Performance October 2012 & Comments

October has been a “normal” month for the portfolio. The Benchmark (Eurostoxx 50%, Dax 30%, MDAX 20%) gained 2.5%, whereas the portfolio “only” gained 1.5%. Year to date, The portfolio now shows a gain of +30.6% against 21.1% for the Benchmark. Since inception(1.1.2011), the portfolio is up by 25.3% against 4.4% for the benchmark.

Main performance drivers in October have been Dart Group (+15.1%), AS Creation (+11.8%), HT1 (+7.5%). Main “detractors” were Cranswick (-5.1%), Vetropack (-4.9%), Bouygues (-2.2%) and Rhoen (-2.1%)

Just for fun, I calculated the Sharpe ratio based on the 22 available monthly returns, both for the portfolio and the benchmark. The sharp ratio for the Benchmark is 0.2, however for the portfolio it is an incredible 0.90. I don’t think that I will manage such Sharpe ratios over the long run but it is still interesting to see.

Portfolio as of 31.10.2012:

Name Weight Perf. Incl. Div
Hornbach Baumarkt 4.7% 5.1%
AS Creation Tapeten 4.3% 21.6%
WMF VZ 3.8% 49.4%
Tonnellerie Frere Paris 5.0% 25.4%
Vetropack 4.5% -7.6%
Total Produce 5.3% 26.8%
SIAS 6.0% 39.4%
Installux 3.0% -0.1%
Poujoulat 0.8% -4.6%
Dart Group 2.8% 28.2%
Cranswick 4.8% -6.4%
April SA 3.4% 20.9%
Bouygues 2.4% -4.5%
KAS Bank NV 5.1% 12.6%
Drägerwerk Genüsse D 10.1% 104.6%
IVG Wandler 3.5% 9.5%
DEPFA LT2 2015 3.0% 45.1%
HT1 Funding 4.6% 29.4%
EMAK SPA 5.0% 26.9%
Rhoen Klinikum 2.5% 0.5%
Short: Focus Media Group -1.0% 2.4%
Short: Prada -1.1% -6.1%
Short Lyxor Cac40 -1.3% -0.5%
Short Ishares FTSE MIB -2.2% -2.9%
Terminverkauf CHF EUR 0.2% 4.9%
Tagesgeldkonto 2% 15.9%  
Value 60.9%  
Opportunity 28.7%  
Short+ Hedges -5.4%  
Cash 15.9%  

Following the “autumn cleanup” post, I have already sold down all the “low conviction” positions, as the two last days of the month were “up days”. I increased only IVG and Rhoen so far.

In detail, the following positions were closed:

EVN, total return -4.87%
Mapfre +44.75%
Short Kabel Deutschland -52.87%
OMV -3.92%
Fortum -24.17%

Apart from the hedges, the portfolio has now 23 “single names” which is something I consider within the optimal range considering the amount of time I can spend on the portfolio.

The other announced position increases will be executed in November and as a general rule only on “down days”.

Comment & Outlook

One fascinating aspect of the current stock market is in my opinion the obsession of many money managers with the US Fed and the ECB and low interest rates in particular. Just as an example, one could read for instance the latest publication from Steve Romick (FPA) which argues quite strongly against the current policy of Fed Chairman Ben Bernanke.

The argument more or less goes as follows: The low interest rates inflate asset prices (Bonds, real estate, stocks) which distorts capital allocation and will in the medium to long run create even bigger problems than today’s problems.

I have to admit that I can only partly follow this logic. It is true, that interest rates are relatively low and maybe artificially so for certain segments. On the other hand we see a lot of deflationary developments for instance within the Euro zone.

However, I find it strange that many people relate the level of the stock market directly and exclusevily to the interest rate level. Interest rates are one of many factors in valuing stocks. Although many people make their living in trying to explain on CNBC or Bloomberg why the stock market has moved up or down, obviously no one knows the reasons, otherwise they all would be rich and counting their money from successfully predicting the market.

Many people seem to think that stocks should be cheaper because of “macro uncertainty”, although in my opnion this is wrong. There is always macro uncertainty, for me it seems that only the majority of commentators seems to forget about that sometimes.

Going back to Steve Romick: I guess his commentary might have something to do with the recent underperformance of his flagship fund which has missed out a significant part of the rally. Although I really like those guys, this comment sounds a little bit like a lame excuse to blame the “market bubble” for the underperformance.

So to make it short: In my opinion one should either ignore all those commentators which try to explain why the market is over- or undervalued based on macro factors or consider them as “entertainment”. Uncertainty and central bank intervention are part of the market since many many decades. For all those pundits who think that a “free” capital market without central banking is the answer, I would highly recommend to read some history books how markets and banks behaved BEFORE central banking had been established.


  • I read the Wikipedia-article about „Lombard Street“. As far as I understood it expresses the experiences and thoughts of a contemporary witness of a banking crisis in London 1873. But 1873 (or 1866 the year of the crisis the author refers to) was not pre-central banking at all. The bank of England had evolved into its central banking role from 1700 onwards and this process was nearly completed with the Bank Charter Act in 1844.

    The misconception is typical for main-stream comparison of central banking with free banking. Central bank failure is not attributed to central banking, and free banking failure (if there is such a thing) is gravely exaggerated.

  • @Oskar: If you are able to outperform the market with macro you need a macro-economic theory which is valid and commonly unknown. It is very unlikely that there is such a theory. Maybe Austrian economics, but it is very hard to derive hard facts from it.

    @MMI: In my opinion most books about general economics cover the banking history only very superficial. There are a lot of ill-conceived thesis with are “proofed” with anecdotal evidence. If you read the specialized literature different findings are presented.

    • Robert,
      I am specifically referring to Walter Bagehot’s “Lombard Street”. It is one of the very few contemporary books about this topic.

      Compared to some of today’s “specialized literature” I think this book covers a lot of very basic issues about money, banks and central banking, which today are taken for granted but are not.


  • FPA have been critics of the Fed for a long time (and also during times of outperformance). They seem to practice what they preach (but it is frowned upon when they preach what they practice?). All the issues they have with more QE (for its ineffectiveness) seem very reasonable.
    Seth Klarman has lately criticized the Fed in very harsh words (questioning the morality of manipulating the bond market for low-to-no returns on pension plans, life-insurance and people´s savings-accounts, in order to maintain the status-quo at many large banks).

    Bottom line: bottom up research and a margin of safety (the way you practice it here) should always yield good long term results. The macro-future is always uncertain. Given the (in some countries) high multiples, the (in all countries) artificially low interest rates and as a result already “inflated” earnings, I think it is at least fair to say that FPA has a point.

  • I guess we have read different books then.

  • “For all those pundits who think that a “free” capital market without central banking is the answer, I would highly recommend to read some history books how markets and banks behaved BEFORE central banking had been established.”

    I did. They did better before central banking has emerged.

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