Our Investment Philosophy– Value and Opportunity
Starting 2011, we want to try to gather our investment ideas into a portfolio.
With this portfolio, we try to achieve the following two goals
1) we want to test a day to day collaboration and investment process between two similar minded investors and
2) we want to create a realistic investment track record which represents our investment ideas
We own most of the stocks which are included in the portfolio on this blog. However, we do not advise any reader to invest into this securities. Should a reader decide to invest into any of these stocks, we strongly recommend to do his or her own research and we do not assume any responsibilities for any losses. DO YOUR OWN HOMEWORK !!! Some of the securities are only thinly traded and the amounts and weightings in the portfolio might not necessarily represent our own positions in our real portfolios.
We have chosen the size of the portfolio to be 10 mn EUR in order to simulate realistic purchases and sales of securities. A lot of securities mentioned in this blog will have to be traded over a couple of days in order to reach the desired size, even within this relatively modest size for a fund. However, as we want to create a real Track Record, we decided to implement this minimum size of the model portfolio.
Further rules for the model portfolio:
1) max. position limit : 25% of total fund
2) 50% of the portfolio has to have weight of 10% or less
3) minimum net long position of 50% of net asset value, max. 30% short positions max. of 130% long positions
4) no taxes
5) transaction cost: EUR 15 / order
6) interest: current deposit rates for retail brokerage accounts
7) max. trading limit: 15% of VWAP per day. We assume that within this limit we could trade without moving the stock price.
8 ) Short positions are allowed, up to 30% of net asset value
9) Permitted investment: Stocks, bonds, fund certificates, convertible bonds and other listed securities
10) Permitted stock exchanges: All exchanges available through normal retail brokers (DAB, Consors etc.)
11) All currencies are allowed
12) currency risks could be either hedged or increased through currency derivatives
We recommend our readers a broadly diversified investment into ETFs. Ourselves, we consider a combination of:
50% Stoxx50 Europe
as an adequate benchmark.
We try to achieve a higher return for our portfolio against this benchmark, We also try to realise lower volatility of returns. In between, portfolio and benchmark will differ significantly as many of the investments will not be included in the benchmark and wil have little or no correlation to those benchmark securities.
Our investment philosophy is based on fundamentals and “value” based. 75% of the portfolio should be allocated into stocks of “good” or even “great” companies whose share price is lower than what we would consider as fair value (“Core value”). 25% of the portfolio shall be dedicated to special situations (“Opportunity”).
Some Criteria for “Core value” investments:
– fundamentally “cheap” (P/E, P/B, P/S)
– historically cheap (average P/E 10 years
– low debt leverage
– focus on tangible book values (goodwill only considered in special cases)
– organic growth
– comprehensive income vs. reported profits
– dividedns, share repurchases
– low beta/volatility
We try to achieve a “margin of Safety” at current market prices, which should protect us if adverse changes happen to the companies or the economy as a whole.
Some criteria for “opportunity” investments:
– capital structure opportunities
– special situations like closures of open investment funds
– cheap option premium
– forced selling by some market participants