Regular readers will know that we ran a 3-day stock idea challenge for our readers some time ago.
Investing should be simple in my view, so there was nothing complicated here. Just three simple techniques from my course How To Pick Winning Stocks. Each day, participants were asked to watch one video lesson and use it to find two potential stock ideas.
To keep everyone on track, we asked them to email them our ideas each day. Here are the methods we suggested:
Day 1 – Think of products you like using, and see if they are public companies
Day 2 – Think of a lateral: something you have seen happen in one geography or sector, which might be repeated elsewhere
Day 3 – See what “super investors” have bought recently
We had a great response and everyone seemed to enjoy the challenge. Not everyone sent us their ideas, but a lot did. I shall discuss some of these ideas below, but first I wanted to show you a set of emails from a lady called Victoria.
I don’t know what Victoria does for a living but she is, or could be, a smart investor. She kindly gave me permission to reproduce her entries below. In return, I’m sending her a copy of my book and free enrolment into our full stock-picking course, How to Pick Winning Stocks.
Victoria’s Stock Ideas & Comments
- Techtronics Industries Company Limited (TTI Group)
- Helen of Troy
Where these came from
We’ve recently moved house and had two deliveries yesterday – a new toaster, and a new vacuum and hard floor cleaner.
My approach to buying this kind of product is to look at articles – Which, Good Housekeeping, BBC Good Food Magazine, etc. – where different options have been tested against a common set of criteria and ranked (often in multiple categories – ‘best for …’). Once I’ve narrowed down options, I then tend to have a look to see how the product has been rated by public on John Lewis’ website. I ended up ordering from companies I hadn’t purchased from before – Zwillings and Vax – and ordered direct from companies.
I thought this might be a good place to start – as I had no idea who owned either brand – although I did have vague idea that Vax was British. It turns out I was partially correct about this – Vax was British but is now owned by Techtronics Industries Company Limited (TTI Group), which is listed on Hang Seng. I’d never heard of them but they own several other brands that also came up in my search – Hoover, AEG – as well as brands across a number of other sectors with their website describing them as “a fast-growing world leader in power tools, accessories, hand tools, outdoor power equipment, and floorcare and cleaning”. One of the main commonalities across these different segments seems to be a specialism in cordless technologies. There are potentially two interesting things here – cordless technologies have become possible in part because of the shift to lithium ion batteries from older technologies, and the batteries are interchangeable between products within a range which can help with customer retention/upselling (and I should flag here that I ended up buying both a vacuum and a hard floor cleaner from same range so this seemed to have worked on me at least).
Zwillings is even more interesting – but family-owned so not in scope for this project. However, having reflected on process of how I selected these products and I what I look for, I started thinking about some of the other kitchen/homeware brands I have purchased from over the years. Googling identified that many of these brands are either family-owned or private equity-owned. One brand that I like that was owned by a listed company is OXO Good Grips. This was started by guy when he noticed that his wife’s arthritis was making it difficult to use various kitchen appliances. This is now owned by a NASDAQ listed company called Helen of Troy (which is a genuinely brilliant / terrible company name). They seem to own mix of legacy (Braun, Honeywell, Vicks) and newer brands (Pur (water filters), Osprey (outdoor gear), Drybar and Hottools (both hair products)). I’d never heard of some of the newer ones but Drybar seemed to launch in Harrods last year to some fanfare.
I haven’t looked into financials of either company beyond quick scan of annual reports so not sure if either of these would actually be good investments – but they are both companies I’ve never heard of before and therefore wouldn’t have thought to consider (thus demonstrating Steve’s point). I think this has also helped clarify for me that both of companies I’d purchased from were able to meet my needs because of broader strategic decisions they’d made, which is useful perspective.
More generally, this exercise made me realise how much of my day-to-day life relates to some of largest (and best researched) companies in world – e.g. I bought lunch in Tesco, used Dell and Microsoft products at work, use an iPhone, had to deal with several big utility companies as part of house move (all of whom have hopeless customer service but sadly with no hope of this impacting on their financial performance), etc. Even things I thought might be from smaller companies (for example, what I think of as more niche skincare and soft drinks brands) turned out to be brands owned by large multinationals (L’Oreal and Nestle).
Idea 1: I watched video just before heading out to lunch, which I bought at Pret. This led to me reflect on the emergence of food chains (Pret, Leon, Itsu, etc.).
When I started work the main lunch options seemed to be bringing your own sandwiches, getting something from local cafes/deli, or Boots Meal Deals. This made me wonder whether other countries have seen similar shift – and in particular if there are any markets that are at earlier stage in this process and where there might be a business with lots of potential for growth.
Pret, Leon etc. are quite highly concentrated in London. I suspect this is largely because of economic geography of UK. Other European countries tend to be less economically concentrated than UK so there could be good scope for a brand to grow across multiple cities.
Idea 2: We visited Iceland a few years ago and one of really impressive things is way they used geothermal heat in all sorts of clever ways, including to heat greenhouses, allowing them to grow fruit and vegetables in Arctic. This clearly has benefits in terms of food security, reduced costs, and environmental impacts.
On a similar note I read recently about project in Norway where excess heat from data centres was going to be used to heat water for an onshore trout farming. And I think Stockholm already uses excess heat from multiple data centres to heat homes. I suspect there will be more of push to think about how we make better use of all available energy options include reuse of heat – so I wondered if there are any companies (perhaps in industrials/engineering/software) that are well placed to take advantage of this opportunity.
I looked at number of portfolios including Baupost Group (Seth Klarman) Gotham Asset Management (Joel Greenblatt), GMT Capital (Tom Claugus), and Crake Asset Management (Matthew Taylor).
My main reflections are the variety in number of holdings, that all seem to have a few holdings that are substantially larger than the rest, and the presence of some of largest and best known companies (Apple, Amazon, Intel, Walt Disney, Marriott, etc.) in these portfolios.
Two companies (out of many that would be interesting to look at) are iTeosTherapeutics Inc and KLA Corp. Both are from Gotham Asset Management’s portfolio.
iTeos Therapeutics was their largest new purchase in Q1 2022, becoming their 23rd largest holding. I’ve included it as it’s absolutely not the kind of company I expected to be this portfolio – so I’d like to understand why it is.
Lots of the portfolios I looked at had exposure to semiconductors companies. KLA Corp “designs, manufactures and markets process control and yield management systems for semiconductor and related nanoelectronics industries”. Given passing of CHIPS Act, and drawing on the oil services companies example in Day 2, I thought this might be interesting company to explore in more detail.
Many thanks for course. I’ve found it very useful and enjoyable!
I was impressed with Victoria’s Day One picks – this was a great exposition of how to find an interesting stock idea from personal experience. Her suggestions as to laterals and areas to explore from Day Two were also illuminating – although she didn’t pick beneficiaries, she had a couple of themes which she could pursue over time, especially the geothermal/energy efficiency angle.
I find this sort of exercise helpful and used to employ this strategy at the hedge funds. I now know that geothermal is in my sphere of interest and once I have registered that, I will no doubt see dozens of opportunities in this area. It’s like when you buy a new car and are surprised at how often you see the same model.
Copying ideas from great investors is a strategy I couldn’t deploy at the hedge funds. Because of the size of our positions, we had to be in before anyone else. Also, your boss isn’t going to offer much reward for copying a competitor, even if it’s a good idea. For private investors, though, it’s a smart strategy – and Victoria executed it well. This is because she asked what the information meant, rather than just taking it at face value. This is a vital skill for digesting investment information in all forms, and a key part of my lessons on reading company accounts.
More Ideas From The Challenge
Participants shared a couple of hundred potential stock ideas (I haven’t finished counting). The stress there should be on potential, as they are just quick ideas – not fully researched ones.
I have split the list into two, as otherwise there are simply too many to take in. Below is a round-up of some themes we saw from each day. The full list of potential ideas is in a spreadsheet for my lovely paying subscribers and those who took the challenge (first part this week, more to follow). I love you all of course, but some a little more.
Day One – Personal Observation
Microsoft was the standout here. Now of course this is just a matter of finding ideas, nothing about valuation – should we do a valuation challenge? Let me know.
Alphabet came up here as did CROCS, interestingly, as it had been a staggeringly strong share last time I looked (10+ bagger form pandemic lows to 2021 high). I was also surprised to see people suggesting shorts here, and there is one stock that I am definitely going to look at (highlighted in the sheet).
Day Two – Laterals
There were a lot of suggestions on the theme of the tragic war in Ukraine being extended. Some related directly to defence, some to equipment suppliers. Other popular themes were inflation pressuring incomes and a general economic slowdown. These both those surfaced discount chains and value retailers like Dollar Tree and Dollar General. Trading down in cars flagged Autozone and O’Reilly (which it was pointed out had already run).
Day Three – Great Investors
Picks from everyone from Sir Chris Hohn to Prem Watsa, including some names that you might not have heard of like Victoria’s pick of Martin Taylor’s Crake Capital. I am going to look at one stock which Peter Lynch holds in size (highlighted in the spreadsheet).
Paying subscribers can read on to find the full spreadsheet link and a genius idea-hunting method suggested by one participant. The sheet will also be sent to people who took the challenge first time round.
This is a subject we shall come back to as we haven’t covered even half of the ideas.