My Portfolio and Investing Philosophy
My Approach to Capital Allocation
Generally speaking, I would consider myself a value investor. Since I began managing my retirement portfolio eight years ago, I have been strongly influenced by the teachings of Warren Buffett and Charlie Munger. Maturing as an investor through various unique market environments has been extremely formative for developing my financial reflexes. From my beginnings in 2016, there have been numerous discrete market periods – the unusually low volatility of 2017, the COVID-19 panic and near-zero percent interest rates of 2020 to 2021, and a high inflation environment with rapidly climbing interest rates from 2022 until today. The steady implosion of valuations in speculative companies after multiple years of outperformance only reinforced the wisdom of Buffett and Munger that stock performance is intrinsically dictated by the financial and economic characteristics of the underlying business over the long-run.
My goal is to identify businesses with durable competitive advantages that allow them to earn attractive returns on capital over prolonged periods of time, and then patiently wait for the market to deliver an appealing opportunity to purchase shares. When assessing prospective companies, I primarily spend my time learning about business operations, studying executive management teams, understanding the competitive environment in which a company operates, and evaluating the merits of future expectations from both management and equity analysts. Once I have identified a company that I like, I wait for a conservative stock price to materialize and then slowly build a position until it reaches a comfortable size. My anticipated holding time is indefinite, unless the business fundamentally deteriorates or shares become excessively overvalued. I do not pretend to know what stock prices will do over the short run, but rather try and capitalize on these changes when prices reach levels I view as irrationally low or high. Furthermore, I seek opportunities with a realistic potential for generating above-market returns (greater than 10% per year). While I understand that outperformance is highly difficult to consistently achieve over long time-frames, it seems rational to demand such returns considering low-cost S&P500 index funds are readily available. Otherwise, why take the risk of owning individual securities?
As you will see below, my portfolio is highly concentrated in a limited number of businesses I view as having favorable prospects over the next 5-10 years (or longer). I don’t operate with any specific mandate for how many stocks I should own – prevailing market conditions dictate whether a security is attractively priced, so I merely buy shares that look appealing when the market allows me to. You will also notice that I am highly concentrated in the healthcare sector. As a scientist, I naturally feel most comfortable evaluating business that operate in therapeutics, diagnostics, agricultural technologies, etc. I see these companies as within my realistic circle of competence. I hope to continuously expand this circle over my lifetime by perpetually learning and evolving as an investor, scientist, and entrepreneur. In short, my objective for this article is to familiarize readers with my investment style and current portfolio holdings. Going forward, I plan to write updates on a quarterly basis to discuss any changes within the portfolio, provide brief commentaries on any progress made by individual businesses, and evaluate market conditions as a whole.
Figure 1. Snapshot of my portfolio.
Pfizer (PFE)
Portfolio weighting: 20.03%
Investment thesis: Diversified Medicines; Best-In-Class ADC Exposure (Seagen); Stable Dividend
I have been buying/selling/holding: Holding
I am a buyer if shares are below: $30 per share
Comments: Pfizer is one of the largest pharmaceutical companies in the world, boasting a large portfolio of approved medicines and a sprawling pipeline. I view shares as attractively priced at current levels (approximately ~11x forward PE and ~5.6% dividend yield). I have paused buying in recent months simply because it has become such a large holding in my portfolio. The company has done a great job over the past 10+ years of transforming the business into a highly productive R&D organization, and I am encouraged by their focused efforts in oncology. I view the Seagen acquisition as a critical strategic asset that provides the company with a best-in-class ADC business. ADCs are currently revolutionizing the treatment of many cancer types, and I see Pfizer as very well positioned to deliver these medicines into the marketplace. Overall, I like owning Pfizer as nice exposure to diversified therapeutics at a bargain valuation. See my in-depth discussion of PFE here.
BioNTech (BNTX)
Portfolio weighting: 18.58%
Investment thesis: Best-In-Class mRNA Exposure; Differentiated, Next-Gen Immunotherapy (Cancer Vaccines, ADCs, 4-1BB Bi-Specifics, PD-L1xVEGF Bi-Specific); Fortress Balance Sheet
I have been buying/selling/holding: Holding
I am a buyer if shares are below: $80 per share
Comments: BioNTech is a leader in mRNA therapeutics that enjoyed great success during the COVID-19 pandemic with their vaccine Comirnaty in partnership with Pfizer. While it will take time for their pipeline to mature, I feel very optimistic about the prospects of their cancer vaccine portfolio, ADCs, and differentiated immuno-oncology assets generally. I am consistently impressed by management’s scientific rigor and financial discipline, with Ugur Sahin and Ozlem Tureci at the helm. The balance sheet is truly one-of-a-kind for a company of their size, having around ~$20B of cash (USD) and zero net debt. I have largely paused buying due to position size, but will likely accumulate more slowly over time. This is a thesis that will take many years to play out, so I do not feel in a rush to be even more aggressive in the short-term. Near term catalysts include Flu/COVID combo vaccine phase III topline data and BNT327 (PD-L1xVEGF) phase II data. The shares have moved sharply higher on recent news from Summit Therapeutics and their PD-1xVEGF bispecific antibody.
Oxford Nanopore (ONTTF)
Portfolio weighting: 14.38%
Investment thesis: Future of DNA/RNA Sequencing, Best-In-Class; Strong Revenue Growth
I have been buying/selling/holding: Holding
I am a buyer if shares are below: $1.20 per share
Comments: Oxford Nanopore is a company that has developed and commercialized a fundamentally new technology for sequencing DNA and RNA. This is another one I have paused buying due to position size, but plan to accumulate more in the coming years as the company matures and the growth story unfolds. There are several players in the sequencing landscape, but I view Oxford Nanopore as possessing a truly differentiated platform technology with durable competitive advantages and a great management team. Since the cost and accuracy of Nanopore is steadily approaching that of Illumina, I speculate labs will ultimately switch to a Nanopore platform since it boasts impressive versatility - short reads, long reads, direct DNA and RNA, native methylation, etc. The team appears to be executing well in terms of managing cash burn and bringing new sequencing applications to the market, which will be required for their continued success.
Regeneron (REGN)
Portfolio weighting: 10.05%
Investment thesis: Best-In-Class R&D Engine (RGC); Differentiated Immuno-oncology (CD3 and CD28 Bi-Specifics); Leader in Genetic Medicines (AAV, siRNA, CRISPR)
I have been buying/selling/holding: Selling
I am a buyer if shares are below: $730 per share
Comments: Regeneron is a growing biotech company with a storied history of excellence in R&D. It is one of my favorites long-term and has been a major winner in my portfolio over the past 3 years. I think their commitment to population scale genetics through the Regeneron Genetics Center (RGC) sets them up very favorably for continued pipeline success, as it allows them to validate therapeutic targets and identify patient populations before ever entering the clinic. They historically have been pioneers in antibody-based medicines, and are now pushing the envelope aggressively in genetic medicines with modalities such as siRNA and CRISPR via extensive partnerships with Alnylam and Intellia, respectively. The pipeline covers a diverse range of treatment areas with large patient populations and substantial unmet need. In the near term, Dupixent continues its upward sales trajectory towards mega-blockbuster status. Longer-term, I am optimistic about their portfolio of CD3 and CD28 bispecific antibodies in oncology. I have been modestly selling shares to lock in some profits purely on valuation concerns considering the large rally in price lately. It will still remain a substantial holding in my portfolio. If the stock were to fall considerably, to around ~15x forward earnings, I would be a buyer.
S&P500 (VOO)
Portfolio weighting: 9.19%
Investment thesis: Total market exposure
I have been buying/selling/holding: Holding
I am a buyer if shares are below: N/A - would buy in general market crash environment
Comments: The S&P500 has historically been difficult to outperform. This position is my strategy for diversified exposure to everything beyond individual stock picks, which are likely to remain highly concentrated in the healthcare sector.
Bayer (BAYRY)
Portfolio weighting: 7.29%
Investment thesis: Best-In-Class AgTech; Diversified Revenues; Severely Compressed PE Multiple; Dividend Growth
I have been buying/selling/holding: Holding
I am a buyer if shares are below: $8 per share
Comments: Bayer is a diversified conglomerate with operations in Crop Sciences, Pharmaceuticals, and Consumer Health. The company is a clear leader in agricultural biotech, such as their seeds and traits business and novel crop protection. Although the businesses units are not rapidly growing, they have high barriers to entry that endow Bayer with strong pricing power and durable earnings. The debt load and litigation related to crop protection (glyphosate) are troublesome, but I see these problems as ultimately transient and not fundamentally a structural issue with the business model. Moreover, CEO Bill Anderson seems to be doing a good job at navigating the company through this challenging period. I have paused buying shares after reaching what I view as an appropriate weighting in light of the substantial challenges facing the company. While there are real risks surrounding glyphosate litigation, the debt burden, and LOEs in the pharma business, shares have fallen to the point of having deep value, in my view.
Bristol Myers Squibb (BMY)
Portfolio weighting: 6.56%
Investment thesis: Diversified Medicines; Targeted Protein Degradation (TPD); Compressed PE Multiple; Stable Dividend
I have been buying/selling/holding: Buying
I am a buyer if shares are below: $50 per share
Comments: Bristol Myers Squibb is a diversified therapeutics company with leading products in oncology, cardiology, hematology, and others. This is a name I have been actively buying in recent months. BMY is going through a period of uncertainty as a slew of LOEs loom ahead, a scenario I view as analogous to Pfizer 12-24 months ago. However, the company produces substantial free cash flow and management has been very focused on M&A. I think they will ultimately acquire their way out of this situation to offset concerns about LOEs. Recent purchases of Karuna, Mirati, and Rayze Bio have set them on the right path. Long-term, I am very encouraged about the company’s stated focus on targeted protein degradation, as I see this as a major opportunity for addressing traditionally “undruggable” targets. I anticipate this stock will remain volatile until more clarity emerges surrounding future anchor assets. At a ~7.5x forward PE and ~4.9% dividend yield, shares look attractive to me here.
Corcept Therapeutics (CORT)
Portfolio weighting: 4.39%
Investment thesis: Under-Appreciated Diabetes Exposure; Oncology Potential; Strong, Profitable Growth
I have been buying/selling/holding: Holding
I am a buyer if shares are below: $25 per share
Comments: Corcept is a unique biotech, as they are purely focused on cortisol modulation across a number of disease indications. They have one approved product, Korlym, indicated for treating metabolic complications such as hyperglycemia secondary to Cushing’s Syndrome (excess cortisol production). A second potential drug, relacorilant, is nearing submission to the FDA for Cushing’s Syndrome while also being tested in several other indications such as ovarian, prostate, and adrenal cancers. The company has other interesting pipeline candidates in earlier phases of study. While Cushing’s syndrome is currently thought to be an orphan disease affecting less than ~50,000 people in the U.S., emerging data suggests this number is substantially larger. Initial results from the CATALYST study demonstrate a 24% prevalence of hypercortisolism in patients with difficult-to-control type II diabetes. If these data prove reliable, then the real prevalence of Cushing’s syndrome is much higher than previously appreciated. Importantly, it is one of the few small-cap biotech companies I have found that is actually profitable and returning capital to shareholders via buybacks. I have not been buying shares recently, as the stock has rallied quite a lot and now trades around ~25x forward earnings.
Cash
Portfolio weighting: 3.57%
Comments: The amount of cash I retain on-hand at any given moment is not necessarily a reflection of my sentiment about the markets generally, but rather a function of how aggressively I am building or trimming positions. This inherently depends on multiple factors such as current stock prices, total position sizes within the portfolio, and how much cash I am currently able to transfer from my savings into investments. I am often fully invested and have zero cash balance, but other times liquidity accumulates while I wait for buying opportunities or I am deploying capital slowly. In general, I would probably never have more than 10% of my portfolio in cash unless extreme and unusual circumstances were to occur.
Royalty Pharma (RPRX)
Portfolio weighting: 2.72%
Investment thesis: Diversified Medicines; Unique Business Model; Highly Cash Generative
I have been buying/selling/holding: Buying
I am a buyer if shares are below: $27 per share
Comments: Like the name suggests, Royalty Pharma is an acquirer of royalty assets in the pharmaceutical sector. Selling royalties is increasingly a method by which companies access capital in lieu of equity or debt offerings, and Royalty Pharma is the largest and most dominant player in this space. Essentially, the company provides exposure to a wide range of leading medicines via a business structure devoid of the typical capex and R&D requirements usually seen in biotech. I am encouraged by management’s discipline and rigor when it comes to dealmaking and valuations - they have stated previously that they often search for unique assets with great data and try to avoid areas that have been overcrowded (i.e. obesity). It is my personal impression that management is of the value investor mindset, which I view as essential for good capital allocation over the long-term. Shares look attractively priced at ~7x forward earnings and a solid dividend yield hovering around ~3%. It is a name I have been actively buying and will likely increase this position to become a sizable holding in my portfolio.
Arvinas (ARVN)
Portfolio weighting: 1.39%
Investment thesis: Best-In-Class Targeted Protein Degradation Exposure
I have been buying/selling/holding: Holding
I am a buyer if shares are below: $15
Comments: Arvinas was founded by Professor Craig Crews of Yale University, who is largely credited with inventing the field of targeted protein degradation. The company has a suite of PROTAC degraders in the clinic, with their most advanced candidate vepdegestrant in multiple phase III trials for breast cancer through their partnership with Pfizer. I am very optimistic about the future of PROTACs and their potential for addressing “undruggable” targets. Arvinas has pioneered a set of design rules for creating orally available PROTACs, which is impressive considering the size and complexity of the molecules. Moreover, they have been able to engineer PROTACs capable of crossing the blood-brain barrier, allowing them to explore applications in neuroscience. In my view, management has done a good job of maintaining a focused discipline within the pipeline and has appropriately monetized assets or periodically raised equity capital to ensure a strong cash position.
Co-Diagnostics (CODX)
Portfolio weighting: 1.29%
Investment thesis: At-Home PCR Testing; Point-of-Care PCR; Speculative Value
I have been buying/selling/holding: Holding
I am a buyer if shares are below: $1.00 per share
Comments: Co-Diagnostics designs, develops, and commercializes PCR-based diagnostic tests utilizing their proprietary co-primer technology. The company has a moderately sized catalogue of tests for infectious diseases such as COVID-19, mpox, tuberculosis, and zika virus. They have also developed a small, highly affordable real-time PCR instrument designed for point of care and at-home use which is awaiting market authorization from the FDA. In my view, the future of the company is riding on FDA approval. If successful, it would likely be transformational for the business. If rejected, the company may run out of cash. I see the at-home PCR product as highly unique with great potential for adoption if approved. Since the shares are trading near or below the value of cash on the balance sheet, I felt a very small position was justifiable.
3x Leveraged S&P500 ETF (UPRO)
Portfolio weighting: 0.55%
Investment thesis: Experimental
I have been buying/selling/holding: Holding
I am a buyer if shares are below: N/A
Comments: This position is an experiment I started back in 2018. It is an ETF that provides 3x daily exposure to the S&P500, i.e. if the index moves up 1% in a day, the ETF will go up 3%. This is the same on the downside, so a 1% decrease in the index is a 3% decrease in the ETF price. I bought 3 shares in 2018 and plan to hold them indefinitely with dividends reinvested to see what happens.
Author Disclosure Statement
I/we have a beneficial long position in the shares of PFE, BNTX, ONTTF, REGN, VOO, BAYRY, BMY, CORT, RPRX, ARVN, CODX, and UPRO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
HRG Disclosure Statement
Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of HRG as a whole. HRG is not a licensed securities dealer, broker or US investment adviser or investment bank. Authors are third parties that may include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
