I agree they’re fairly valued at this moment i.e. buying at these valuations will probably make it difficult for outperformance. It still remains my second largest holding at around 8.5% though - intention to keep it forever and just buy if hell breaks loose.
For what it’s worth I think there also haven’t been any insider purchases for a while.
I’m not sure what to think about the TSR vs NAV though; I would always argue, and it is for many holding companies, that NAV is the only thing under the control of management, rather than TSR, and therefore they should be rewarded based upon sustainable NAV growth. As with normal companies, the stock should follow the NAV/EPS in the long run. Exor NAV has been great (bit lagging past years for sure) but their TSR was nowhere near this afaik - also due to discount widening.
If the market tomorrow decides Investor AB is a great company because they have a large stake in ABB (AI) or whatever, and pumps up the valuation, TSR will be good but how much of this added value really came from fundamental improvement rather than multiple expansion? In this case, management will be rewarded due to the good TSR, even if ABB may not live up to the hype and ultimately may present disappointing results and therefore cash flows?
It’s a good point, and one I thought about myself. But the same argument could go for NAV growth, as that’s also driven by valuation expansion in current holdings - thus outside control. In 2021 for instance, both options would lead to massive bonuses.
I still think the beauty of tying it to TSR is that management is punished for creating a portfolio investors don’t want. For example by doing a massive deal of some cheap real estate right before bonus period is done and marking up the valuation.
Constellation Software may be the gold standard imo, but I would imagine the Wallenberg’s have thought long and well about this too. Very long tenure there as well, the same within companies like EQT
I agree they’re fairly valued at this moment i.e. buying at these valuations will probably make it difficult for outperformance. It still remains my second largest holding at around 8.5% though - intention to keep it forever and just buy if hell breaks loose.
For what it’s worth I think there also haven’t been any insider purchases for a while.
I’m not sure what to think about the TSR vs NAV though; I would always argue, and it is for many holding companies, that NAV is the only thing under the control of management, rather than TSR, and therefore they should be rewarded based upon sustainable NAV growth. As with normal companies, the stock should follow the NAV/EPS in the long run. Exor NAV has been great (bit lagging past years for sure) but their TSR was nowhere near this afaik - also due to discount widening.
If the market tomorrow decides Investor AB is a great company because they have a large stake in ABB (AI) or whatever, and pumps up the valuation, TSR will be good but how much of this added value really came from fundamental improvement rather than multiple expansion? In this case, management will be rewarded due to the good TSR, even if ABB may not live up to the hype and ultimately may present disappointing results and therefore cash flows?
It’s a good point, and one I thought about myself. But the same argument could go for NAV growth, as that’s also driven by valuation expansion in current holdings - thus outside control. In 2021 for instance, both options would lead to massive bonuses.
I still think the beauty of tying it to TSR is that management is punished for creating a portfolio investors don’t want. For example by doing a massive deal of some cheap real estate right before bonus period is done and marking up the valuation.
Constellation Software may be the gold standard imo, but I would imagine the Wallenberg’s have thought long and well about this too. Very long tenure there as well, the same within companies like EQT
Thanks Ole, always a pleasure