value and opportunity

Performance:

January was a very good month for the portfolio. The portfolio gained 3.68% vs. -1.86% for the benchmark (New benchmark since 1.1.2014: Eurostoxx 200 Small 25%, Eurostoxx50 25%, Dax 30% MDAX 20%).
Major positive contributors were April SA (+12,8%), Cranswick (+10.2%), Installux (+9.6%), Draeger Genußscheine (+8,0%) and Hornbach (+7.1%). Overall, the portfolio benefited from a January small cap effect more than anything else.

Portfolio transactions:

As discussed, I sold the entire Celesio position. Additionally, I started to sell down a quarter of Rhoen at around 21.95 Eur. On the sell list as well is the remaining stake in EMAK. Unfortunately the January effect did not help the EMAK share a lot.

Cash is currently at 15.6% of the portfolio. The portfolio as of January 31st can be found here.

Comment: Taking responsibility

Currently, two complete former management boards of two infamous German banks are standing trial. In both cases, HypoReal Estate and BayernLB, the boards made large acquisitions just before the financial crisis (Depfa, Hypo Alpe Adria) which turned out to be disastrous and sank both banks.

Of course, both boards and CEOs do not see themselves responsible for what happened. Hypo Real Estate’s former boss Funke blames the former German Finacne Minister Steinbrück for everything, the BayernLB CEO Kemmer blames of course the financial crisis for everything.

Taking credit personally for success and blaming others for failure seems to be common today in most management boards. As an investor however this kind of behaviour is very dangerous in many ways. In order to compound wealth long-term, investors need to avoid mistakes much more than trying to pick the next Apple or Google.

Blaming others for bad investments is in my opinion a sure way NOT to compound well in the long run. Blaming others and not oneself increase the risk that the same mistakes are made over and over again. Clearly, luck plays a big role in investing as well, but in the long run skill and especially the avoidance of “Unforced error” will dominate luck.

A good example is the current Prokon “scandal”. Many people now are blaming the German authorities that they didn’t step in and closed the scheme long ago. No, it was not the fault of the investors, which ignored all the warnings, it was the fault of others. Thinking like this leaves the door wide open for the next Ponzi scheme and then the next and the next etc.

If I make a (big) loss with an investment, my first question always is: What did I do wrong ? What did I miss ? Did I ignore facts or did a fall into a behavioural trap ? Unlike a CEO, the only person I can possibly fool is myself, so no need to blame the financial crisis, incompetent politicians, bad weather etc.

The same goes for greate investments. One should also ask oneself: What part was luck and what was skill ? History is full of failed investors which made one lucky trade and then lost it all because the thought that they actually knew what they were doing. The Celesio trade is a good example. Yes, I made a quick nice profit, but my initial assumptions were wrong. So instead of thinking: Hey, merger arbitrage is easy, I should ask myself if this is really a game I should play in the future as I do not seem to have better insights than anyone else.

So to make the long story short: For long term investment success, it is far better to take the opposite strategy of a typical Bank CEO: Take full personal responsibility for failures and only partial credit for success. I will almost guarantee that this will lead to a much better outcome than the typical “Bank CEO” approach for your personal portfolio.