The challenge with making something like that is it’s very personalized to what you’re trying to accomplish. It’s hard to make a video about all the possible combinations. The framework is there in this video and you can apply it to what matters to you
Thoughtful video Matt. Like some others that have commented here, this has made me think about defining the goals that have been more in the back of my mind.
Great fucking video!!!! I’ve been waiting for you to drop this video. I’ve been sitting back and thinking how I want to go into 2025 with my current portfolio. I love your thoroughness and detail. Texas live baby all day
I like that you’re narrowing down the specifications of your holdings. I think generalities allow too much room to justify holding something that you probably shouldn’t. I’m also with ya on the sentimental thing, MCD and WMT will always have a place in my heart and portfolio. Is what it is, but I get it. I enjoyed the video and insight on how you’re approaching your positions this year. Very cool.
@ interesting question. Moat (your tangible market advantage is an excellent definition); cash-flow; credit rating; management; overall market risks; currency. Oh; and legit understanding my knowledge limits. Pretty most (~75%) of my pension is in the USA 🇺🇸 market. In 🇺🇸 USA, I definitely look for capital compounding managers: Brk.b is the obvious example In Canada, I look for the same. I do invest in some early stage companies that I won’t discuss (very small daily volume). One investment that Canadians love is Constellation Software & a great example: amazing management; vertical software companies; very low organic growth offset by M&A that is bought primarily through free cash-flow; share issuance is nill to my knowledge (that can always change). Pure returns to investors is top of mind. Stories of the CEO wanting to fly first class & paid out of pocket for the extra fee above coach seats.
Investment grade ratings. Constellation Software risks: I definitely invest because of the CEO & the focus on vertical software (unique; isolated industries). My knowledge .. pfft . I am weak at technology. My guess at risks: (1) when does CEO retire? (2) AI? If AI disrupts horizontal software market, will M&A competitors increase for the vertical software market? (3) my personal patience
Snowball Analytics breaks it out with two charts. Portfolio Value shows performance including contributions, Portfolio Performance shows performance without contribution value included. When I show my returns on the channel it's always without contributions included.
you could mention 'risk management' to minimize downside losses with companies such as mcdonalds, as part of your strategy (whether you've done this consciously or not).
Yes, it effectively acts that way but that's not why I added it to be fair. You could argue it has its own risks (healthier food trend, glp1 drug trend etc) that are uncorrelated to the rest of my portfolio so it's not guaranteed to protect the downside necessarily. For the most part though, it does.
Another Banger! Hey Matt, I am in San Antonio to visit family from VA. Would it be possible to meetup with you and maybe pick your brain a bit and share my portfolio as well?
I like it. I am looking forward to see your videos in 2025, what you actually buy and sell and how it fits with your four point strategy. I remember (kinda) your videos on McDo, but personally I see MCDo as a real Estate Co. and their franchisees as the food Co. . I balance my portfolio a bit differently or have other variables in it. (We are talking about a particular portfolio as we are a bit like you with different portfolios with different goals). - I have an actual number in mind of how much I want in returns from that portfolio and how long it has to last, this means both, returns in depleting the portfolio and receiving dividends from it. - I have an actual "date" when I want the portfolio to start producing that amount of return. Say if I want it to give me x$ annually in say 5 year. I can make the calculation of how much capital I need in the portfolio at a certain % of return (6%?). I then take the amount I can invest in that portfolio every month say 1$/m x 5 + the amount currently in the portfolio and what I am missing (if any), is what I need my current holdings in that portfolio to generate to be re-invested. 12$ x 5 = 60$, +30$= 90$ goal is 100$. Missing 10$, I need my current portfolio to generate 10$ over the next 5 years. This influences both risk and type of investments (SCHD, crypto, Visa, for ex.) I will be seeking to buy. And of course I purchase outside the US market for maybe 30% so Footsie, Niko, etc. HNY! Cheers, a.
You're finally joining Terry Smith's club of successful investors 😎. I like the direction you're taking. It will definitely outpace the index in a bull market. I'm curious to see how portfolios like this do in a bear market (mine included). Keep pushing
My thoughts on a bear market and my portfolio are that either a) the quality of the companies (many of mine are mega caps) will handle the bear market better than others and/or b) the long-term returns will still outperform even if they underperform in a bear market. But obviously, much easier to say than experience so I guess we'll see 🙂
Depends on your strategy. I added NET partially because my portfolio is dominated by mega caps and I wanted something outside of that. But relatively speaking it's still a rather large market cap company depending on how small you're looking. The main thing with small caps IMO is understanding what you're buying and why since a lot of times (at least in the tech space) they can be unprofitable, high SBC, etc.
@mattderron I've been looking into the 1-10b small cap category, it feels like you have to bet a lot on the growth story more than fundamentals, but maybe I'm analyzing it wrong. I've been looking at RKLB, HIMS if you're curious
@ I agree, in my experience if you find “good fundamentals” in those companies it usually means they’re not growing very fast or have some issue going on. IMO it is more about the growth story, I mean that’s mostly what I’m doing with NET even
Too little focus on the most important driver of long term returns, which is not growth of the company but the valuation, the price you are paying for the cash flows. I get this drive to always own the best companies, highest growth, best management, widest moat etc but that is how we end up in this "quality bubble" we currently are in, with companies like Costco, Rollins, Moodys, MSCI, S&P, Palantir etc etc, trading at over 50x multiples for 8-10% growth. This period rhymes with the Nifty Fifty bubble from '60-'70.
I simply disagree that valuation is the most important driver of long term returns. The price you are paying for the cash flows is only meaningful in relation to the growth of those cash flows going forward - because the market is forward looking. Plus, I don't know how much correlation there is in comparing to what happened in the 60s-70s. A lot of market impacting factors have changed since then. We're no longer on the gold standard, passive index investing is more popular than ever, and the top companies in the market are tech ecosystems that play in multiple industries and markets. I'm not saying they are "cheap" by any means, but I don't believe that just because something is cheap it will correlate to "long-term returns." You need companies that are growing and have a favorable outlook. Obviously if you can get them at attractive prices, even better. But the beauty of the market is you can have your strategy and what you believe is most important and you can invest that way. That doesn't mean I have to.
If you’re trying to beat the market shouldn’t your companies grow FCF faster than the market? Instead of growing fcf, I would change it to growing fcf faster than market (15%+). good video 👍
In general when I say "increasing cash flow" I mean double digit growth at least. It's just a guide though, so every company is different. The reality is that some people evaluate growth based on earnings, some on cash flow, some on free cash flow, etc.
I feel like you should be focusing on beating the nasdaq since your heavy weighted in tech stocks with your highest weighting in stocks like NVDA being much higher then the s&ps 6 percent and is closer to what the nasdaq has for weighting. And over history tech stocks will have higher volatility in bull and bear markets more then the s&p. Yes I know the s&p is mostly in tech but you seem to almost be completely in tech like the Nasdaq which is almost completely tech when the s&ps 55 I believe. I’m not saying you should or should it measure what you want but that’s my opinion personally
Well the reason I benchmark against the S&P 500 is because that's what the rest of our investment portfolio is invested in. So the idea is that I should beat that performance with my actively managed part of my portfolio if I'm going to be spending time on it. I can benchmark against the Nasdaq for fun, but the main goal is to beat the S&P 500 for my portfolio
There are definitely other strategies though, if someone is focused on income to leave (or complement) a 9 to 5 job income, then that totally makes sense too. Many different strategies and goals depending on what someone is interested in or trying to accomplish.
1:35 so you got out of SCHD, Hershey, etc, just to buy Amazon, Google, Mag7 names and basically just closet index. Then you hope to beat the market. Ok sir…
lol but I did though…because those companies that I believe will outperform (and have) are in a higher weight in my portfolio than in the index. It’s very simple actually
@@mattderron Could you be falling victim to hindsight bias? I'm sure investors back in the day saw AT&T and Exxon when they were the largest companies and thought the same thing. "These are the winners now, so they will always be."
@ so they answer to “you’re just buying winners of today” is “you should buy the undervalued losers of today because they may become winners again”? Why do you think Hershey has a better outlook than Amazon does? I don’t believe they do, do you?
@ simple That would be a long term dividend portfolio, The CAGR allows your YOC to double every 5-6 years that’s amazing, so when your ready for retirement in 15-20 years from now you’ll use only the dividends as opposed to sell your growth stocks for income. SCHD and DGRO are my dividend growth income portfolio my YOC is 7% now after 5 years. VUG/VGT/SCHG are my growth ETF portfolio that I’ll withdraw 6-8% per year during a positive market cycle, down market I’ll use my 2 year cash bucket to supplement my retirement income when I decide to retire I also have CC ETFs portfolio for now money to pay for my bills JEPQ/QQQI/SPYI/AIPI/FEPI so far so good amigo Thank God
That's cool, but my strategy isn't income or even dividend growth focused at this time. It's growth focused with the idea that in a decade a lot of these companies will be even more mature and be some of the best dividend growth companies out there. If they aren't, I can adjust at that time, but for me it wouldn't make sense to create another porftolio (with less capital) to just focus on income when my portfolio should evolve into that over time. Hopefully that makes sense.
Right, but that wouldn't make sense for me since dividends aren't a priority for me at this time. My assumption is that my current growth portfolio evolves into more dividend focused over time - maybe even with the same companies as they mature
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This video is GOLD.
Your definitions definitely made me reflect on my own style & I appreciate your insight.
Thanks!
Good stuff. I like the constant focus on... focus. Happy Holidays Mr. D.
Thanks, same to you!
Like The added Updates. Makes it easy to see if The stocks align with The plan. 👍 i Will use parts of this. Great video, maybe one of your best.
Thanks, glad it’s helpful!
Solid plan! 👊🏻
Thanks!
As a newer investor, i would love to see a video helping others come up with their own philosophy/strategy.
The challenge with making something like that is it’s very personalized to what you’re trying to accomplish. It’s hard to make a video about all the possible combinations. The framework is there in this video and you can apply it to what matters to you
@@mattderronthat’s true
Thoughtful video Matt. Like some others that have commented here, this has made me think about defining the goals that have been more in the back of my mind.
Thank you! Awesome, glad it's helpful
Great strategy! I feel I’m going through the same journey as you. The only difference I’m going on a riskier route for the next year.
That's cool, good luck!
Great fucking video!!!! I’ve been waiting for you to drop this video. I’ve been sitting back and thinking how I want to go into 2025 with my current portfolio. I love your thoroughness and detail. Texas live baby all day
Thanks, much appreciated!
I like that you’re narrowing down the specifications of your holdings. I think generalities allow too much room to justify holding something that you probably shouldn’t.
I’m also with ya on the sentimental thing, MCD and WMT will always have a place in my heart and portfolio. Is what it is, but I get it.
I enjoyed the video and insight on how you’re approaching your positions this year. Very cool.
Agreed, for me it was too easy to just be like "oh wide moat" but that doesn't really get to the heart of what I'm looking for and why
Happy New Year!🥳
Performance with reasonable risk in the New Year for me.
Nice John, how do you measure or decide what "reasonable risk" is for you?
@ interesting question.
Moat (your tangible market advantage is an excellent definition); cash-flow; credit rating; management; overall market risks; currency.
Oh; and legit understanding my knowledge limits.
Pretty most (~75%) of my pension is in the USA 🇺🇸 market.
In 🇺🇸 USA, I definitely look for capital compounding managers: Brk.b is the obvious example
In Canada, I look for the same. I do invest in some early stage companies that I won’t discuss (very small daily volume). One investment that Canadians love is Constellation Software & a great example: amazing management; vertical software companies; very low organic growth offset by M&A that is bought primarily through free cash-flow; share issuance is nill to my knowledge (that can always change). Pure returns to investors is top of mind. Stories of the CEO wanting to fly first class & paid out of pocket for the extra fee above coach seats.
Investment grade ratings.
Constellation Software risks: I definitely invest because of the CEO & the focus on vertical software (unique; isolated industries).
My knowledge .. pfft . I am weak at technology.
My guess at risks: (1) when does CEO retire?
(2) AI? If AI disrupts horizontal software market, will M&A competitors increase for the vertical software market?
(3) my personal patience
@@mattderronall in in Microstrategy of course.
How do u track your performance against the sp500 if you put more capital into your portfolio during the year?
Snowball Analytics breaks it out with two charts. Portfolio Value shows performance including contributions, Portfolio Performance shows performance without contribution value included. When I show my returns on the channel it's always without contributions included.
you could mention 'risk management' to minimize downside losses with companies such as mcdonalds, as part of your strategy (whether you've done this consciously or not).
Yes, it effectively acts that way but that's not why I added it to be fair. You could argue it has its own risks (healthier food trend, glp1 drug trend etc) that are uncorrelated to the rest of my portfolio so it's not guaranteed to protect the downside necessarily. For the most part though, it does.
@@mattderron fantastic response matt.... early in the morning... on a SATURDAY! we're brothers from other mothers. here's to an even better 2025!
This is the best time of the day lol
Another Banger!
Hey Matt, I am in San Antonio to visit family from VA. Would it be possible to meetup with you and maybe pick your brain a bit and share my portfolio as well?
I probably won’t be able to meet up, but send me a DM on IG or X (mattderron on both) or reach out via buildinvestlive.com/contact
I like it.
I am looking forward to see your videos in 2025, what you actually buy and sell and how it fits with your four point strategy.
I remember (kinda) your videos on McDo, but personally I see MCDo as a real Estate Co. and their franchisees as the food Co.
.
I balance my portfolio a bit differently or have other variables in it.
(We are talking about a particular portfolio as we are a bit like you with different portfolios with different goals).
- I have an actual number in mind of how much I want in returns from that portfolio and how long it has to last, this means both, returns in depleting the portfolio and receiving dividends from it.
- I have an actual "date" when I want the portfolio to start producing that amount of return.
Say if I want it to give me x$ annually in say 5 year. I can make the calculation of how much capital I need in the portfolio at a certain % of return (6%?).
I then take the amount I can invest in that portfolio every month say 1$/m x 5 + the amount currently in the portfolio and what I am missing (if any), is what I need my current holdings in that portfolio to generate to be re-invested.
12$ x 5 = 60$, +30$= 90$ goal is 100$. Missing 10$, I need my current portfolio to generate 10$ over the next 5 years. This influences both risk and type of investments (SCHD, crypto, Visa, for ex.) I will be seeking to buy. And of course I purchase outside the US market for maybe 30% so Footsie, Niko, etc.
HNY!
Cheers,
a.
MCD is a bit of an outlier, but I agree that I see it as more of a real estate and brand licensing company than a burger company / restaurant
Try to compare your portfolio performance with SMH and QQQ as well in addition to SPY.
I can but is there a specific reason why you think I should do that? My goal is get better returns than the index we are invested in 🤷🏻♂️
You're finally joining Terry Smith's club of successful investors 😎. I like the direction you're taking. It will definitely outpace the index in a bull market. I'm curious to see how portfolios like this do in a bear market (mine included). Keep pushing
My thoughts on a bear market and my portfolio are that either a) the quality of the companies (many of mine are mega caps) will handle the bear market better than others and/or b) the long-term returns will still outperform even if they underperform in a bear market.
But obviously, much easier to say than experience so I guess we'll see 🙂
Have you considered adding small caps? Do you think its worth adding small positions given its riskier?
Depends on your strategy. I added NET partially because my portfolio is dominated by mega caps and I wanted something outside of that. But relatively speaking it's still a rather large market cap company depending on how small you're looking.
The main thing with small caps IMO is understanding what you're buying and why since a lot of times (at least in the tech space) they can be unprofitable, high SBC, etc.
@mattderron I've been looking into the 1-10b small cap category, it feels like you have to bet a lot on the growth story more than fundamentals, but maybe I'm analyzing it wrong. I've been looking at RKLB, HIMS if you're curious
@ I agree, in my experience if you find “good fundamentals” in those companies it usually means they’re not growing very fast or have some issue going on. IMO it is more about the growth story, I mean that’s mostly what I’m doing with NET even
Too little focus on the most important driver of long term returns, which is not growth of the company but the valuation, the price you are paying for the cash flows. I get this drive to always own the best companies, highest growth, best management, widest moat etc but that is how we end up in this "quality bubble" we currently are in, with companies like Costco, Rollins, Moodys, MSCI, S&P, Palantir etc etc, trading at over 50x multiples for 8-10% growth. This period rhymes with the Nifty Fifty bubble from '60-'70.
I simply disagree that valuation is the most important driver of long term returns. The price you are paying for the cash flows is only meaningful in relation to the growth of those cash flows going forward - because the market is forward looking.
Plus, I don't know how much correlation there is in comparing to what happened in the 60s-70s. A lot of market impacting factors have changed since then. We're no longer on the gold standard, passive index investing is more popular than ever, and the top companies in the market are tech ecosystems that play in multiple industries and markets.
I'm not saying they are "cheap" by any means, but I don't believe that just because something is cheap it will correlate to "long-term returns." You need companies that are growing and have a favorable outlook. Obviously if you can get them at attractive prices, even better.
But the beauty of the market is you can have your strategy and what you believe is most important and you can invest that way. That doesn't mean I have to.
If you’re trying to beat the market shouldn’t your companies grow FCF faster than the market? Instead of growing fcf, I would change it to growing fcf faster than market (15%+).
good video 👍
In general when I say "increasing cash flow" I mean double digit growth at least. It's just a guide though, so every company is different.
The reality is that some people evaluate growth based on earnings, some on cash flow, some on free cash flow, etc.
@@mattderron ah ok makes sense. I like where the strategy is headed!
I feel like you should be focusing on beating the nasdaq since your heavy weighted in tech stocks with your highest weighting in stocks like NVDA being much higher then the s&ps 6 percent and is closer to what the nasdaq has for weighting. And over history tech stocks will have higher volatility in bull and bear markets more then the s&p. Yes I know the s&p is mostly in tech but you seem to almost be completely in tech like the Nasdaq which is almost completely tech when the s&ps 55 I believe. I’m not saying you should or should it measure what you want but that’s my opinion personally
Well the reason I benchmark against the S&P 500 is because that's what the rest of our investment portfolio is invested in. So the idea is that I should beat that performance with my actively managed part of my portfolio if I'm going to be spending time on it.
I can benchmark against the Nasdaq for fun, but the main goal is to beat the S&P 500 for my portfolio
Beat by 20%!?!
20% not 20 percentage points. So if the index is 10%, I want 12%. If the index is up 20%, I want 24%.
Beating the S&P is my only goal too or else WTH stocks 🤦♂️ are you buying? 😂
There are definitely other strategies though, if someone is focused on income to leave (or complement) a 9 to 5 job income, then that totally makes sense too.
Many different strategies and goals depending on what someone is interested in or trying to accomplish.
1:35 so you got out of SCHD, Hershey, etc, just to buy Amazon, Google, Mag7 names and basically just closet index. Then you hope to beat the market. Ok sir…
lol but I did though…because those companies that I believe will outperform (and have) are in a higher weight in my portfolio than in the index. It’s very simple actually
@@mattderron Could you be falling victim to hindsight bias? I'm sure investors back in the day saw AT&T and Exxon when they were the largest companies and thought the same thing. "These are the winners now, so they will always be."
@ so they answer to “you’re just buying winners of today” is “you should buy the undervalued losers of today because they may become winners again”?
Why do you think Hershey has a better outlook than Amazon does? I don’t believe they do, do you?
Create another portfolio focus on dividend growth income
I don't understand, why would I do that?
@
simple
That would be a long term dividend portfolio,
The CAGR allows your YOC to double every 5-6 years that’s amazing, so when your ready for retirement in 15-20 years from now you’ll use only the dividends as opposed to sell your growth stocks for income.
SCHD and DGRO are my dividend growth income portfolio my YOC is 7% now after 5 years.
VUG/VGT/SCHG are my growth ETF portfolio
that I’ll withdraw 6-8% per year during a positive market cycle, down market I’ll use my 2 year cash bucket to supplement my retirement income when I decide to retire
I also have CC ETFs portfolio for now money
to pay for my bills JEPQ/QQQI/SPYI/AIPI/FEPI
so far so good amigo
Thank God
@@mattderron From what I understand, have this portfolio be growth focused and another focused on dividend.
That's cool, but my strategy isn't income or even dividend growth focused at this time. It's growth focused with the idea that in a decade a lot of these companies will be even more mature and be some of the best dividend growth companies out there. If they aren't, I can adjust at that time, but for me it wouldn't make sense to create another porftolio (with less capital) to just focus on income when my portfolio should evolve into that over time. Hopefully that makes sense.
Right, but that wouldn't make sense for me since dividends aren't a priority for me at this time. My assumption is that my current growth portfolio evolves into more dividend focused over time - maybe even with the same companies as they mature