Investment Theme: Core Value

In the construction of your portfolio you need to think about diversification. I also believe that minimizing downside risk in the core of your portfolio is key to solid risk-adjusted returns. That is why I want to start my series of investment themes with the one I personally started with: core value.

Academically speaking, the best way to get solid risk-adjusted returns is to just by an ETF with an underlying broad market portfolio. However, this blog is not aimed at just telling you to buy an ETF and go on with that. This blog is meant to be a fun add-on to the portfolio of those who want to deviate from ‘the path of the ETF’.



Where to Find Core Value

What do I mean with core value? It is simply about businesses that can offer returns, no matter what happens, for a long period of time. The sectors where you have to look are those that offer products that serve a need of one person on the globe each and every day. The companies you want to look for are those within these sectors that have, or are creating, a strong market position by operating in a niche or by operating with a very strong moat. The companies can offer stable returns because their services are needed, while the size of the markets they operate in can offer seemingly unlimited growth.

These sectors are really large. Think about the following examples:

  • Construction Companies: humans will always continue to build the future ($12.7 Trillion)
  • Transport Services: people have legs, but other means just go faster ($6.6 Trillion)
  • Food & Beverages Industry: you cannot go far without food and drinks ($6.1 Trillion)
  • Water Management and Supplies: water is and remains the source of life ($696 Billion)
  • Clothing & Apparel: it is illegal in most countries to walk around naked ($1.5 Trillion)
  • Waste Management and Waste Disposal: where there are humans, there is waste ($2.1 Trillion)
  • (Tele)communications Market: humans are social animals ($1.7 Trillion)

If you have more examples or ideas for core value industries, please let readers know about them in the comments and get the discussion going.

How to Spot the Core Value Company

The core value company is the one that can earn superior margins because it has a strong strategic positioning, or that creates a new product offering (with a great underlying business model) that can grow seemingly unlimited in these large markets.

Some important things to look at when assessing a company’s strategic positioning are:

  • The Long-Term: Core Identity and Vision (background)
  • The Industry: Porter’s Five Forces (background)
  • The Short-Term: Business Model Analysis (background)
  • The Management Team: Achievements/Credentials

A key question to ask yourself is whether a company has a strategy, or whether it is in what I call a ‘panic mode’. A company with a strategy is developing its product and looking for new markets. These companies can create a blue ocean or a niche that will offer larger profits. A company in ‘panic mode’ has no resources to look for growth and is only looking to cut costs or is turning to other financial trickery methods to maintain some shareholder satisfaction.

For example, a company like Apple ($AAPL) today is looking for new markets with services and wearables, while improving its core iPhone product. This is a company with a clear strategy. On the other hand, I (note: my opinion) believe McDonalds ($MCD) is a company in ‘panic mode’, exchanging its own restaurants for higher margin franchise restaurants and taking on debt for dividend payments and share repurchases to the point of negative equity.

I personally maintain a list of core value companies with a personal price target. When these companies go under my price target threshold, I buy them (these companies are of course still subject to economic cycles). Remember that markets always change, so I may add and remove companies from the list from time to time. It is very important to look out for companies that emerge in these spaces. An example of such an emerging company is Starbucks ($SBUX), which has successfully scaled its brand in the global coffee industry ($363 Billion) over the past decade, offering incredible returns to shareholders.

New Core Values

Core value investments can change over time, when new technologies emerge and take up a space in people their everyday lives. Think about the internet. In no crisis or economic circumstance people will cancel their internet subscription.

Core values can still be replaced on the long-term, so it is always good to stay vigilant. Think about the candle being replaced by the light bulb, oil possibly being replaced by wind and solar energy or other renewables, or telephone and video communication networks slowly being completely replaced by the internet.

Examples of Successful Core Value Investments

Core value investments are interestingly some of the most famous investments, resulting in some of the richest people in history. Think about the following people becoming rich through a core value company:

  • Inditex ($ITX.MC): The richest man from Spain, Amancio Ortega, started an apparel empire
  • Heineken ($HEIA.AS): The richest Dutch person is a member of the Heineken family
  • Carnegie: One of the richest men of the 19th century, Andrew Carnegie, sold steel
  • Telmex: Carlos Slim was the richest person in the world for some time with investments in the telecommunications industry

Some of these examples of course started out as private ventures. So let’s look at the following annual return examples of some publicly listed companies (10Y total returns):

  • Domino’s Pizza ($DPZ): 43%
  • Starbucks Corporation ($SBUX): 23%
  • Nike ($NKE): 22%
  • Chipotle Mexican Grill ($CMG): 21%
  • Procter & Gamble ($PG): 12%
  • McDonalds ($MCD): 15% (even though I don’t like it right now, I still could not keep it off this list)

Or, one I could not easily calculate the total return for with the tool: A2 Milk ($ATM.NZ), which started out at $0.25 (NZD) in 2017 and is currently valued at more than $18.00 (NZD) per share. Actually, I don’t need a calculator to show those returns are incredible for a company that is just selling milk products. And let’s be honest that their ticker is very well selected as it seems to be the ATM of the stock market.

Of course this list is subject to incredible success bias and there are a lot of companies in these spaces that fail to provide ‘alpha’ to their investors. Also remember that success in the past does not guarantee success in the future, meaning that some of the companies listed above can fail to provide ‘alpha’ over the next decade. That is why it is important to look at every single company on a stand-alone basis and to do your research to make sure you make an investment that can help you sleep at night.

Final Thoughts

Do you have some successful core value investments? Share them in the comments!

“Price is what you pay. Value is what you get.”

Warren Buffett

12 thoughts on “Investment Theme: Core Value

  1. Hi Beurswolf, my most successful core value investment is Microsoft. I realize people currently see it as a growth Tech stock. But it was mainly still Known for office and Windows back in the day when I purchased my first tranche (Jan 2015). However, I got convinced that they would be able to get another leg of innovation when I saw Satya coming in with his focus on “mobile first” and his “cloud” strategy. Hence, for me this was a typical example of core value.

    Liked by 1 person

    1. Thanks and I totally agree!

      I believe Microsoft is a great example of a core value investment in terms of Microsoft Office and Microsoft Windows. The mobile first and cloud strategy is a great growth add-on in new (possibly future) core markets. It will be interesting to see how that industry will mature as there are currently a lot of new entrants in the mobile and cloud space. Microsoft does have one of the best market positions right now as it can leverage on its brand and (core value) product portfolio. Satya is really executing this strategy ‘like a boss’

      Liked by 1 person

      1. What are both of your views on Microsoft’s current valuation? I love the company and its underlying fundamentals, but the valuation is simply to rich for me to add here. Bought in March/April at $138 but was way to conservative in position sizing due to the great uncertainty and other investment opportunities at the time.


      2. I personally also think the valuation is quite rich at the moment, but also one that seems defensible and resilient compared to some other stocks out there right now. Would agree with your point to look at the broader market for investment opportunities. There may be a moment in the future where Microsoft will look like a bargain, while others may look like a bargain right now!


  2. Thanks for these very nice reminders about what makes a good investment. Share prices may go up and down but at the end of the day, what matters is a solid industry and a company with a clear strategy that has good margins.

    I do think many people get focused too much on the share price and use it as good justification to get a good deal on a bad stock. Your practice of maintaining a list of the good companies and their price targets is very smart!

    Do you try and pick the best stock from the best industries, or do you sometimes go for multiple stocks in the same industry (e.g. PepsiCo and Coca Cola)?

    Liked by 1 person

    1. Thank you very much for your reply!

      I sometimes go for multiple stocks in the same industry to be honest (but this is very rare). For example, I currently own both Veolia and Suez because I believed both companies were undervalued a few months ago. However, I found it hard to pick a winner between the two as they both had something going for them (Suez had a strong portfolio with focus on innovations, while Veolia is still in a transition mode to improve its profit profile).

      It is interesting to think about though, but in the end I still come back to the principle of looking at every company on a stand-alone basis. If it incidentally leads to two similar companies in your portfolio, I believe that is just fine.


      1. Cool thanks, nice to get your perspective! Here in Canada I often hear about people not being able to choose between the Big 5 banks so they just own them all! I never quite followed that line of thinking as I believed the capital could be better used for diversification purposes. Sort of like an opportunity cost argument.

        There is a balance I think between looking at each investment on a standalone basis and understanding that your portfolio is more than just the sum of its parts. All investments must work together to manage risk!


  3. My most successful investments to date are and Alibaba from China. One could argue if these are core value investments, but in the current world where almost everyone is so used to ordering stuff online (especially in China) – I would start to argue that e-commerce has become a core value of today’s modern society and one that seems incredibly future-proof. Likewise for a Visa as people are increasingly moving away from cash payments. I think these are the most interesting type of new core value investment instead of the more classic old ones that might be disrupted (e.g energy, retail, telecom). The only probably I have with them are the sky-high valuations they trade at today.

    More classical successful core investments would probably be UnitedHealth (who can live without health insurance?), Unilever and VF Corporation (apparel).

    And to finish this post I think it is also interesting to point out some of my losers so far. These primarily fit in the aforementioned more old school core value bucket like Shell (can we live without energy? – no but can generate it from other sources), Simon Property Group (shopping malls and the rise of e-commerce) and Anheuser-Busch (large debtload and declining beer consumption / shift in consumer taste to premium and craft). All three of which have been hit particularly hard by the COVID-19 lockdowns by the way, accelerating the problems they were already facing.


    1. Thank you very much for your contribution!

      I agree on your stance that JD and Alibaba can be perceived as core value. The retail market is one core value segment bringing products to consumers, which just happens to be done way more efficient through e-commerce. I didn’t know VF Corporation, so will look at them some time in the future

      Over the past year I also had some losers in the portfolio, similar to your examples (most notably BAM, the largest Dutch construction company, which I shortly mentioned in my July update). I think the lesson here may be that the larger a company is, the harder it is to generate good returns for shareholders, especially when large investments are necessary to defend earnings (hence why moats are important), or when industries are declining


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