After the 2011 review, I wanted to quickly summarize my general strategy for 2012.
1. In general I don’t think that I am able to predict any stock market levels, fx rates or interest rates. For me, “tactical” assets allocation, which means siwtching assets classes or moving in and out of cash does not provide any systematic upside. However I believe that absolute market levels (esp. FX and interst rates) have some predictable influences on certain business models.
2. As a result, I will continue to look for attractively valued stocks, bonds or other forms of securities which offer an attractive rsik / return profile, who ideally profit at least indirectly from the current environment.
3. From a risk management point of view it is extremely important that the bottom up process does not create overconcentration to certain underlying economic risk factors. Last year for example, with Hornbach, Einhell, Westag and AS Creation, the exposure to German domestic building activity was definitely at the higher end of an acceptable level with 15-20% of the portfolio.
4. For me the main issue going forward is how to concentrate my limited time with regard to research. So I will have to prioritize certain areas over others. Currently my priorities are:
– the almost apocalyptic expectations for the Eurozone, especially Italy, France, Spain etc. could create even more interesting investment ideas from a contrarian point of view. I will especially focus on those companies with a solid balance sheet and defensive business models and/or international exposure who came under the eurocrises train”.
– low interest rates make life especially difficult for banks, insurance companies and companies with large pension liabilities. However, certain finance related companies might benefit from this. So “finance related” companies without legacy assets could be interesting
– with regard to special situations, German Real estate funds will be in the spotlight, especially with regard to the two big funds (CS Euroreal and SEB). Depending on the outcome of those two funds (reopening or permanent closure), some interesting opportunities could arise.
– also the whole bank recapitalisation process, Basel III and Solvency II might create some opportunities within subordinated financial securities. Especially after the already announced changes, many of those securities will become “special” or “legacy” which could offer some intersting opportunities as well. Due to my “home bias”, the Hyporeal Estate complex and the Landesbanks could be interesting.
– from the short side, I don’t have any concrete ideas. However, the whole “China consumer” area could offer some structural short opportunities
– In general, I feel less and less confident with relatively expensive but “great” large cap companies in the current environment. For the current portfolio, this means Nestle and Walmart would be the next stocks which I would replace as soon as I find more attractive candidates
– although I always hesitated to focus on this, but in order to avoid value traps, the existence of some sort of “catalyst” for any stock will play an important role for me. However, this could be achieved through different means, like a healthy dividend, stock repurchases or even opportunistic takeovers. Ideally a shareholder structure or indications for potential take over^would be very benefitial. I will howver have to think abvout how to incorporate this into my decision making, which was up until now very focused on purely quantitative measures.
I will try to analyse one new investment per week, depending on work load, holidays etc.