Episode 97 · 2021-09-03 · 01:40:40 · Original in Finnish
Winner Stocks in the Portfolio | Ernst Grönblom | Negotiator 97
Originally published as “Voittajaosakkeet salkkuun! | Ernst Grönblom | Neuvottelija 97”
Ernst Grönblom, a portfolio manager at United Bankers, builds portfolios of fewer than twenty stocks — and the episode's premise makes that look hopeless from the start: Hendrik Bessembinder's dataset of 26,000 companies shows that about four per cent produced all of the return above the risk-free rate over ninety years, and under half a per cent produced half of it. Grönblom's answer begins with what he does not do: closet indexing can only be avoided with a sufficiently concentrated portfolio. The factors — network effects, a founder-led enlightened dictator, a strong brand, America — are not separate criteria but components of Charlie Munger's Lollapalooza effect, and it is their combination he argues the market misprices. The most analytical stretch unpacks the decade-long growth-versus-value anomaly. Grönblom makes the counter-argument himself: a concentrated portfolio's good record is precisely the kind a statistician cannot distinguish from luck.
Core theses
- Bessembinder's result cuts both ways, and Grönblom says so: if four per cent of companies produced all the excess return, the conventional reading favours diversification.
- Concentration is not a preference but the only way to avoid closet indexing, which is the argument that makes fewer than twenty positions coherent.
- The factors are not a checklist but a Lollapalooza: the claim is that the market prices each one and misprices their combination.
- The guest volunteers the strongest objection to his own record — a concentrated portfolio's good years are statistically indistinguishable from luck.
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Key moments
- 00:00 — Superstar companies, and the highlights of the episode
- 01:00 — The guest is Ernst Grönblom, a portfolio manager who has clearly beaten the index
- 02:53 — Bessembinder's research: 26,000 companies over ninety years
- 06:01 — Four per cent of companies produced all the excess return
- 08:35 — Returns concentrate into a few days, so timing is impossible
- 09:47 — The host invests in Grönblom's fund despite the odds
- 10:58 — Disclaimer: a good track record can be chance
- 11:52 — The efficient markets hypothesis sent Grönblom into corporate law
- 14:38 — Buffett and the value investors: alpha is hard to explain by chance
- 17:05 — Closet indexing, and Antti Petäjistö's active share
- 19:55 — A concentrated portfolio is the only way to avoid closet indexing
- 20:53 — Growth or value: is the division meaningful
- 22:41 — Buffett: growth and value joined at the hip
- 24:26 — Munger's Lollapalooza effect: several trends pointing the same way
- 27:09 — Topi Miettinen's question: are the factors already in the price
- 27:35 — Shopify: an e-commerce platform for small and medium businesses
- 29:52 — SaaS turns capex into opex and lowers the threshold
- 33:06 — Supply-side economies of scale in cloud services
- 34:52 — Network effects, or demand-side economies of scale
- 37:03 — The telephone and the marketplace as examples of network effects
- 39:42 — Facebook's de facto monopoly, and Google+'s failure
- 42:56 — America as a factor, Alipay and the China risk
- 45:40 — The enlightened dictator: a founder-owner running the company
- 50:22 — ESG and the sustainable development goals as factors
- 53:21 — A strong brand as a source of durable competitive advantage: Coca-Cola
- 55:00 — The weakness of consumer brands compared with network effects
- 58:22 — Inditex and Fever-Tree in Grönblom's portfolio
- 1:02:24 — When a factor's sign flips: the arrogance of the active investor
- 1:04:17 — The rotation from growth to value, and the ten-year anomaly
- 1:08:08 — Why growth won: rates, expertise and information
- 1:11:59 — Amazon and value stocks as mirror images of each other
- 1:15:56 — Structured and unstructured problems in valuation
- 1:20:45 — From a bond to a startup: the valuation spectrum
- 1:23:16 — Quantitative investing eats the meat off value stocks
- 1:26:04 — Baillie Gifford: old and new rather than growth
- 1:29:58 — The pace of change accelerates: the telephone took 75 years, the internet 10
- 1:32:02 — Amara's law: technology's impact is both over- and underestimated
- 1:35:35 — Will growth stocks keep winning
- 1:37:21 — Growth stocks are not a monolith; superstars explain the gap
- 1:39:35 — Closing words, and an invitation to alpha investors
Summary
Ernst Grönblom, a portfolio manager at United Bankers, builds portfolios of fewer than twenty stocks — and the episode’s premise makes that look hopeless from the start: Hendrik Bessembinder’s dataset of 26,000 companies shows that about four per cent produced all of the return above the risk-free rate over ninety years, and under half a per cent produced half of it. Grönblom’s answer begins with what he does not do: closet indexing can only be avoided with a sufficiently concentrated portfolio. The factors — network effects, a founder-led enlightened dictator, a strong brand, America — are not separate criteria but components of Charlie Munger’s Lollapalooza effect, and it is their combination he argues the market misprices. The most analytical stretch unpacks the decade-long growth-versus-value anomaly. Grönblom makes the counter-argument himself: a concentrated portfolio’s good record is precisely the kind a statistician cannot distinguish from luck.
A premise that argues against the guest
Bessembinder’s finding — four per cent of companies produced all the excess return over ninety years — is usually quoted as the case for owning the whole market, since missing the winners is fatal and identifying them in advance is the hard part. Grönblom opens with it anyway, which is the right way to start: the strongest objection stated first.
Why fewer than twenty
Not conviction for its own sake. A portfolio wide enough to be comfortable is a portfolio that tracks the index while charging for not doing so. Concentration is the only structure in which an active view can show up in the result at all, which makes it a consequence of the fee rather than a taste.
Lollapalooza, not a checklist
Network effects, a founder-owner, a brand, an American listing — each is well known and priced. The claim is that their coincidence in one company is mispriced because it is assessed as a list of factors rather than as one compounding condition.
And he says it might be luck
The most creditable moment: a concentrated portfolio that has done well produces exactly the data a statistician cannot separate from chance, and Grönblom puts that on the record himself.
Watch
The recording lives on the Neuvottelija channel: Voittajaosakkeet salkkuun! | Ernst Grönblom | Neuvottelija 97. A Finnish edition of this episode is published at www.neuvottelija.fi.
In depth
The Neuvottelija AI editions carry a long-form write-up of this episode: English · suomeksi.
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People and topics
Guests: Ernst Grönblom