The Case For Owning Fewer, Better Stocks with Stephen Arnold

**Bryce** (0:00)
Now, you mentioned the portfolio has 15 stocks in it, so it's relatively highly concentrated. What's the reason for concentration? Why is it important?

**Stephen Arnold** (0:09)
We're very, very selective to end up with our 15 leading businesses. There are some that are successfully owned fewer, Charlie Munger being one, and there are some that's successful with more.

**Bryce** (0:23)
Welcome to another episode of Equity Mates, a podcast where we explore what's possible in the world of investing. My name's Bryce.

**Ren** (0:29)
I'm Ren, and today we have an interview that I needed to listen to. This interview is all about the art of saying no, or how good investors avoid bad investments, and importantly for me, the case for owning fewer stocks.

**Bryce** (0:45)
Yes. We're sitting down with Stephen Arnold. He's the founder and CIO of Aoris, and you're right, Ren, today is all about learning about Stephen's approach of clearly defining when not to invest. When not to invest, because we can get excited with all the opportunities that come through the door, and we can build a lot of individual positions in our portfolio, but a lot of success comes in, I guess, concentration, and really knowing where you don't want to go.

**Ren** (1:14)
Yeah. Knowing the game you are playing, and playing it well, and playing it consistently.

**Bryce** (1:20)
Yes.

**Ren** (1:20)
And Stephen runs a very concentrated portfolio, around 15 positions, and I have a habit of having a few more than 15 individual stocks in my portfolio, although I have recently sold a few, so maybe now is a good time to have this conversation. But I think so many interviews we do on this platform are about what to buy, and how to find the next stock, and we do far less on knowing your circle of competence, knowing the pond that you're trying to fish in, and be really disciplined around what you're avoiding. So I think this is a good compliment to a lot of the interviews where we're just looking for the next stock.

**Bryce** (1:59)
Bye, bye, bye.

**Ren** (2:01)
Rest assured, we do ask Stephen to bring a couple of stocks that we're going to dive deep in.

**Bryce** (2:05)
So a massive thank you goes to Aoris for supporting this episode and helping us keep all of our content here at Equity Mates free. But with that said, let's get into our conversation with Stephen Arnold.
Steve, welcome to Equity Mates.

**Stephen Arnold** (2:20)
It's an absolute pleasure to be back.

**Bryce** (2:22)
2023 was the last time you were on, so a lot has transpired since then. And we want to start with the Aoris way, how you invest, what your style is, what your philosophy is.
You describe your style as quality first, value investing. So what does that actually mean in practice?

**Stephen Arnold** (2:41)
We use the term ownership a lot, and I'm sure we'll come back to it during the conversation. But I think for any investor that owns shares, recognizing that you own a part of a business, I think is a great mindset to not lose sight of a share is a share of a business. Okay, so then what types of businesses do we want to be owners of? Because that's exactly what we are. We want to be owners of growing successful businesses. Businesses have got a long history of success. Businesses that by their nature have breadth. Breath brings robustness. The opposite of breadth is you're a narrow one trick pony. That's risky, that's fragile. So broad businesses that are growing, that are outgrowing their peers, taking share in growing markets, doing so consistently, profitably.
Businesses that find new problems to solve, new ways to add value, the growth that way rather than grow through increasing price. Businesses with a strong culture at True North. We serve customers, we solve problems. And by being selective, which we are, we can set our criteria on all of those things higher than if we own lots of stocks. So the 15 stocks we own, it's not a way to swing the fences, if you like. Concentration for us is not a dialing up the risk or the amplifying bets, if you like. It's by being naturally very conservative, allowing our criteria to be very demanding. And then also being very mindful of the price we pay.
As owners, we participate in the growth and value of the businesses. Terrific. And we want to add to that by price or valuation being on our side. And 15 stocks allows us to know our business as well, be long-term owners, and then to have that combination of quality and valuation working in our favor.