Portfolio construction is clearly an important topic and hard to make a passing remark over as there are clearly more than one way to skin a cat. Ultimate risk adjusted returns are what matter as I’m sure you’d agree. Clearly there are pros and cons of a large/small number of holdings. To me, time is the most important, as it is clearly easier to follow 1 company than 100. But one must remember that to understand valuation(s) we need to be following many companies to understand which offers the best risk/reward ratio for our personal palate/risk appetite in any event, so a purist may argue that a concentrated portfolio doesn’t necessarily save time. A 25% drop in a company which occupies 2% of my portfolio (.2% wealth overall) is not something I’ll lose sleep over where as a 25% drop in a company with 40% of my life savings in would cause me heartache. Fortunately, or unfortunately as the case may be, my stomach would struggle with such large risk. even if we think we can predict all manner of events, we can’t, and unforeseen events may occur. I’m not saying sdi’s amalgam decline is unforeseen, just that unforeseen things can occur and having a very concentrated portfolio increases the pain of such an event eventuates.
With regards to sdi - I’m not trying to create a silver lining, but the fact amalgam now contributes 25% of revenue, and aesthetics 40% means that if the structural decline does not abate with respect to amalgam, the pain should lessen. If the same dynamic changes occurred in dh19, the effect will be nearly neutral. I believe this has further to fall (although this is clearly a guess) as the ev/ebitda despite the price drop has only dropped marginally (~4.5x, although I’d trust @madamswer revision estimate over mine clearly). I’ll be looking carefully at equipment, and aesthetics maintaining its growth in subsequent periods. The drop for whitening is worrying. As jimmy mentioned, they are fighting some massive companies with regards to r&d, but there’s no way they’re going to give up easily.
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