking capability. And I mean, frankly, just kind of had a bit of a Google around And there were only one or two names that popped up as highly recommended. So I got my WISE business account.
0:22:50 - Phil
I wanted to get one of those as well, one of those cards, because you can travel with it as well and not get those fees. It's fabulous, i travel with this.
0:22:57 - Luke
And I also travel with my WISE personal card as well now, and that's where I do all my international banking. And let me tell you why I think they're so fantastic. I'll give you a little anecdote. I've just come back from a trip to India, in Sri Lanka, with my wife, who went out there for about a month or so. And if I think about historically, before I had WISE and I banked with HSBC, i used to work for the bank for 25 years. If I were traveling overseas, i'd use my credit card and my HSBC debit card And when I get home I'm able to use those cards and pay. It's not no friction, it's dead easy. But when I see my statement back home, there are really quite significant fees added on to every transaction And the banks have to break it out. So it's really in your face how much it's costing you to use these cards overseas. It's not very pretty. So when I traveled to India in Sri Lanka, i was able to in the WISE app just online. I created a little pot, basically an account in Indian Rupees and a separate account in Sri Lankan Rupees, and then I was able to do a transfer from sterling into these local currencies And I had then had essentially a kitty of money to spend. When I did that transfer I got the spot rate. So if you go to Google and say how many Rupees for one pound, that'll give you a number. If you went to your foreign exchange bureau in the high street or if you went to your bricks and mortar bank, they're going to have the price they sell it to you and the price they buy the currency back And you have this big spread which can be quite a few percent, particularly on a slightly rare currency like Sri Lankan Rupees. You could be losing five or 6% between the buy and the sell price. Or WISE give you that price. You see, on Google You get the mid price, which is incredible, and they charge a transparent fee, which is currently about 0.74% I think, and their target actually as a company is to get that fee to zero. They're trying to target getting costs of FX down to nothing because they're making incredible revenues from lots of add-on and silo reservices. With my WISE card now, because the UK is a fairly pilot market for the company, they're actually able to allow me not even to earn interest on my balance. I can keep my balance fully invested in the MSCI World Index or in Treasury Bonds. And if I go buy a cup of coffee, well, automatically on the platform you know that $3 or $4 dis-invests and the coffee gets bought. But I'm fully invested at all times. So I couldn't do that with my HSBC account. It's fantastic, yeah, so they really pride themselves on it transparency, cost, speed and convenience.
Oh, i said that I said an anecdote from Sri Lanka. So when we were there I had a local vendor I was trying to send a bank transfer to pay for a safari And this chap wasn't really set up properly And he said oh, just do a transfer. Here's my sort of essentially like the local version of my checking account number. If I try to do that with HSBC, it would have been absolute torture. Trying to do that with wise, it was dead easy. You know, i already had a Sri Lankan bank account myself, essentially for the duration of my trip, and it took us a case of 30 seconds just to do a transfer to his bank account. Effectively, you're banking like a local. So it's just a really great proposition. I highly endorse it And I sound enthusiastic there. You know I'm not paid by the company.
0:26:29 - Phil
And this is no recommendation to buy the stock or anything. But you know we've both had really good experiences.
0:26:34 - Luke
Yeah, it's a great stock And you know, funnily enough it wouldn't be any surprise you. It's enthusiastic. I am about the company there They get. I think two thirds of their new customers come through referrals And indeed I've referred this company to many of my friends and family.
0:26:50 - Phil
And it's interesting the idea that they maintain what are called local liquidity pools Is that the way they bypass foreign exchange that they have, like in Sri Lanka, they'll have money and they'll have some cash as well in India and all around the world.
0:27:03 - Luke
Exactly, you picked up on why. I sort of skipped over how the magic happens. Essentially, when wise does a transfer from, say, luke wants, he's got pounds and he wants to buy Indian rupees, all wise essentially do is they make an adjustment in their big ledger in the spreadsheet And they take some money off me over here and they allocate me some money that they already have over there in India And no transfer actually takes place, which is why they can essentially do that transfer instantaneously, because they don't have to go through this horribly complicated corresponding banking infrastructure that has kind of grown up over the last 30 or 40 years to allow kind of traditional transfers. This is how normal banks send money. It actually goes through lots and lots of hops and steps, which takes time, incurs fees. Wise don't do any of that. They just have these pots of money all around the world And if you do a transfer they just put it down in one pot and then they increase you in the other bottom. There you go Transfer has happened.
0:28:07 - Phil
So let's get back to your portfolio, Cash. what role does cash play in it?
0:28:12 - Luke
It is critical. It's critical, but I think it's somewhat unique to someone in my situation, perhaps because I'm now essentially retired have been for about two years as a result of being an investor for 19 years. So I'm not adding new money to my portfolio. In fact, i'm paying myself from my portfolio. I'm kind of taking a withdrawal every month to pay the bills and pay for my Sri Lanka vacations. Now, if you're in that sort of retirement phase of portfolio management, a typical way to navigate that is you have a whole bunch of income stocks, so some of your stocks will pay you a dividend and then that's your pocket money, your dividends or what you live on. I have a small number of income stocks, but I haven't really focused on building that allocation in my portfolio. My investments are far more growth oriented. So the way I simulate having essentially the ability to pay myself income is I just have a slug of my portfolio. I think it's currently about 18% of my portfolio in cash, and then that 18% would sustain me for several years of outgoings. But the main benefit in terms of portfolio management is because I'm not adding new money to my portfolio every month If I want to buy a new company. You know, i added to my position in something just a few hours ago. It means I don't have to sell something to generate the money to buy the next thing. I don't want to make two decisions If I don't have to. I really just want to make you know the one decision I want to make. So having a cash allocation essentially reduces the friction in my decision making, allows me to buy without having to figure out what I'll sell at the same time. So that can be quite powerful And I think when you look over the very long term, i'll look back.
Say, two years ago, i think I was incredibly lucky, more so than good judgment, if I'm really honest. I was retiring in November 2021. And I think my cash allocation was about to give or take about 10% at the time, so still a substantial amount of money. But I wanted to increase that and build basically more of a cash allocation to give me a bit more of a buffer but also sell some stuff so that I could build an income portfolio to start getting some dividends every month, every quarter. And so I sold. I looked across my portfolio, i applied that valuation filter and identified seven or eight companies, and you'll see these in my Twitter thread scattered around where I just felt they were at the top end of their valuation And if we think back to kind of November 2021, really luck, because I was retiring, that drove that's catalyzed that rather big sell I did.
Almost within days, the market suddenly turned And really the backside fell out of my portfolio And I'd gone. I'd taken myself by selling to about 20, 25% cash, well, as all of my stocks started to almost halve in value in some really extreme cases over the course of 2022, really humbling time as an investor. My cash allocation was steady And so actually, essentially, my cash allocation grew as a percentage because everything else was declining. So I found myself sort of midway through 2022, with almost 30% cash allocation, and so at the point where I started to feel comfortable maybe we've seen the world, maybe we've seen the worst of this I then slowly started to reinvest that 30% And I'm about halfway through that journey.
I think I'm down to about an 18% cash allocation now, and so I think I was lucky, retiring when I did, but essentially not by judgment. Essentially, what that resulted in is me doing what they say you should do selling high and now buying at better value points. And I said to my colleague, christoph on our own podcast when we recorded just a few days ago. You know, i truly think if I look back in five years time and do another one of these big reviews, some of those investments I've made over the last 12 months are genuinely going to prove to be some of the best investments I've ever made.
0:32:25 - Phil
Just another part of the portfolio that we should explore is the growth part of it.
0:32:29 - Luke
Yeah, so I've got this big sort of chunk in the middle, about 16 companies I consider to be my growth stocks. So we didn't really talk about those at the start. We talked about the core and we talked about the venture, like the really crazy stuff. But all the things in the middle are my growth stocks And I think I think I'm about a 30% of my portfolio is in 16 growth stocks. So what's that about? 2% each give or take, and wise is an example of one of those.
So these are typically companies that I've I really feel I understand I've brought up to that 2% level, perhaps in one or two pieces, because I have got, perhaps more recently, into a habit of making that initial by 1% And then I've, maybe I've bought it twice. That's sort of gone 1% to 2% or it's grown to 2%. They're all typically around that allocation And my sort of expectation with that category of stocks is they're all going to do well in general And you know, some won't make the cut, some I might have to trim away, but I'm kind of optimistic, i think, on a risk return basis that I'm going to see like a good market beating return I'll be looking at, you know, hopefully over the long term for a sort of 20 to 30% compound growth in each of those on average. You know, some will do better, some will do worse, but that's my, my hope for that portion of the portfolio.
0:33:56 - Phil
Do you have a definition of what you describe as a growth stock, Because there's a lot of definitions and everyone's got, you know, slightly nuanced views Is there? what's your particular take on what makes a growth stock?
0:34:08 - Luke
How do you know it's a fish, like it looks like a fish or it flaps like a fish. It's not something that I've owned for years and years and years and it's become a core stock. So that's taken us off the table. But it's still a relatively mature company. So typically the majority of my growth stocks are sort of small, getting into mid caps. So let's say I'm just waving my hands with these numbers a little bit, but between kind of a $5 billion and a $20 billion valuation, $30 billion valuation and they're still relatively early in their story. So they have many years of compounding ahead of them. They're typically not mature, they're not paying dividends, they're not generating income. That's the kind of thing that happens generally later in a company's life cycle. So typically they're expensive.
On most valuations you might look at, they're expensive on those bases. But I'm looking beyond with most of these, beyond the short term. I expect to own all of these companies for 10, 20 years, perhaps never to sell them. And so really, when you take a very long view which by definition is you're looking through multiple cycles of the world, sort of retracting, turning against growth and then back into growth I'm looking for companies that really are early in their journey, they've got incredible potential.
Typically, they all have incredible founder teams, a culture of innovation and they've really got something to the story. But also these days I feel that they're a reasonable valuation. They're all expensive by typical terms. If you were a Warren Buffett, you probably wouldn't go near any of these with a barge pole. You'd say, oh, they're kind of crazy. There's so much hype built into them. But my thesis for each of those kind of looks beyond the hype and sees a day where all of those companies potentially are generating, providing services or products that I feel the world will need more of in the future, and so that's kind of the basis of my approach to investing.
0:36:16 - Phil
So if listeners want to find out more about this Twitter thread, what is your handle?
0:36:20 - Luke
Yeah, well, you can find me on Twitter and now on threads as well. I've been playing with that.
0:36:24 - Phil
Oh, you've gone over it as well have you.
0:36:28 - Luke
You can find me at both of those, at 7LukeHallard number 7LukeHallard, all lowercase, one word, i believe. I think they're both case intensive, but yeah.
0:36:39 - Phil
When you reflect back on your portfolio and beginning investing? what is one of the main things that you would suggest for a new investor to think about as they approach the share market?
0:36:52 - Luke
I suppose the hardest thing is getting started, and I started as an investor when I was in my young 30s 31. And I started actually by finding a good buddy who I've respected his opinion And I kind of twisted his arm to become an investor at the same time as me, because a hobby like that shared is much more fun and exciting. But also it's really beneficial to have another smart person you can kick your ideas around with and test your thinking And you kind of grow together. The sum of the halves is more than the whole, whatever that saying is. So if you haven't started, get started and try and find a buddy or find an investing community you can get involved in where you think people are having smart conversations. I wouldn't say a Wall Street bets on Reddit, but I would say perhaps go out and find a good quality investing community with some mature voices in the room and then listen and learn.
0:37:54 - Phil
Luke Hallard. Thank you very much for joining me today. Always a pleasure, Phil
0:37:59 - Chloe
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