Portfolio maintenance – autumn cleaning
One of the things I tend to avoid is a regular review of all portfolio holdings. It is much more fun to look at new companies than to refresh the analysis on the existing companies. As I usually scale into a position slowly, I somtimes get distracted or disturbed by stock price movements or fundamental changes.
As a result, the number of position in the portfolio increases over time and in my opinion this makes it much harder to focus.
As November is a quite dull month anyway it might also be a good month to review the portfolio.
In a first step I will look “high level” at all positions and try to come up with a “conviction” level which has only three levels: HIGH, MEDIUM, LOW and a short descritpion why this is the case.
In a second step, I want to apply the following logic:
1. If I have “HIGH” conviction, then the position should be a “FULL” position or close to full (5%) unless there is a specific reason against this
2. IF I have “LOW” conviction, then I should sell or close the position
3. For “MEDIUM”, I will have to define at a later stage what will lead either to an upgrade or downgrade for the coming year
The following list is the result of this exercise:
I will therefore “upgrade” Installux, Dart Group and the IVG Convertible to “full” 5% positions. On the other hand I will sell Mapfre, Fortum, EVN and OMV and close the Kabel Deutschland Short.
For Rhoen, I will increase to 2.5%, as I am still in the “early” stage of the investment but so far it goes according to plan.
After this exercise, the portfolio will be around 90 net long, which is kind of the “Normal” allocation.
Maybe some additional comments to the “Energy sector” which I comletely exit after this exercise:
– my initieal “simple” investment case was the following: If energy prices rise, companies with large renewable/nuclear capacity will outomatically profit as well as Oil companies
– Finland and Austria are non-critical from a regulatory point of view
The first thesis obviously was not correct. Both, EVN’s and Fortum’s Earnings decreased from the 2010 level which was the basis of the analysis. Although their balance sheets are comparably stronger, stock prcie performance was only average against the non-PIIGS peers. In relative terms, the stocks are more expensive.
At the moment I just don’t really have an invetsment case for all three companies any more. They look kind of cheap but I do not have a clear view if they will earn their cost of capital going forward. The classical utiliyt business model has been somehow disrupted by alternative energy.
Maybe I invest into them at a later stage, but currently I just do not have any special insight why they should be superior investments.
I already sold Fortum and OMV yesterday at October 30th prices as well as the increase in Rhoen Klinikum shares.