My name is Mikael Aberg,

and I am a professional investor.

About me

En person i lyseblå skjorte står og smiler utendørs. Bakgrunnen har en buegang, grøntområder og hvite stoler på en plen under klar himmel.

Intro

My approach to investments

My investment principles

My Portfolio - Introduction

Let me tell you
my story

En person med lyst hår iført en lyseblå button-down skjorte står utenfor, gestikulerer med en hånd og smiler. Trær og grøntområder er synlige i bakgrunnen, med sollys som filtrerer gjennom.

My name is Mikael Åberg and yes that is a Swedish name. I was brought up in Sweden and went to school and university there.

Already my first job led me abroad to Belgium. This was in 1990 and I have lived outside of Sweden since then. During this time, I have lived in Belgium twice, UK twice and since 2019 I live with my family in Switzerland, just outside of Zürich. As two of my biggest pastimes are skiing and biking it’s hard to think of a better place to live.

I spent the 10 first years of my career in SKF, a traditional Swedish blue chip manufacturing company, where I got a great understanding of how industry works. After SKF I spent several years working in the logistics industry. Having had enough of trucks and sheds I went into consulting in 2005. As a consultant I have spent more than 15 years advising clients on lean manufacturing, supply chain management and working capital. During this time I worked for three very different firms and of different sizes. This years have given me a fantastic insight into a number of companies in many different industry verticals and different countries and cultures.

Although I really enjoyed consulting, I realized that I wasn’t a good enough salesperson to make it to the top in a consulting firm.

My biggest strength is my superior analytical skills. This skill is great for a consultant but to my disadvantage my analytical skills have also given me a high degree of self-criticism. This is not a great skill to have if you want to succeed in sales.

After I moved to Switzerland I took some time off from consulting and had the opportunity to reflect on what I wanted to for the rest of my active life. Among other things I explored the option of becoming a real estate mogul. I quickly realised that although there are many amazing success stories out there, the average landlord only makes tuppence and then you also often have to deal with difficult people. Being honest to myself I had to admit to myself that to succeed in property you have to be a people person which I have known for long that I am not.

En person i blå skjorte står utendørs og lener seg på et trerekkverk, omgitt av frodige grøntområder og trær i bakgrunnen.

En person i en lyseblå skjorte sitter ved et bord med en bærbar datamaskin og gestikulerer mens han snakker. De er i et skyggefullt uteområde med trær og en bygning synlig i bakgrunnen.

I did, however, have one hobby that that made me almost as excited as skiing and that was investing on the Swedish stock exchange.

I have been a hobby investor for almost 20 years but never seemed to have enough time to make the necessary analysis to be a really successful investor.

For the first time I know had the ability to spend time on my favourite hobby. Although I have gone back to work as a consultant I have continued to focus and spend more time on my investments. I also started noticing that my performance started improving. Whilst my performance until 2018 was on par with the OMXSPI (The share index that includes all shares on the Stockholm stock exchange) I have outperformed the index substantially since I started more time on research and analysis.

I then started thinking that perhaps it would be interesting for other people as well to get insight into my thinking.

I also realized that if I started writing down my thoughts and reasoning I would be forced to be more stringent. Once you write your thoughts down you can easily see if your own thinking makes sense or not. I have thus decided that I will start publishing my analysis and mythoughts in a written form. The content will be industry analysis, company analysis as well as my thoughts on various topics that are relevant for investments. This could be anything from macroeconomics to more philosophic topics such as why the interest of a trading platform doesn’t always align with the goals of an investor. It’s important to point out that my analysis and thoughts are based on research and facts and as unbiased as possible. I will, however, never claim that what I write is the one and only truth and I will never tell you what to do (or not to do). If you question my reasoning or the rational of what I am writing please do send me a mail so that we can have an open debate about it, either in writing or on a call.

En mann med grått hår sitter ved et bord innendørs og skriver på en bærbar datamaskin. Sollyset filtrerer gjennom et vindu og gir en myk glød. En uskarp visning av grøntområder er synlig utenfor.

En person som holder en penn peker på en graf på et finansdokument. Scenen inkluderer en kopp kaffe, en åpen bærbar datamaskin, en kalender og en notatbok på et trepult, som indikerer et arbeids- eller studiemiljø.

Finally I would like to apologise to any native English speaking readers.

I do have a reasonably good command of the English language but it is not my mother tongue as you probably have already figured out by now. There may be the occasional ‘Swedishism’, awkward sentence construction or just less than perfect choice of word. I will however endeavour to work on improving my writing skills and hopefully you will find my writing interesting enough to oversee my

I hope that you will enjoy what I am writing.

My approach to investments

Investment Methodology

My methodology for finding investment candidates is based on more than 20 years’ experience of investing onthe Swedish stock exchange. During this time I have made many good investments but also some really bad once. This has taught a lot about which investments have a potential to be long-term successful. I am still learning and I keep refining my methodology as I go along.

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I aim at holding 90% of my portfolio in companies that consistently, over many years, have demonstrated big margins and a high rate of return on capital as well as growth. This sound pretty obvious but if you look at the all the companies on the Swedish stock exchange you find many companies that don’t fit these criteria. Companies that have consistently been growing with a strong financial performance often continue to do that. The challenge with these companies is that other investors tend to like them as well. They therefore always seem expensive.

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For the remaining 10% I allow myself to take bigger risks and invest in start ups or smaller companies that haven’t yet demonstrated strong profitability and return on capital.

Below I have tried to summarise my methodology and the rational behind it. It’s quite lengthy so I have started with a ‘summary of the summary’. The main steps of my methodology are hence:

Focus on the Nordic Markets
Industry analysis to find attractive industries to look for companies to investin
Company analysis to make an in-depth analysis of investment candidates from theindustry analysis assess if there is an investment case for the company(ies)
When to buy?
When to sell?
What to do in between?

As the Swedish stock exchange alone has more than 1,000 companies I have had to find ways of the simplify my search for companies to invest in. The way I do that is by searching for the right industries first.

I focus my search for investment candidates on industries that have historically and consistently generated returns on capital employed above 10%. I would also like to see strong gross margins and operating margins above 10%. In addition it should be an industry that has demonstrated historic growth and has favourable future growth prospects. For the industries that pass this threshold I do a deeper analysis where I try to get a better and in-depth understanding of the industry and it’s potential.

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There are certain industries that pass this threshold that I still wouldn’t consider investing in. These are industries that are known to harm humans. I would therefore never invest in companies in the Tobacco, Gambling, Gaming, Pornography, Ultra Processed Food Social media industry.

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I don’t invest in Oil & Gas companies as they cause harm to the environment. The goal of humanity should be to reduce our dependence on these energy sources and phase them out. This is the second good reason not to invest in this industry. I also avoid automotive, banks and retail. As long as I have been working, the automotive industry has always lived under the cost cutting yoke. This is not a good environment for making great margins. I avoid banks because of the high risk (in particular systemic risks) and mediocre returns as so succinctly described by Terry Smith in his FT article ‘Why I never invest in bank shares’ of March20. Retail, finally, is facing so many challenges at the moment so as an industry I avoid it.

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The industry analysis includes the following main areas:

Introduction
‍An introduction to the analysis and what it covers.
Investment case
‍Is it worth investing in the industry or not? And if yes what are the likely specific companies that are worth analysing in detail?
Industry definition and its members
My definition of the industry and it’s members. I often limit the members to the Nordics or Europe but if I feel that the number of companies is not representative I sometimes look at the US markets which has about 10 times as many listed companies.
Industry financials
I am looking for industries with strong margins, high return of capital employed and good growth prospects. I focus my research for investment candidates in industries that:

a) Have high and increasing, or at least stable, gross margins
b) Show historical and consistent return on capital employed and return on equity above 10%
c) Show historical and consistent Operating margins (EBIT) comfortably above 10%
d) Have promising future prospects
e) Grow and are forecasted to grow above the GDP

I would like both the return on capital, return on equity and operating margin (EBIT) to be consistently above 10% during at least the 5 last years (possibly with an exception for 2020). I would like the gross margin to be above 30% and ideally above 40%. The average growth over the last 5 years should be at least above the GDP growth.
Industry history and overview
I would like to understand the history of the industry and how it has evolved over time. I would also like to know on a high level where the industry stands today and what are its main opportunities and challenges.
Industry value chain
To understand the output (product and services), the value creating process steps and input (raw material and other resources) I like to draw a high-level industry value chain.
ESG Aspects
What are the ESG challenges and opportunities this industry if facing? Are there any risks associated with that?
Market dynamics and segment specifics
There are several questions I would like to understand about the market of the industry. What are the expected or forecasted growth of the various segments of the market for the next 5 years? Who are the main customers? How does the power game look like? Do the players in the industry generally have any pricing power?
Investment considerations
I then consider all the facts I have gathered about the industry and draw my conclusions about how ‘investible’ the industry is and if there are already some obvious stars that merit further in-depth company analysis?

Once I have identified the companies in an industry that looks worth investing in, I conduct a more detailed company specific analysis of these companies. I may also identify companies that looks interesting through other sources but I apply the same company analysis.

Introduction
An introduction to the analysis and what it covers.
Investment case:
Is it worth investing in the company or not?
Financials
As with the industries I like to see that the company demonstrates historical return on capital employed and return on equity consistently above 10%, and ideally around 15%, for the last 5 years (with a possible exception for 2020). The operating margin or EBIT should also consistently be above 10%. I would like the gross margin to be above 30% and ideally above 40%. The average growth over the last 5 years should be at least above the GDP growth. Finally I also look at the FCF (Free Cash Flow). I’d like to see that company generates enough cash to pay it’s lenders and investors and also have enough cash to make investments beyond capex for existing fixed assets.
History and overview
I would like to understand the history of the company, what are its roots, what are its main business units, products and markets.
Value chain
In order to better understand the company’s value creation/ adding process, input and suppliers, output and customers I like to draw the company’s high level value chain
Strategy and goals:
Companies strategy statements and in particular other statements such as mission, vision and objectives tend to be quite generic and many times to vague to give any meaningful guidance. If you do listen to a company presentation at a capital market day or other events you do tend to get a better idea of a company’s strategy. Once you have understood the strategy then try to assess if it makes sense. Is it realistic or does it come across more as wishful thinking? Do the company’s current activities align with the strategy?
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I also look at the company’s financial goals. Given what we know about current and historical financial performance are they relevant, realistic and ambitious enough? Is the CEO just a lazy caretaker or a bundle of energy who wants to conquer the world?
Market dynamics:
In this section I try to better understand the market the company is operating in and the market dynamics. The main question I would like to answer is if the company will be able to continue growing and increase profits in the future. To answer this main question I like to understand the following:

- What is happening in the market place right now?
- How has the market evolved over time and how is it expected to perform over the next 5 years?
- Is the market a mass market or a niche market?
- What are the main players in the market? What is the company’s position? Are they market leader or are trying to conquer the market with a new technology?
- How does the power play look like with the customers? Are the customers big and few or small and many?
- How sensitive is the market to disruptive technology? Business models?
Operational performance
How good is the company at execution and putting strategy into action when the proverbial rubber hits the road. Will they continue to grow and make money?
The operational areas I would like better to understand here are:

- Sales: How are sales developing for the different businesses of the company? Whatsales channels are they using? What is their estimated market share.
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- Pricing: Does the company have pricing power? How good are they at maintaining orincreasing gross margins? How quickly do they seem to be able to increase salesprices when their suppliers are increasing their prices

- Working capital: How well does the company manage its working capital and cashflow.

- Costs: Is the company consistently working on a reducing their costs? Companies thatquite of a sudden have to lay off thousands of workers because sales have sloweddown a quarter don’t impress. Also I am skeptical to companies who reduce costssimply by stopping investing and spending on maintenance are equally to be avoided.

- Digitalization: Is the company able to actively leverage technological improvements to improve efficiency and effectiveness

- Innovation: Is the company innovative? Does it focus on innovative products and solutions.

- Acquisitions: If acquisition is a vital part of the company’s growth strategy how well andhow quickly are these acquisitions integrated.
ESG aspects:
A great company shouldn't need an ESG strategy! What I mean by that is that a great company has focused on the environment, social and governance long before it became a fad. A company that pollutes the environment, mistreats its employees or has poor governance is not likely to be a great company. I try to see past all the flashy pictures and flowery language of ESG goals and achievement and understand how the company really live ESG in their day-to-day business.
Organisation and culture:
Culture eats strategy for breakfast as the saying goes. The company culture tends to be built up over many years if not many decades and can rarely be changed overnight. The culture is thus very important but also very difficult to understand unless you work for the company. There are different ways to at least try to get a feel for the culture of the company.

- I read a lot about various companies in the business press. A company that e.g. is suspected of bribes or fraud is normally a sign that something is really rotten in the organisation

- Join a company presentation, at a capital market day for instance, online or even better in person. If the CEO or other executives appear arrogant and unpleasant when they pay attention to what they are saying they are likely to treat their colleagues even worse. Do I like the people that make up the management team? Would I want to work for this company if I were given the opportunity?

- The annual report and the website can also give clues about the culture. Both the annual reports and websites areedited by an army of PR professionals these days so it’s a lot of dog and ponyshow going but try to read between the lines. What is the CEO really saying in his yearly statement and what is he not saying?

- If you have the time and opportunity try to talk to employees at the firm. You may run into an employee when you the least expect it like a dinner party or at your kids’ football game. You’d be surprised how willing people are to share their frustrations about their employer. Do keep in mind though that just like the press people often only talk about the bad things and not what is good about their employer.

I also want to see that the executives and the board members have skin in the game. I want that either the CEO or Chairman have a substantial amount of wealth invested in the company. One yearly salary is not enough for the CEO. If the CEO’s and/ or Chairman’s own wealth depends on the success of the company then your objectives are aligned and they are likely to do what is best for the long-term success of the company. If the CEO is new in the business it’s a good idea to have a look at his previous performance and general reputation. You want a CEO who is really involved in the business and truly committed to making it a success come what may. If the CEO is just a comfortable administrator or a empire builder it’s probably good to stay away.
Valuation:
In order to determine the value of the company and the value per share I estimate the value (Net present value) by carrying out a DCF (Discounted Cash Flow) analysis. The company value per share allows me to determine if the company is ‘cheap’ or ‘expensive’ at the moment.

Such a calculation is based and based on assumptions for yearly growth of revenue and profits and a value for the opportunity costs. As all forecasts these assumptions will be wrong so it’s important to keep in mind that the value per share that comes out of the DCF calculations is not a precise value. It’s only an estimate of the value of the company. I therefore mainly use it to see if the market price is directionally right. If the price is 20% higher than the calculated value of the company it will not necessarily stop me from buying the shares but if it’s 100% higher than the value I will probably think twice before buying.
Investment considerations
At the end I summarize all my thoughts into concrete conclusions and decision if I am going to invest in the company or not. This will be the basis for the investment case.

My investment principles

To the right I have listed the investment principles that I try to follow. These are not revolutionary and you may have seen them before but it’s important for me to have them written down so that I keep reminding me about them on a regular basis. If I am honest I have not been able to abide by them all the time. The thing is that if I do go against one of these principles at least I know the rational of doing that (if it’s rational or not is another question).

Focus on the Nordic markets
Focus on companies in industries that:
- Have high and increasing, or at least stable, gross margins
- Show historical and consistent return on capital employed above 10%
- Show historical and consistent Operational margins (EBIT) comfortably above 10%
- Have a promising future
- Grow and are forecasted to grow above the GDP
Never invest in industries that do harm such as Tobacco, Gambling, Gaming, Pornography, Ultra Processed Food and Oil & Gas.
Avoid Automotive, Banks and Retail.
Invest the majority of the portfolio in companies whose financial performance is consistently well above the minimum requirements under 2, above.
Make sure to understand how the company makes money. What is the problem the company is trying to solve? What are the prospects of and risks to the company’s products?
Only invest in companies that have a management and a corporate culture that I feel good about. Would I want to work for this company if an opportunity was given? Would I be proud of the company?
The company should ideally have a major long-term investor who really cares about the future of the company.
The CEO and/or some board members should have a considerable amount of their wealth invested in the company.
Read the financial news but try to ignore the daily mood swings in the market and noise in the financial press. Only consider the information that may have an impact on the company’s future long term earnings potential, in your investment decision.
Be wary when the tabloids are writing about amateurs making fortunes on the stock market or the stock market is a topic at family gatherings.
Be prepared to challenge my analysis and decisions if I get new relevant information about the company. Be sceptical and humble and don’t fall into the consistency trap.
Buy regularly and with the aim of holding the shares for ever

My Portfolio - Introduction

Mikael Åberg

Investor and author

If you find my writing interesting and would like to get insights into the investments I have made I would be happy to give you access to my portfolio. These are the companies that I believe in and that I plan to keep for a long time. I have held most of them for a long time already. Over the years I have made my fair share of mistakes and in some cases I still hang on to these companies. There are other companies that I have taken a small position in and where I am not yet convinced that it will be a long-term success. I will only put them into my portfolio once I am convinced that they are likely to be successful. The advantage is that you don’t have to repeat the same mistakes that I made.

I will inform you when I decide to add a company to my portfolio or if I for some reason decide to sell a holding. I will also share my own thoughts about what is happening to the company over time. To have full access to my portfolio and regular updates I will charge you a small monthly fee. You will find more details about this service under the menu option ‘My Portfolio’.