4 years of Value and Opportunity and still having fun (plus some advice on that)

Exactly 4 years ago the very first post appeared on the blog, outlining the rules and philosophy of the “virtual portfolio”.

The top 10 posts in 2014

1. How to correctly calculate Enterprise Value
2. P/E, EV/EBITDA, EV/EBIT, P/FCF – WHEN TO USE WHAT ?
3. OPERATING CASH FLOW AND INTEREST EXPENSES – (THYSSENKRUPP VS. KABEL DEUTSCHLAND, IFRS VS. US GAAP)
4. “RISK FREE” RATES AND DISCOUNT RATES FOR DCF MODELS
5. ADMIRAL PLC (ISIN GB00B02J6398) – SHORT CANDIDATE OR “OUTSIDER” COMPANY WITH A MOAT ?
6. MY 24 (BORING) INVESTMENTS FOR 2014
7. Emerging Markets: Sberbank ADRs (ISIN US80585Y3080)- Buying Russia in one stock
8. Banca Monte dei Paschi Siena (BMPS)- Another deeply discounted rights issue “Italo style”
9. The Dutch Job: Royal Imtech (NL0006055329) Deeply discounted rights issue – The “short opportunity of the century”
10. TGS Nopec ( ISIN NO0003078800) – an “Outsider” Company Buffet would buy if he could ?

The most interesting aspect of the Top 10 list is that 5 out of the 6 most popular posts are old, “general investing” posts. Especially the “Enterprise Value” post is attracting many many hits each day.

Personal blogging highlights 2014

First, I am quite happy with the new design of the blog. Although it actually did cost money (those WordPress guys are pretty smart…), I think it was well worth the “investment”.

The highlight of the year was clearly my journey into Emerging Markets. Although not all investments were succesful (Sistema, Sberbank ughhh…), it was a lot of fun (more on that later) and should be seen as an intellectual investment into the future. One thing that annoys me is that I started to look into China & Hongkong quite early but did not follow up.

Another highlight was the MIFA story. Although I didn’t make any money on this, it was still interesting to see that a look into the accounts can reveal so much. Yes, having winners in a portfolio is important, but avoiding losers is even better !!!

A final highlight just occurred yesterday. My E.ON Management disconnect post was explicitly mentioned in the print version if Germany’s most read weekly business paper, Wirtschaftswoche. Many thanks to the readers who told me about this.

And still having fun !!

1 year ago I had already written why and how I write the blog.

Personally, one of my fundamental beliefs is that one can only be succesful if one is enjoying (to a certain extent) what one is doing. This goes for work, personal life etc. Clearly some things have to be done and hard work is almost always necessary, but without having some fun it is very hard to keep something up until success kicks in eventually.

There is an amazing, less than 4 minute “TED talk” on what makes success to be found here and having fun is clearly one of the most important aspects:

One of the great things about investing is the fact that there is not a single way to success but many ways can lead to success. Value investing works, momentum works, activist investing, quant strategies etc. etc. So everyone should be able to find his own way of investing which is fun and still have good chances for long term succss. There is no need to do it exactly one way or the other.

So how can you make sure that you have fun in investing ?

The following points reflect both, my personal experience and observations I made over the years within the financial industry.

1. Make yourself independent of short-term returns.

One of the most gruesome things in investing is the fact that especially as an institutional fund manager you can have the best strategy but if you underperform over 3,6, or 12 months you will begin to lose money. Another bad year or 2 and your job is in danger. The impact on many fund managers is that at some point they lose all the fun they had in the beginning and just try to play it safe. This then leads to bad mid- and longterm performance and often is a kind of vicious circle. Many fund managers I know are actually not very happy in their job. And yes, that is one of the reasons why i never went “professional”.

Focusing on short-term returns often kills both, your long-term returns as well as the fun of doing it. The best and only way for institutional investors is in my opinion to continuously educate clients

As a private investor, I think the key is to invest only an amount which you can easily lose. If you need the money in 3 years to buy a house or you don’t have a buffer to pay for your broken down car DO NOT INVEST IN STOCKS. Get your personal finances in order, determine what you can have available long-term and then start to invest. I cannot guarantee you success that way but I guarantee this way you will feel much more relaxed about it. People often ask me if why I am not afraid to lose money in the stock market. The answer is: I only care long-term ,because short-term I don’t need the money. Oh yes, I forgot: DO NOT LEVERAGE UP STOCKS, because at some point in time your fun will be gone very quickly.

Another thing which helps me a lot is keeping a long-term performance record. Especially for a long-term strategy like value investing, where you easily can underperform several years, at least for me it is a great comfort to look at my now 15 year-long personal track record. A 15 year record does not change much if you underperform in a single year.

2. Establish a routine but be flexile within

success requires a couple of inputs. Work is one of them. This applies for investing too. Yes, there are stories about the guy who got rich by investing 10 thousand in a great startup but most of those stories are wrong and this is much more about playing the lottery than investing. If you want to become good and successful in investing you need to invest money and time.

For me the first trick to do this regularly and still having fun, is to have a daily routine. I usually work on my private investments first thing in the morning. I get up, have a quick (N)espresso and then start. The second trick is that within this routine I then do whatever I want. Although I have a long list of companies I want to research, I still keep for myself the possibility to do something completely different. When one morning I read for instance about the German candidate winning the Romanian election, I decided to ignore my to do list and look into Romanian stocks for the next couple of days.

Even within your normal job there is often some flexibility to do different things. Some very succesful companies allow employees to pursue “own”projects like Google and 3M but in my experience even in other companies it is both fun and potentially good for a career if you sometimes do things “outside the box”. You don’t have time for something like this ? Than just skip a few useless meetings, stay at your desk and think about something different.

3. Keep it simple

Both in private investments and work, just increasing complexity rarely adds value to the outcome. In private investing, adding to much stuff into ones “process” makes things difficult. Yes, checklists are great, quant models can help and understanding macro is important as well as managing the risk of the portfolio. But I found it easier (and much more fun) to look at investments one by one.

In a professional environment I often have the impression that complexity is used to justify fat management fees which for simpler models would be much harder to justify.

If you have to many inputs into the process, the actual decision-making becomes harder. Although simple doesn’t equal easy, it is clearly more fun in the long run.

4. Communicate with other investors regularily

Not everyone can call a genius like Charly Munger to test the newest investment idea, but in general it is not that hard to find like-minded investors and meet them for regular opinion exchanges or just a couple of beers. Communication via the web is great, but at least for me, sitting together with some investors, talking stocks and drinking a few beers is even better. You usually learn a lot and, the most important: it is fun. I do meet for instance with some local guys every 1-2 months and I am always looking forward to it. Often, after those meetings I am motivated to look things up that have been discussed which then leads to new idea etc.

So to summarize this shortly:

In order to have long-term fun in investing, those 4 point might help you:

1. Only invest money you can afford to lose
2. Establish a routine but within that do whatever you feel like doing
3. keep it simple
4. Socialise with other investors

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