Monthly Portfolio Update #1 | Our Manifesto
Investing with purpose: a focus on quality, conviction, and long-term growth – our first letter, our manifesto
Hi, Investor 👋
I’m Jimmy, and I’m excited to announce the launch of a brand-new series here on our newsletter! In this series, I’ll be sharing my skin-in-the-game investment ideas through Stellar Capital Management - our fictional investment fund designed to illustrate actionable strategies and thought-provoking theses.
Through Stellar Capital, we’ll explore how disciplined analysis, bold conviction, and a long-term mindset can lead to outstanding opportunities in the market. Get ready for deep dives into investment ideas, real-world applications, and the occasional market surprise. Stay tuned - you won’t want to miss this journey!
In case you missed it, here are some recent insights:
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Welcome to the first letter from Stellar Capital Management. We’re excited to share not just our performance in 2024, but also the core principles that shape our approach. At Stellar, we are guided by a simple yet powerful mission: to invest in high-quality businesses that are undervalued relative to their intrinsic worth and positioned for sustainable growth.
This philosophy is rooted in a deep commitment to understanding what makes exceptional companies endure—focusing on their strengths, resilience, and ability to create lasting value for their shareholders. This letter marks the beginning of an ongoing dialogue, where we will share our journey, insights, and commitment to delivering meaningful results.
Investment Philosophy
Finding Businesses with Sustainable Competitive Advantages
Investing in equities means participating in a highly competitive arena where only the most resilient businesses thrive. That’s why we seek companies with structural competitive advantages—those unique traits that allow them to rise above and withstand constant pressure from competitors. These advantages can come from indispensable products or services, brands that forge deep emotional connections with consumers, or innovations that create natural barriers to entry.
What drives us is a simple but essential question: Why will this business remain relevant and profitable over the next 10 years? Companies that can answer this question with clarity are the ones with the characteristics needed to translate their competitive advantages into consistent long-term results.
“The most important thing in a business is trying to find a business with a wide and long-lasting moat around it… protecting a terrific economic castle with an honest lord in charge.” - Warren Buffett
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The Value of Sustainable Growth
Another cornerstone of our approach is the ability to reinvest profits effectively. Profitable businesses without the ability to reinvest their excess returns at attractive rates often stagnate, failing to deliver the kind of growth we aim to capture. On the other hand, companies that can allocate capital efficiently—by expanding markets, innovating products, or increasing operational efficiency—create incremental value for both their customers and shareholders.
We focus on businesses that not only demonstrate the potential to grow but can do so sustainably without sacrificing profitability or competitive advantage. This consistent growth, fueled by disciplined reinvestment, is the engine of compounding that allows us to capture exponential returns over the long run.
Committed Leadership with a Long-Term Vision
No business, no matter how promising, can sustain its success without aligned and committed leadership. We believe management plays a critical role in preserving a company’s strategy, discipline, and long-term vision. We look for leaders with an entrepreneurial mindset, who know how to balance growth and resilience, and who remain consistently attuned to opportunities and challenges in the market.
Companies led by teams focused on consistently creating value—prioritizing the strength of their operations and the benefit of all stakeholders—are the ones we trust as partners in our investments.
“The big money is not in the buying and selling, but in the waiting. Businesses led by committed leaders with a long-term vision often create the most enduring value.” - Charlie Munger
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Capital Allocation: Conviction and Focus
At Stellar Capital, we approach capital allocation with discipline and clarity. We believe in maintaining a relatively concentrated portfolio, investing in only a few companies that meet our rigorous criteria and give us high conviction. Our philosophy emphasizes quality over quantity, ensuring that every position in our portfolio represents a thoughtful and deliberate investment.
A concentrated portfolio allows us to:
Focus deeply on each business: By narrowing our attention to a limited number of investments, we can fully understand their fundamentals, market dynamics, and growth potential.
Maximize returns: Concentrating our capital in high-quality companies trading at attractive valuations enables us to generate superior returns over time.
Align with our conviction: Every company we invest in must not only meet our criteria but also reflect a clear, well-reasoned thesis that justifies its place in the portfolio.
While diversification is often used as a safeguard against uncertainty, we believe that conviction and in-depth analysis provide a more effective defense. Our focus on fewer, high-quality investments enables us to make the most of the opportunities we identify while managing risks effectively.
Portfolio Overview
Our portfolio is intentionally concentrated, reflecting our belief that alpha generation in a highly competitive market comes primarily from focusing on a select few companies. Currently, it consists of three primary positions:
Meta Platforms (META);
Wells Fargo (WFC);
MercadoLibre (MELI);
Most of these holdings have been part of our portfolio since 2021, when we began tracking these investment theses with greater focus. Below, we provide a brief overview of our perspective on each company.
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Meta Platforms (META):
Meta Platforms, the parent company of global brands like Facebook, Instagram, and WhatsApp, combines market leadership in technology with a long-term strategic vision. Following periods of regulatory uncertainty and technological transition, the company has doubled down on building the metaverse and enhancing its digital monetization tools. Its ability to innovate, coupled with its dominant position in the digital advertising market, underpins consistent returns and long-term growth opportunities.
Meta has also demonstrated disciplined cost management, balancing investments in emerging technologies with operational efficiency. With robust cash flows and an ecosystem encompassing billions of users, we believe Meta is well-positioned to capture value over the long term, even in an increasingly competitive and dynamic environment.
It is one of our longest-standing investments; in fact, we held onto the stock back in 2022, despite all the buzz around the metaverse and so on.
Wells Fargo (WFC):
Wells Fargo represents a compelling investment opportunity due to its strong position within the U.S. banking sector, its ongoing operational improvements, and its ability to capitalize on a favorable interest rate environment. As one of the largest banks in the United States, Wells Fargo benefits from a diversified revenue stream, including retail banking, mortgage services, and wealth management.
The company has been actively addressing legacy issues and regulatory hurdles, demonstrating a commitment to restoring its reputation and strengthening its operational foundation. This renewed focus on efficiency and customer trust positions Wells Fargo to grow market share in key areas, particularly in consumer and commercial banking.
Coupled with its disciplined cost management efforts and investments in technology, Wells Fargo is poised to improve profitability while maintaining a solid capital position. As the broader economy stabilizes, Wells Fargo’s robust balance sheet and focus on shareholder returns through dividends and share buybacks further reinforce its appeal as a long-term investment.
MercadoLibre (MELI):
MercadoLibre is uniquely positioned as the dominant e-commerce and fintech platform in Latin America, capitalizing on the region’s rapidly growing digital economy. The company has built a comprehensive ecosystem encompassing online marketplaces, digital payments, logistics, and credit solutions. This integrated approach not only enhances customer experience but also creates significant barriers to entry for competitors. With a strong presence in high-growth markets such as Brazil, Mexico, and Argentina, MercadoLibre continues to benefit from increasing internet penetration, rising consumer adoption of digital payments, and the expansion of online retail.
Furthermore, MercadoLibre’s fintech arm, Mercado Pago, has become a key growth driver, addressing the region’s historically underbanked population and positioning itself as a leader in digital financial services. By leveraging its technology and data capabilities, the company is expanding its portfolio of financial products, including credit offerings for both consumers and small businesses. As MercadoLibre continues to scale its operations and strengthen its competitive moat, it is well-positioned to deliver sustained revenue growth and create long-term value for shareholders.
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Current Performance
In 2024, our portfolio has benefitted from notable contributions across all three core holdings: Meta (+71,2%), Wells Fargo (+52,6%), and Mercadolibre (+27,7%). We achieved a year-to-date return of +49.1%, compared to the +27.2% posted by the S&P 500, the primary benchmark for the U.S. equity market.
Over the past 12 months, Stellar Capital Management has delivered a performance of +51.5%, significantly outpacing the +31.2% return of the S&P 500 during the same period.
Watchlist
Here are the stocks currently on our radar, where we are closely monitoring for the right opportunity. These companies align with our investment philosophy, and we are patiently waiting for favorable conditions to make a move:
ASML Holdings (ASML);
LVHM (LVMH);
Amazon (AMZN);
Paypal (PYPL);
Nike, Inc. (NKE)
At Stellar Capital Management, our commitment is to long-term investing, partnering with exceptional businesses that deliver not only strong returns but also sustainable and dependable growth over time. We believe that this philosophy—rooted in rigorous analysis, disciplined decision-making, and a clear strategic vision—will consistently drive meaningful and lasting success.
We look forward to continuing this journey with you and are deeply grateful for your trust and partnership. As always, please feel free to reach out with any questions or thoughts—we value your engagement and feedback.
Stellar Capital Management Team
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Disclaimer
This material is provided for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities or financial products. All investments involve risk, and it is the responsibility of the investor to conduct their own due diligence and make decisions based on their financial objectives and risk tolerance. Stellar Capital Management assumes no liability for investment decisions made based on this information.
Curious to hear your take on Nike (NKE) after the pullback post-earnings. Do you see this as a potential buying opportunity, or are you waiting for further confirmation before moving in? Would love to hear how you're thinking about the valuation and long-term outlook here.