The art of stock picking
In the wake of the financial crisis, stock markets have not been good at pricing company risk. The uncertain outlook for earnings has meant that the market has paid less attention to the quality and characteristics of individual companies, and share pricing has instead been dominated by trends and performance for particular industries and sectors as a whole.
“We believe that this cyclical rally is coming to an end, which means that we can get back to picking good individual shares – which is really what we would rather be doing”, says Lars Christian Tvedt, portfolio manager at Ferd Invest.
Ferd Invest normally takes a cautious approach to particularly cyclical shares, where share prices are principally affected by general trends, economic conditions and market fluctuations. These factors are relatively little affected by the actions of the companies themselves.
“We are mainly interested in investing in companies that have unique products, better than average profit margins and management that puts long-term value creation in the driving seat. By investing in a limited number of companies that meet our criteria, we believe that we can outperform the general stock market”, says Lars Christian Tvedt.
Ferd Invest works with three separate portfolios. One portfolio is for shares listed on the Oslo stock exchange, and is currently worth around NOK 1.7 billion, and listed Swedish shares are held in a separate portfolio currently worth around NOK 0.5 billion. The third portfolio is for shares in small and medium-sized Nordic companies, and this portfolio is also currently worth around NOK 0.5 billion.
“This means that we have quite a lot of companies to follow. In addition to the companies included in our portfolios, we follow and analyse other companies in what we consider to be our investment universe”, says Lars Christian Tvedt. He goes on to add that in the large majority of cases, research and analysis of companies results in a decision not to invest. At the moment, the business area holds investments in around 30 companies out of a universe that includes between 500 and 600.
The three members of the business area’s investment team – Director Alexander Miller and portfolio manager Gaute Garshol as well as Lars Christian Tvedt – overlap in their coverage of the business area’s activities to the greatest extent possible. Instead of each managing their own portfolio, industries and information flows, they all work with the entire picture.
“Three heads are better than one. When we are all working with the same information, it makes it easy to shake out ideas, build on each other’s thoughts, see opportunities and have more interesting discussions. To put it simply, we work better like this, even if it results in a long working day”, says Lars Christian Tvedt.