Performance review July 2013 – Comment “Did you see the Gorilla ?”


July was a strong months for equities. The Benchmark (50% Eurostoxx, 30% Dax, 20% MDAX) increased by +5.0%, resulting in a YTD performance of 12.5%. The portfolio in comparison gained “only” 3.1%, YTD it is up 21.4%.

The underperformance in July is to be expected. 25% of the portfolio is now in cash, a further 7% in bonds. Most of the stocks have betas significantly below 1. So underperformance in a strong market should be expected.

Best performers were some of the French stocks, G. Perrier +18.6%, April +16.0%, plus Dart Group at a whopping +25.2%. Losers were AS Creation -8.7% and EGIS -4.6%.

The only 2 transactions in July were the complete sale of Drat Group, with a gain of total +226 and my add ons to the Hornbach position. Due to low trading volume, I only got up to 4% from 3.7%, so I will continue to buy in August.

Portfolio as of July 31st 2013

Name Weight Perf. Incl. Div
Hornbach Baumarkt 4.0% 6.1%
AS Creation Tapeten 3.6% 27.7%
Tonnellerie Frere Paris 6.1% 96.8%
Vetropack 3.9% 5.8%
Installux 2.6% 14.2%
Poujoulat 0.9% 11.4%
Cranswick 5.3% 33.4%
April SA 3.9% 30.5%
SOL Spa 2.7% 35.3%
Gronlandsbanken 1.9% 12.3%
G. Perrier 3.6% 40.2%
IGE & XAO 2.0% 7.6%
EGIS 2.5% 1.3%
Thermador 2.6% 3.9%
KAS Bank NV 4.7% 31.9%
SIAS 4.9% 43.0%
Drägerwerk Genüsse D 8.9% 181.3%
DEPFA LT2 2015 2.6% 63.5%
HT1 Funding 4.2% 49.4%
EMAK SPA 4.8% 54.5%
Rhoen Klinikum 2.3% 21.4%
Short: Prada -0.9% -15.8%
Short Lyxor Cac40 -1.1% -14.2%
Short Ishares FTSE MIB -1.9% -10.4%
Terminverkauf CHF EUR 0.2% 7.1%
Cash 25.5%  
Value 45.7%  
Opportunity 32.5%  
Short+ Hedges -3.8%  
Cash 25.5%  

Comment: “Did you see the Gorilla ?”

There is a classic psychological experiment being done in many seminars which goes the following way:

A video is shown with two 3 person basketball teams, one with white shirts and one with black shirts. Both teams in a somehow chaotic fashion pass the ball to each other. The viewer gets the task to count the passes between the white shirt players over a time period of around 90 seconds.

You can try this yourself for instance here:

Participants get then asked how many passes were played. Most participants get the number right. The second question then is unexpected: Did you see the gorilla ?

I have to admit that when I did this experiment the first time in a seminar, I didn’t see the gorilla. I had the exact amount of passes, but no, I didn’t really see that a guy in a gorilla costume was walking slowly through the picture.

In my opinion, the current situation in the financial markets is very similar. Everyone (and his grandmother) is looking at Ben Benanke. Every single speech gets analysed down to the last word and market react violently on any interpreted change etc. Every speech, minutes etc. get analyzed over and over. For me, watching every word of Bernake is like counting the passes of the white shirt basketball team.

Yes, the FED does impact certain things but real business activity depends on a lot of other things. If you are a Bavarian “Mittleständler”, you do not build a new production hall because Ben Bernanke is saying this or that. You expand if you expect more orders from China, Brazil, Australia etc.

And this is in my opinion the big gorilla dancing in front of our noses: The slow down of the BRIC (and associated) economies. Despite any faked official numbers it is clear, that the high time of BRIC/EM growth is over. I watch closely many companies which are active in China and all of them are reporting problems. Interestingly, very few people seem concerned about this. One can now read many articles which talk about “soft landing” in China or “decoupling” of the US. Yes, both of those things could happen, but my experience tells me whenever you here “soft landing” and “decoupling” you should actually prepare for the worst case.

So what does that mean for the portfolio and investment strategy ?

For me, it doesn’t mean to get out of the stock market right now. Market timing is an art I do not understand. Nevertheless I will follow (further) some general guidelines:

– be extra careful with companies with EM market exposure
– rather err on the conservative side when analyzing companies. Take less risk, not more.
– focus more on special situations
– do not rely on stock momentum for existing position. Sell when too expensive
be patient, don’t invest just because cash is piling up
– expect and prepare for significant underperformance in the next few months
– Don’t count the passes, but focus on the Gorilla …..


  • Martin Wiesmann

    I am surprised that Drägerwerk Genüsse is still your largest position. At their current price, do you still think it is such a good bargain?

  • Thanks for the post, nice piece, best I’ve read in the last 2 days, after being ~2weeks offline during vacation and now scanning through tons of information, news articles, financial reports to get up to date.

    I agree on your view of the Gorilla (BRIC story coming to an end, especially China being in big trouble) and think the coming decade might be the one of Europe (especially those countries now in distress or deep recession). I doubt it will be Japan or the US, as many other investors tell, their economic policy is not sustainable in my opinion.

    So probably, investing now in value stocks from France, Italy, South East Europe is a good option going forward. Only thing I’m unsure is the judgement and best strategy on German export champions / stocks and especially mid and small caps. They have done good in the past and the question is will their high competitiveness survive in the future.

    Do I understand you right – you are negative on Germany, because BRIC was part of the reason, why revenues and profits of many companies soared in the last decade? And if BRIC goes into recession, the profits will go south and we may expect a crash or correction, when markets realize what is going on with the Gorilla?

    As much as I agree with this, currently I want to hold onto German companies, which have a decent cash flow and dividend yield. Because I think it’s the best way to preserve my capital over the long run – cash holdings are no longer safe in the Euro zone (see Cyprus) and they form a part of “conservative” investments in my portfolio. The “Euro zone recovery” story is more like a contrarian and “aggressive” part. What do you think ?

    • thanks for the comment. I do not dare to give any general comments about German stocks. You have to look at them one by one. Nevertheless, i do not find a lot of “value” in Grmany any more.

      Maybe one more thought: Many german companies currently enjoy margin which are far above historical averages. Look at your stocks and ask yourself how they would look with average margins. Then decide yourself.


      • Looking on stocks with the average margin viewpoint, or what the long term average earnings may be, is the Graham approach. You end up buying always stocks like Bauer (DE0005168108) and hope their currently lower margins return to the mean in the future. Their fair value as calculated by capitalizing the projected average earnings is than far above the current price and you have pretty high margin of safety (see link below). And yes, such stocks are still there in Germany 🙂
        But currently, this approach may be more unsecure than ever, because Bauer depends largely on emerging and foreign economies growth, which may so easily be disturbed by China, Iran, FED or anything else.

        • When you look at reversion to the mean, the difficult part is to find out what the “real” mean is. For Bauer, 2006-2010 was definitely above the long term mean.


  • Very good article, each true value investor might agree.

  • Good story about the Gorilla. Did the same thing in a seminar and – as you – didn’t see the Gorilla first time.
    However, the tricky thing about the Gorilla in the market is that it could be anything. It’s quite possible that while Bernanke is the passes between the white team, your focus on the BRICs is not the Gorilla but merely the passes between the black team.
    And the Gorilla (if it exists) is something entirely different, something that both you and me and many others will not foresee however hard we try.

    Thus my prefered option is to give up on searching for the Gorilla and just assume the least flattering case, i.e. that I will again not be able to see it coming in time.

    I mean, of course all your action bullets above make perfect sense, but I don’t see why they should be implemented more actively right now than at any other given point of time.


    • Wp,

      in my story,the Gorilla is the underlying fundamental issue which is not that hard to see if you really are looking for it. What you are talking about is the actual catalyst.

      I have no idea what the catalyst could be or will be. Additionally, something could happen which makes the Gorilla unimportant, like an alien invasion etc.

      It is somehow similar like in 2007: The house price bubble was easy to see, at first it was a small problem, then we talked about soft landing in the US and decoupling.

      The catalyst event finally was Lehman, but that was random, it could have been Bear Stearns etc. then it took another few years unit Club Med was effected.

      I am willing to take risks if catastrophic events are happening and everyone is talking about them. Then the chances of buying cheap are big. If I see a really significant negative developement and people seem to ignore, then I get really nervous.


  • Sehr schöner Eintrag und sehr schönes Bild.
    Ich hätte aber eine skeptische Gegenfrage: Besteht eine enge Korrelation zwischen Wirtschaftswachstum und Börsenerfolg, und falls ja positiv oder negativ?

    Die BRIC-Staaten legten in den letzten Jahren ein beachtliches Wirtschaftswachstum hin.
    Das war abzusehen, und so empfahl um 2009 alle Welt, sich mit Aktien aus den BRIC-Staaten einzudecken. Ich erstellte mir im November 2009 eine Watchlist mit diversen (möglichst passiven) ETF-Index-Fonds. Bei einem Blick auf diese Liste in den letzten Tagen stellte ich fest: Die ETFs aus den BRIC-Staaten haben in den letzten 3,5 Jahren im Vergleich zu anderen Anlageideen die eine verdammt schlechte Performance hingelegt:
    (Land, Orientierungsindex, ISIN des Indexfonds)
    – Brasilien/Sao Paulo: Ibovespa, FR0010408799, -38,6%
    – China, FTSE China 25 (Red Chips und H-Shares), DE000A0DPMY5: -11,1%
    – China/Hongkong, Hang Seng China Enterprise Index (H-Shares): FR0010204081, -16,0%
    – Indien, S&P CNX Nifty: LU0292109690, +8,9%
    – Russland, MSCI Russia: LU0392495536, +22,9%

    Nur zum Vergleich: – Deutschland, DAX: DE0005933931, +42,4%

    Wenn die Aktienmärkte bei hohem Wachstum so schlecht laufen – wie schlecht sollen sie eigentlich bei wenig Wachstum laufen? Gibt es wirklich eine solche Korrelation oder ist das nur ein netter Marketinggag, um die entsprechenden Indizes zu vermarkten?

    • Die Frage kann ich nicht beantworten. Es gibt aber m.E. eine große Korrelation zwischen BRIC Wachstum und Deutschen Exporterfolgen bzw. Gewinnwachstum Deutscher Export Unternehmen.

      • Zustimmung. Gerade die deutsche, von exportorientierten Industrieunternehmen geprägte Börse erscheint mir deshalb derzeit auch sehr teuer.
        Ich persönlich habe, ganz wie du, deshalb meinen Fokus weg von Deutschland hin auf Europa und insbesondere Süd- und Osteuropa gelegt.
        Zudem war der Anteil meiner auf weltweiten Export orientierten Unternehmen noch nie zuvor so gering wie jetzt. 🙂

    • Es gibt keine kurzfristige Korrelation zwischen Aktienmarkt und BIP-Wachstum, sondern es hängt von den Erwartungen und damit den Bewertungen der Märkte ab. Das gleiche gilt auch für Unternehmensgewinne und Aktienkurse. Also die Wirtschaft kann schrumpfen und die Gewinne fallen und der Aktienmarkt steigen. Kann aber auch andersherum passieren. 3 Jahre sind einfach zu kurz. Ich bin schon sehr lange in EM investiert und das war kein Nachteil bisher.

  • Great post, loved your perspective on the market, it’s one I take as well. Focus on the companies themselves, as the market gets higher try to take less risk.

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