Investment Strategy Summary

Since the middle of this year, I have been running a group chat where I share news articles that personally impressed me, and sometimes we talk about companies that have investment value. As that happens, the conversation naturally turns to financial planning and wealth building, but honestly, whether it's technical analysis or information-based trading, none of it matters all that much. As always, the market defies expectations, and investing is all about things not going the way you want them to.

Recommending specific stocks to people asking about buying and selling is risky, and while I often share my own perspective, it can actually sway someone's investment sentiment, making it hard to give an aggressive buy opinion... In fact, even when I rave about a company being truly great, people who don't buy it strangely turn a blind eye. (I still don't know why)

HaebomWhy I Accumulate NVIDIA Every MonthIf you subscribe via the subscribe button, you can receive fruitful updates every day. Leaving comments and emojis gives me great strength. It would be even better if you share it! ByteDance, the operator of TikTok, purchased about 100,000 units of A100 and H800 (a nerfed version of the H100), at about $10,000 each. A100, H100, etc., are GPU product names made by NVIDIA for high-performance computing. With China-related corporate sanctions taking effect last September, they technically shouldn't be able to buy them... but turns out they just received orders placed in August. Then what about NVIDIA's latest GPU, the H100? Its performance is better than any existing AI computing unit. One H100 GPU is plugged into one rack → one rack consumes 3,300W of electricity. The price is also monstrous, tens of thousands of dollars each (market price...). Despite this, orders for the H100 are so overwhelming that supply is simply impossible to meet. The only thing that could be considered an alternative right now is TPU, but in truth, there is no replacement. Even if an alternative comes out, could it match NVIDIA's performance? Almost impossible. As artificial intelligence becomes ubiquitous, computations get more complex, and model sizes grow larger, the GPU shortage will continue to occur.haebom.dev ↗

Even though the post above was written quite some time ago, very few people around me actually bought it, and most people often come back contemplating whether to buy only after NVIDIA's stock split. On a post-split price basis, it's very difficult to give advice because anything someone with an average unit price of $26–$28 says to someone asking to enter at $100 feels deceptive and ambiguous. (Honestly, when someone who bought Bitcoin at 20,000 KRW sees Bitcoin hit 120 million KRW, the only advice they can really give is 'told you so.') It's not that I don't want to share, but rather that it is hard to give advice when your position and the other person's position are already vastly different.

So, I'd like to share a very simple matrix that I use. In this quadrant system, you only need to pay attention to Quadrants 2 and 4. The X-axis is Invested Capital Turnover, an indicator that shows how efficiently the capital invested by a company is being cycled.A high capital turnover means that investments are being actively utilized to increase productivity. The Y-axis is NOPAT Margins, referring to after-tax operating profit margin, which indicates the ratio of net profit generated from the company's operations. A high NOPAT margin signifies cost efficiency and high profitability.

In other words, Quadrant 2, Consumer Advantage, delivers high value to consumers, but capital efficiency may be relatively low. These are companies that offer strong brand power or unrivaled product value to consumers. Next, Quadrant 4 demonstrates high productivity through efficient capital utilization, but may be relatively low in terms of profitability. Companies aiming to expand market share through mass production might belong here. Needless to say for Quadrant 1. Explaining in a bit more detail... if we place the center coordinates at (0,0) and assign values of +5 and -5 along the axes, we can classify companies as follows.

Quadrant 1 | Consumer and Producer Advantage (High NOPAT Margin, High Capital Turnover):

• Microsoft: (4, 4) - Records high margins and capital turnover thanks to its dominant position in cloud and software sectors.
• Google: (5, 5) - Boasts very high margins and capital turnover based on its monopolistic status in search and advertising.
• Domino's Pizza: (3, 3) - Both capital turnover and margins are relatively high due to an efficient supply chain and a strong brand.

Quadrant 2 | Consumer Advantage (High NOPAT Margin, Low Capital Turnover):

• Apple: (4, -2) - Enjoys high consumer loyalty driven by a premium brand and high margins, but has low capital turnover.
• Coca-Cola: (5, -3) - Holds a consumer advantage with strong brand recognition and high margins.
• NVIDIA: (5, -2) - Maintains high margins based on high-performance GPUs and an insurmountable technological gap.

Quadrant 3 | No Competitive Advantage (Low NOPAT Margin, Low Capital Turnover):

• Delta Air Lines: (-4, -3) - Lacks a competitive advantage due to a highly volatile revenue structure and high fixed costs.
• General Electric: (-4, -3) - Both profitability and capital efficiency are low due to intensifying global competition and a lack of technological innovation.
• Floor & Decor Holdings: (0, -2) - Lacks both capital efficiency and margins due to low barriers to entry and limited competitive advantage.

Quadrant 4 | Producer Advantage (Low NOPAT Margin, High Capital Turnover):

• Amazon: (-3, 4) - High capital turnover through a massive distribution network and efficient logistics systems.
• Walmart: (-2, 3) - High capital turnover driven by low-price strategies and bulk sales, but low profitability.
• Tesla: (-2, 3) - High capital turnover achieved through early market dominance and production efficiency in electric vehicles and energy sectors.

These values are classified arbitrarily by me and can actually be calculated using financial statements. These days, some platforms list them separately, so once you organize them, they're convenient to track. By arranging them well, you can build an investment strategy (portfolio); which quadrant is better depends on individual investment preferences, so it's impossible to say which company is objectively superior, but it will at least help you consider your strategy.

My personally preferred investment targets are companies with producer advantagethat are located in Quadrant 4 at the time of investment, but have the potential to grow into a consumer advantage and move into Quadrant 1 in the future.Such companies typically grow through mass production and efficiency, and then gradually secure high margins through technological innovation or a monopolistic position, potentially transitioning to consumer advantage. If these companies can even move to Quadrant 2, it signifies rapid growth and reflects a situation where their presence and scale in the market expand significantly.

A prime example is NVIDIA.NVIDIA originally occupied a producer advantage (Quadrant 4) by manufacturing graphics cards, primarily used for gaming, graphics work, and high-computation machine learning tasks. However, as the demand for increasingly advanced computing power surged, it shifted from Quadrant 4 to Quadrant 1,and grew rapidly while also expanding into Quadrant 2 alongside the explosive growth of the AI market.If not for the massive wave of the artificial intelligence market, NVIDIA might have stopped at Quadrant 1, but AI opened up new opportunities, allowing NVIDIA to secure a critical position in the market. Companies like this share the following common traits.

1. Insurmountable technological gap: Choose companies with unrivaled technological prowess (e.g., NVIDIA's GPUs) or brand power. In particular, I favor companies where competition is difficult or market entry barriers are high due to their monopolistic position or technological capabilities.
2. Evaluation Criteria: Even if the P/E (Price-to-Earnings) ratio is high, I check for stable profit margins and market share. Even if a company seems currently overvalued, one with consumer advantage is highly likely to grow in the long term.
3. Utilizing Undervaluation Metrics: I look for undervalued companies using metrics such as P/B (Price-to-Book) and P/S (Price-to-Sales).
4. Capturing Undervaluation Opportunities: Companies with producer advantage have lower margins and can sometimes be undervalued, so I seek buying opportunities when the market temporarily undervalues their stock prices.
5. Long-Term Holding: Companies with high margins and consumer loyalty can be expected to achieve relatively stable growth despite market volatility, making them advantageous for long-term holding.

While there is no single right answer when it comes to investing, I wish everyone successful investments and will conclude with a story from an interview with the late Charlie Munger.

"Opportunities to make big money in an investing lifetime come only a few times. If you take out Warren Buffett's top 10 opportunities in his life, his track record would be pretty mediocre. I fundamentally believe that you just have to keep going. A lot of hardships will come your way, so you must navigate through them well. In doing so, a few rare opportunities will come along. You have to learn to recognize them when they come, and you shouldn't bet too small when they do."
- Charlie Munger