Performance review May 2014 – Comment “Leave the driver in the bag”

Performance May

May was a strong month for the Benchmark (Eurostoxx50 (Perf.Ind) (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%)) with a gain of 3,2%. The Portfolio made 0,8%, an underperformance of -2.4% in May. YTD, the portfolio is up 9,2% against 5,3% for the benchmark. Interestingly, the portfolio was up every single month this year whereas the benchmark only was positive in February and May.

Best performer in May were the 2 Russian stocks (Sberbank +21,2%, Sistem +20,4%), Koc Holding (+8,6%) and Cranswick (+5,6%), loosers were Portugal Telecom (-12% without dividend), IGE & XAO (-5,4%) and TGS Nopec (-5%).

Portfolio transactions May

Major transactions in May were:

– Sale of second half of the Sias Position at 8,75 EUR (and missing the 5% rally in the last 2 days…..)
– Purchase of TRY 2020 Depfa Zerobond
– Increase of LT2 Depfa 2015

Cash is now at ~10% plus the 5% in the LT2 Depfa 2015 which I consider “cash equivalent”. The portfolio as of May 31st can be seen as always under the “Current Portfolio” page.

Comment: “Leave the driver in the bag”

Anyone who plays golf (yes, I play as well but badly….) likes to swing with the biggest club, the driver. If you hit the ball right, you hear a satisfying sound like “Ziiiinggg” and the ball goes really far. The problem ist the following: For most golfers it is quite difficult to control the direction. On the other hand, especially for players with high (bad..) Handicaps, you need the distance in order to have a fair chance for a good score.

More often than not, especially if you play on older golf courses, you are faced with a similar view from the tee-off:

Trees to the left, trees to the right and only a very narrow fairway and you cannot see the flag. If you hit the ball into the trees, you might not be able to find it and you get a penalty, destroying your chances on a decent score. Or you find the ball, but you need several strokes to get out of the trees again.

The much more reasonable strategy for an average golf player is to use a shorter club where the distance is much shorter but you have better control on the direction. Yes, if you hit the driver straight, you will be much better off than with the iron, but ane iron gives you a much higher probability to stay on the fairway. For professional players, this is a quite common problem. Especially if you play tournaments over 4 days where every stroke counts, one bad hole (out of 72) can kill the whole tournament. So professional golf players have to be pretty good in probablilities. They have to assess constantly what club gives them the overalll probability to get the best total score from any situation.

So why do I tell this “golf stories” ? The answer is easy, an investor is facing the almost same problems than a professional golf players. You can make really risky investments, like for instance a concentrated position in an expensive growth stock which would be the stock equivalent of a driver. Or a super cheap “deep value stock” with management problems and a high debtload. Great upside potential but also big risk the end up in the “trees”. As in golf, the investment environment plays a big role in deciding what amount of risk to take. When markets are cheap in general, then taking risk makes more sense as you are facing a nice and wide fairway.

If valuations are high and a lot of strange things are going on, you might want to leave your driver in the bag and use the investment equivalents of short woods or irons, like smaller positions and more defensive stocks.

The current market environment, especially in the “developed” markets with low yields to me looks very similar to the narrow fairway from above. Relatively high valuations, experiments from central bankers etc etc. in my opinion is faced best with a more “controlled” game, like smaller position more diversification, a prudent cash position and uncorrelated risks. Otherwise the risk of permanent loss of capital and missing the “Cut” is real.

What we actually see in the markets is currently the opposite. Especially pension funds, insurance companies and sovereign wealth funds are “taking out the big clubs” by increasing the risk of their portfolios to compensate for low yields. Suddenly real estate, private equity, high yield corporate bonds and illiquid infrastructure loans are considered perfect investments for conservative pension funds and life insurance companies. Those investors are betting fully on being able to “Control the driver” whereas in reality they might not even had a practice swing before. In my opinion there is a high risk that many or most of those investors will find themselves “in the trees” at some point in the future and cursing themselves for not being prudent before.

So my advice for anyone would be: Now is not the time to “swing for the fences”. Try to stay in the middle of the investment fairway with controlled (and known) risk taking. Don’t take badly priced illiquidity risk and/or credit risk. Don’t buy badly managed companies or troubled business models with concentrated position. On the other hand, don’t stop “the game” completely but play patiently and wait for the “wide fairways” i.e. low valuation environments in order to bring out the driver again.


  • Well, I would also argue that buying something below intristic value is always a good deal and the cheaper you buy, the lower the risk you take is. No matter what enviroment or how crazed the market is, there is always something to buy. Some markets, some sectors, some companies are disliked by the market for a reason or another. Always. Evidently it is harder currently, but that just means more research is needed. Being a swedish investor I have bought companies in Austria and Australia. I also bought a russian ETF. The market doesn’t love everything all of the time and that offers buying opportunities for the patient and cunning investors.

  • Meine Vermutung ist ja, dass man Estavis (weit unter NAV) bewusst klein gehalten hat. Da sind bekannte Investoren privat im großen Stil drin. Dazu gehört Estavis eine Privatisierungsfirma.

    Mich interessiert erstmal das gute Chance/Risiko-Verhältnis in den nächsten 3-4 Wochen. Denke aber darüber nach, dass wenn der Tausch in Adler klappen würde, dann wieder vom Erlös den Wandler nach dessen Kuponzahlung (Kupon ist im Kurs!) zu kaufen und nochmal zu den 1,15 zu tauschen und dann Estavis-Aktien zu halten.

  • Wäre die Estavis-Wandelanleihe nicht auch eine nette Arbitrage-Möglichkeit für dich. Heute werden die Estavis-Aktien mit 2,87 Euro sogar höher als die Wandelanleihe zu 2,84 Euro gehandelt. 1 Wandelanleihe ist bis 4.Juli 1,15 Aktien wert. Man kann Ende Juni den Kupon (fast 19 Cent) kassieren und dann wandeln.Damit kann man zu 2,65 Euro eine Aktie kaufen, die derzeit zu 2,87 Euro gehandelt wird. Bis 23 Juni kann man sie sogar noch in Adler tauschen. Derzeit sind es 23% Discount auf Adler. Schlecht ist halt, dass man weder Adler noch Estavis per Put absichern kann.

    • danke für die Info. Habe mir weder Estavis noch Adler jemals angeschaut. Adler hat sich ja innerhalb gut eines Jahres fast verfünffacht, das wäre wohl ein interessantes Investment gewesen.

  • Thanks for the perfect comparison! You are right with this interpretation. What we also can learn from good golfers (with good handicaps) is, that they have the patience to wait for their chance and a good risk reward profile for the next swing.

    It is better to make less mistakes, than to make one big shot.

    So, you also have to accept your mistakes and sometimes you have to make a defensive shot, if you will not fail.

    The score of our golfer is the score after 18 holes. Not the score after on big shot! And our investors score is the sum of our decisions over a long period. Forget “Hit and run” investment strategies. (“Stay out of trouble”-Munger)



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