Wide Moat Companies: Fat Pitch Approach and Low Turnover of Portfolio.

Fat Pitch method.

Great companies (wide-moat) selling at a discount are rare. So when you find one, you should pounce.

Over the years, a wide-moat company will generate returns on capital higher than its cost of capital, creating value for shareholders.

 This shareholder value translates into a higher stock price over time.




Move In and Out of Wide-Moat Stocks

IF YOU SELL AFTER MAKING A SMALL PROFIT, you might not get another chance to buy the stock, or a similar high-quality stock, for a long time.

For this reason, it is irrational to quickly move in and out of wide-moat stocks and incur transactions costs ( and also capital gain taxes in some countries).

 Your results after trading expenses (and taxes), likely won't be any better and may be worse.




Low Turnover

That is why many of the great long-term investors display low turnover in their portfolios.

 They have learned to LET THEIR WINNERS RUN AND TO THINK LIKE OWNERS, NOT TRADERS.

Stock Turn or Inventory Turn

For example:

Annual turnover  $10 million
Annual cost of sales (60%)  $6 million
Stock value $1.5 million
Stock turn 4


This measures the number of times that total stock is used (turned over) in the course of a year.

The higher the stock turn the more efficiently the business is being run, though adequate safety margins must of course be maintained.

It is important that the terms are completely understood and that there are no abnormal factors.

Normally the definition of stock includes all finished goods, work in progress and raw materials.

The stock value will usually be taken from the closing Balance Sheet but you need to consider if it is a typical figure.

If the business is seasonal, such as a manufacturing of fireworks, it may not be.  

A better result may be obtained if the average of several stock figures throughout the year can be used.

Warrants: Turnover versus Outstanding Quantity

Turnover is the total units of a warrant bought and sold on a day.

Outstanding quantity refers to the accumulated units, or the accumulated overnight positions, held by investors (other than the issuer) at the close of trading.

Outstanding percentage is the portion held by investors of the total units of the warrant in issue.



Various scenarios and interpretations of the market.

Day Trader >>> Overnight Traders  -  Turnover >>> Outstanding quantity

On a trading day when the market is dominated by day trade investors rather than overnight traders, the turnover can be way above the increase in outstanding quantity.


All new positions held overnight - Turnover = Increase in outstanding quantity 

In contrast, if all the new positions of the day are held overnight, the increase in outstanding quantity will be equal to the turnover.


Day trade market - High turnover + Flat outstanding quantity

Normally, when a high turnover meets a flat outstanding quantity, what we have is a day trade market.
This may be a sign of a lack of confidence in the outlook for the warrant.


Market dominated by sell orders - High turnover + Fall in outstanding quantity

When a high turnover meets a fall in outstanding quantity, then the market is dominated by sell orders.
This may mean that the holders of a call warrant are selling on expectation that the underlying is topping out (or bottoming up in the case of a put warrant).


Players are upbeat about the market outlook - High turnover + Increase in outstanding quantity

When a high turnover meets an increase in outstanding quantity, the investors here are probably long-term players who are rather upbeat about the market outlook.