Inside the Bedokian’s Portfolio: ASML

Inside the Bedokian’s Portfolio is an intermittent series where I will reveal what is actually inside our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will talk a bit about the counter, why I had selected it and what lies ahead in the future.

For today’s counter, I had only just added it last week and that is Advanced Semiconductor Materials Lithography Holding N.V., better known as its shortened name ASML.

Partial screenshot of ASML 2023 Annual Report cover. Source: ASML

A Global Player

ASML was founded in the 1980s as a joint venture between two Dutch companies, one of which was the famous electronics company Philips. It makes photolithography machines that are crucial for the manufacture of integrated circuits, or chips/microchips in everyday speak. 

The past decade had seen ASML’s rise with pioneering technology such as the extreme ultraviolet lithography (EUV) process, which allowed smaller process nodes and subsequently more compact chips to be made. The ongoing artificial intelligence (AI) revolution had provided a critical supporting role for ASML in the whole scheme of things. 

A Holistic Analysis Approach

Granted that there were (and still are) many stock analysts, financial news channels, and investing and trading social media sites talking about ASML, it would be difficult not to be tempted to jump onto the bandwagon of like-minded ASML bulls. Thus, a degree of fundamental analysis was required before convincing ourselves to be vested.

Figure 1 shows selected financial line items for review, in particular revenue, net income, current and long-term debt, and free cash flow from 2022 to present.

Selected Financial Line Items (EUR, in millions)	Periods
	Trailing 12 Months	31 Dec 2024	31 Dec 2023	31 Dec 2022
Revenue	30,714.4	28,262.9	27,558.5	21,173.4
Net Income	8,702.8	7,571.6	7,839.0	5,624.2
Total Debt (current debt + long-term debt)	4,687.6	4,631.6	4,260.4	4,584.1
Free Cash Flow	9,283.7	9,083.1	3,247.2	7,167.5

 

Fig.1: Selected financial line items of ASML. Source: Yahoo Finance (as of 21 June 2025)

While revenue was increasing and total debt was kept around the same level, some of the small kinks encountered were the slight undulating net income and the large drop of free cash flow in 2023, the latter of which caused by a net effect of a larger amount of contract liabilities over contract assets. While the term “liabilities” may invoke some concerns, it is basically accounting treatment of payments and recognition of revenue.

As ASML is viewed as a growth counter, I used the growth investing selection guideline from the eBook¹ and apply to it, though I also threw in price-to-earnings ratio for an overall picture (see Figure 2).

Equity Selection Guideline	ASML
Price-to-Earnings (P/E) Ratio being the 25% lowest amongst other companies within the same sector/industry	ASML’s forward P/E of 27.55 is higher than industry average of 25.91
Price/Earnings-to-Growth Ratio of 1 and below	1.44 (5-year expected)
Operating Margin percentage being top 50% among other companies within the same sector/industry	ASML’s operating margin of 35.37% is in the top 50% among the same industry, whose average is 4.27%
Return on Equity (ROE) percentage being average among other companies within the same sector/industry	ASML’s ROE is 55.62%, above industry average of 11%
Positive free cash flow for at least the past three years	Positive as shown in Figure 1
Gearing ratio (Debt/Equity) is constant or reducing for the past three years	0.21 (up to Mar 2025) 0.27 (2024) 0.37 (2023) 0.53 (2022) Signs of reduction

 

Fig.2: Selected financial ratios and percentages of ASML. Sources: Yahoo Finance, Zacks, Gurufocus.com and Stockanalysis.com (as of 21 June 2025)

Though some of the ratios did not fit into the selection guidelines, such as PEG ratio > 1, and not being the average ROE percentage across the industry, certain liberties and discretions were taken to further the decision to go ahead with the investment; these are guidelines for conservative growth companies (stated in the eBook), and after all, most importantly, they are guidelines, i.e., not rules set in stone.

Another aspect that I want to bring in is the comparative figures used, like the industrial averages and P/E utilized, are sort of a red herring. The truest form of comparison is to find another company or sector/industry that matches closely to what ASML does, a not-so-easy task given that its closest competitors Canon and Nikon are conglomerates and their photolithography is just part of their overall operations.

This brings us to the next level of fundamental analysis after financial statements: environmental factors. ASML is a major player in the photolithography business commanding an estimated 90% of the global market share according to some sources, and its EUV process gave it a huge advantage over its other competitors. In gist, it is a near monopoly of its field. This is the major dealbreaker, plus its solid financial fundamentals, to make the buy call.

The Future 

The biggest concern on the future profitability of ASML is its role in the whole geopolitical arena. The United States government had pressured ASML via the Dutch government to restrict some of their latest photolithography machines for export to China, from where it derived 41% of its revenue for financial year 2024. This may be slightly compensated with the demand for semiconductors in other parts of the world, fuelled by the need for smaller chips with faster processing, and not forgetting the burgeoning world of AI.

Disclosure

Bought ASML at:

USD 747.00 at June 2025

Disclaimer

1 – The Bedokian Portfolio (2^nd ed), p151-153

Is The Market Going Into Turmoil…Again?

Just when almost everything is starting to get better with a (supposedly) done trade deal between the two largest economies in the world, an event of military nature is brewing, where two non-bordering Middle Eastern countries began to trade projectiles at each other, threatening to widen an already existing conflict in the region.

Picture generated by Meta AI

Being a sensitive entity, Mr. Market had reacted, but not as bad it seems, for now; the S&P 500 index had gone down by around 1.1% since Thursday¹, and with gold (the safe haven asset) and crude oil (very positively correlated to the area concerned) prices up by about 1.8%² and 7.0% (Brent)³ respectively. However, with both sides warning of escalation, this may just be the beginning of another downturn.

While in terms of global affairs, each geopolitical and socioeconomical occurrence had a different context, for the market, the narrative remained the same; it goes up when there is good news and goes down when there is bad news. If one had invested at least for the past couple of years, he/she may have noticed that the market usually goes through a series of rise-and-fall patterns.

Thus begs the question of why a substantial number of people react wildly to boom and bust news, to which the answer is simple: emotions. Adding the effect of media (mainstream and social) making remarks about how things are going to get better or worse (or both) amplifies the feelings inside one’s minds.

As I had always commented, short of a nuclear apocalypse or an alien invasion, the investing world would continue to chug along, and all things, good and bad, shall pass. While one is at it, do make sure to take advantage of the situation, like buying in when others are selling out, which works for our style of investing.

Keep calm and carry on investing.

 

1 – Yahoo Finance

2 – Goldprice.org

3 – Oilprice.com

Don’t Know What To Get? Get An ETF!

A few days ago, we had received our proceeds from the delisting of Paragon REIT. As per our portfolio management practice, these would be parked at the cash portion of our Bedokian Portfolio. The recent inflow had increased the cash allocation to about 8%, which went above the allowable threshold of 7.5% (for us, we set the level of cash at 5%, with an allowance for 2.5% deviation). This meant that as per our guideline, it is preferred to deploy at least 0.5% to other asset classes.

Picture generated by Meta AI

While the past couple of years had seen cash being a good asset class, the declining treasury bill and fixed deposit rates reverted it to become what is known as “cash drag”, the opportunity cost of holding too much cash is the missed potential higher returns from it being invested into other financial instruments, though in our personal opinion we should hold some in case of opportunistic play (e.g. our 10-30 Rule¹). Also, the cash portion is where cash injections and dividends/coupons/interest would flow to, so it is like a reservoir of sorts with the necessity of having some water in it.

Still, there are times (like now) when it is difficult to determine where to deploy the cash to. The general idea of allocation is to put it at the asset class portion that is about to hit or hitting the negative deviation allowance, but the execution part is usually marred by this question: what to get?

There are three ways to go about it, but I shall highlight on the first two: prospecting and adding onto current holdings. For prospecting, it is understood that time and effort is needed to look for new counters to invest in (e.g., for me I did not prospect for a few years as mentioned here), and for those who cannot afford these resources, looking at current holdings is another way, but it is less incentivising to load them if their valuations are not favourable.

This brings us to the third way: going by exchange traded funds (ETFs), specifically those which are passive and follow indices. This method is in the domain of passive investing; investors would just rebalance their portfolios either via cash injections or selling deemed overvalued asset classes and buying into deemed undervalued ones. For ETFs, one need not to worry about valuations of individual counters since they represent (sort of) the entire asset class in general; in other words, it is buying into the asset class.

Of course, the caveat is to look for diversified ETFs that covers different geographical regions and sectors/industries for the “go the ETF way” to be effective. It could be a good jumpstart the portfolio into a core-satellite model².

 

Related post

Tired From Looking For New Companies To Invest? Read This (Very) Short Post

Disclaimer

1 – The Bedokian Portfolio (2^nd ed), p131-133

2 – ibid, p135-137

Is The United States Dollar Losing Its Importance?

When I was young during the 80s and 90s, I remembered those crime thriller movies and series where the bad guys would often demand United States Dollars (USD) for illicit goods transactions and/or ransom amount. Being a naïve kid, I asked my parents why it must be in USD and not Hong Kong or Singapore dollars since the shows were set in those countries, to which they replied, “because it is the most powerful currency in the world”.

Picture generated by Meta AI

Since the Bretton Woods system started in 1944, USD had slowly gained its ascendancy over the previously dominant currency, the British pound. While the system eventually ended with the delinking of gold to the USD in 1971, and the subsequent rise of other currencies such as the Japanese Yen, Euro, Swiss Francs and later the Chinese Yuan, the greenback (a common nickname for the USD notes) still held its supreme status as of 2024, with it being the world’s reserve currency and accounted for 89.8% of foreign exchange transaction volume, 58.2% in official foreign exchange reserves, and 47.9% in international SWIFT payments¹.

In recent years, however, there has been talk of USD losing its top status, especially with the buzzword “de-dollarisation” being bandied about. The current U.S. administration’s trade policies (tariffs, tariffs and more tariffs, implied or real), the threat of another reserve currency replacement from BRICS countries (Brazil, Russia, India, China, South Africa, and some others), the rise of gold holdings in foreign reserves, and the downgrades by rating agencies of U.S. credit ratings, among other news, spelt some pessimism for the USD. 

In my opinion, the scenario of de-dollarisation is not going to happen, not at least in the space of two decades, and even so, it would be gradual, not overnight like falling off a cliff. There are a few reasons for this.

First, when compared between 2014 and 2024, the amount of USD in foreign exchange transactions and international SWIFT payments had risen 7.1% and 2.9% respectively, and the U.S.’ share of global gross domestic product (GDP) increased by 3.3% to 26.5%². The use of USD is still prevalent, and for the next two places down the line, the Euro and the Japanese Yen (who are not part of BRICS), stood at around 31% and 17% respectively (as of 2022)³. It would take a huge undertaking and a global shake-up more disruptive than tariffs, to usurp this current order.

Second, a global reserve currency would need to have characteristics that include global acceptance, stable political and strong economy, and liquidity. The latter is important especially when capital and transactions are needed to cross borders easily. 

Third, the U.S. economy is still a powerful entity for its global companies, strong consumer market, huge source of capital and an incubator for innovation. Though the world is polarizing and signs of autarky amongst regions and countries are increasing, trading with the U.S. is unavoidable as the globalized trade network is still in place. The recent deemed rush of tariff negotiations by countries with the U.S. had clearly shown the importance of this network.

For most investors, the important question coming out of all these would be: is the U.S. still investible?

My answer is: yes, for now.

 

1 – Buchholz, Katharina. U.S. Dollar Defends Role as Global Currency. 22 Jan 2025. https://www.statista.com/chart/30838/share-us-us-dollar-in-global-economy-global-financial-transactions/(accessed 26 May 2025)

2 – ibid

3 – Triennial Central Bank Survey. Bank for International Settlements. 27 Oct 2022. https://www.bis.org/statistics/rpfx22_fx.pdf (accessed 26 May 2025)

 

Disclaimer

The Quandary Of Rebalancing

The two main ways of rebalancing one’s investment portfolio are either through cash injections, or the selling of an asset class and buying into another. During rebalancing, some investors may face a dilemma of sorts in the form of opportunity costs (or reinvestment risk, depending how one views it), and the need to maintain the portfolio asset allocation. 

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Putting it into an example of a simple equities/bond portfolio, at the point of rebalancing, the equities portion is already over the allocation, yet an investor is not willing to tip the scales over to bonds due to its current lower returns compared with equities. If this investor goes ahead with plowing more into equities instead, he/she had defeated the purpose of rebalancing, and subsequently diversification.

Unless the portfolio is concentrated for a known purpose or for trading, having a heavily skewed investment portfolio would bring unnecessary risks. Yes, one may forego the additional gains and yields that the additional capital may bring, but for the sake of portfolio preservation and being in the comfort zone of one’s risk tolerance and appetite, rebalancing is a must-do.

Borrowing a saying heard in team sports:

No player (asset) is bigger than the team (portfolio) itself. 

Regulatory, Liquidity And Counterparty Risks

We are rapidly seeing the increase of multiple polarisations of geopolitical blocs and the complicated world order that we may be heading into, and these may amplify some of the risks that most investors tend to overlook. Most of us would associate risks as total loss of an investment due to market and economic forces, but we need to be aware of other forms of risks that, though the probability of it happening may seem be remote. Examples of these risks are regulatory, liquidity and counterparty risks.

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Regulatory risks are events where regulations, legislation and/or standards have a negative effect on certain sectors/industries. There are a few examples, one of which is the ever-present government antitrust suits against the technological giants.

Liquidity risk, from the market perspective, is one where a counter could not be sold, or liquidated, in required time, because of low or no demand for it. Some may have experienced liquidity risk when their shares/bonds were suspended on an exchange, oftentimes stuck there almost forever.

Counterparty risk is the failure of the other side (i.e., the counterparty) in carrying out their obligations of a financial transaction, such as the delivery of securities after payment has been made, or the failure of a bond to distribute a scheduled coupon payment.

After having introduced the risks and bringing back to the point said in the first paragraph where these risks are amplified, the growing geopolitical tensions would probably have, or had have, them manifesting as a sequence of events. A famous instance was the SWIFT (pun intended) sanctions placed on Russia the moment they invaded Ukraine, which led to, among others, the severance of the Russian market from Western investors. Regulatory risk (brought about by sanctions), then liquidity risk (unable to access the Russian markets to liquidate holdings) and at the same time, counterparty risk (defaults occurred in the trading of Russian securities individually or by fund houses).

While accordingly investors had gotten back their monies from their respective exchange traded funds (ETFs) that had Russian securities, the period in-between would be harrowing especially for those who may have a huge position in them. This is a clear demonstration that governmental actions could bring about a huge dent in one’s investment portfolio.

The abovementioned scenario could well play out if non-Western region or country is trying to do something funny in the great global game, and I could probably hear murmurs of turning away from global diversification and stick to local companies for safety. However, the best way to manage these risks is diversification itself.

Some may view this blogpost as scaremongering, but I must highlight that all investments carry risks, and it is up to the individual to determine the probability and one’s weightage of each of the risk types happening. Via diversification along the descending degree of asset classes, regions/countries, sectors/industries and then companies, and along with portfolio sizing (in my opinion, not more than 12% holdings for a company or a sector-based ETF), losses can be mitigated and limited in contrast to a wipeout had one instead concentrated. 

Disclaimer

Maximising Returns

Many times, I have been hearing others on the hypotheticals of getting rich from certain assets/securities if he/she had gone in earlier (GameStop, anyone?). Similar for portfolio make-ups, where certain asset allocation provided the best returns for certain periods.

For the above to happen, one’s foresight would truly need to be accurate, but as I had shared countless times, no one can predict right to the exact detail, so there is no point lamenting on missed chances. 

Picture generated by Meta AI

I acknowledge that it is in the interest of every investor and trader to maximise their returns from their investments and positions, but it is near impossible to win all the time. The best one could do is to stick to one’s plan that works, perform due diligence in carrying out portfolio building and fundamental analysis, and realise that ups and downs are inherent in the investing/trading journey.

Though it is good to know about how much returns investing greats and some individuals on social media generate, it is preferable to gain some insights and learning points from them, rather than invoke feelings of envy and jealousy. Everyone’s financial journeys and objectives are unique from one another.

Disclosure

The Bedokian is not vested in GameStop.

Disclaimer