value and opportunity

Performance review Q3 2015

In Q3, the Benchmark (Eurostoxx50 (25%), Eurostoxx small 200 (25%), DAX (30%),MDAX (20%)) lost -8,1%, my portfolio in contrast only lost -1,4%. YTD 2015 this results in +9,8% for the portfolio vs. 4,1% for the Benchmark.

Performance chart since inception:

Top Performers in Q3 were Gagfah (+21,8%), TFF (+11,5%), Admiral (+10,8%) and G. Perrier (+8,1%). Top losers were TGS Nopec (-21,3%), Ashmore (-18,2%), Koc Holding (-16,3%), Citizen’s (-12,5%) and Draeger (-12,2%). Overall many of my stocks did very little which was the overall driver of the relative outperformance.

Transactions 3. Quarter

In July, I bought into Deutsche Pfandbriefbank as a “forced IPO” Special situation. At -11% it doesn’t look like a good investment but from my point of view nothing has changed just that the stock became cheaper and more attractive. Let’s wait and see.

My August transaction was the sale of Trilogiq. Here clearly the individual situation at the company changed to the negative, making my initial business case invalid. As it was for me not possible to get a picture of what was really going on there, I think the decision to sell was the only valid one.

Interestingly, in September the portfolio shows 3 transactions although I pledged to to only 1 transaction per month, so how comes ?

1. Call of Depfa LT II as of September 15th.
The Depfa Bond was called by the issuer on September 15th at Par. This was one of my all time favourite investments. I introduced it in October 2011 and further increased it last year in May. The investment looked very ugly in the beginning but was in fact a special situation with “stock like upside” but in my opinion a lot less downside. Even compared to the strong stock market performance, the bond outperformed most stock indexes in the 5 year holding period with a total performance of 100% for the initial portion. The only question I have to ask myself is : Why didn’t I do more of it earlier ?

2. Partner’s fund
As I mentioned in my corresponding post, this was a “special” investment and I did not count them within my 1 position per month rule

3. Aggreko
Last week, my 900 pence limit for Aggreko was triggered and I established a 2,5% position at around 9,10 GBP . Clearly it looks like “catching the falling knife” at that stage. On the other hand, fundamentally nothing has changed. The trigger seems to have been a HSBC study which in my opinion was highly flawed especially with regard to estimated Capex. Buying into such a chart has a pretty high probability that one will lose money first but on the other hand as they say “no pain no gain”. A plan is a plan and is worth something only if you follow it. My compromise is to start with a “half position”.

As a result, the cash portion of the portfolio decreased to around 9%. Going forward, the portfolio will also be most likely slightly more volatile as in the past as I basically exchanged two very uncorrelated assets (Trilogiq, Depfa LT2) with two re correlated ones (Aggreko has a Beta of 1.1, Partner’s fund I don’t know yet). But I think that I can live with that as low volatility is not a target in itself.

TThe full portfolio can be found as always on the portfolio page.

Comment: “Driving on the slow lane”

For anyone driving from or to Munich on the weekend this is a very common picture:

Slow traffic on all lanes. Often, traffic on the weekends is “stop-and-go” fro many kilometers, so you can drive faster for some 500 meters and then total stop, driving again, stop etc. etc. Many people get annoyed with this kind of traffic pretty fast and try different strategies like zig-zagging across lanes, accelerating really hard in a go-phase or other stuff to get ahead faster than the others. However what I found out after many years of experience is the following: If that happens the best strategy is to directly go to the “slow lane” or “truck lane” on the right side. There, the speed is generally slower than on the other lanes but it is also more constant. People keep larger distances between cars so it is more relaxed to drive and in a long stop and go you usually get forward faster. Plus you need a loss let gas, even if you drive a “German Diesel cheater”.

I often take very exceptional cars in other lanes as a reference point and look if I “catch” them in the next stop phase and more often than not I get them at some point in time. Of course, when stop-and-go is over, I then move to the faster lane and go back to “normal cruising speed”.

So why am I telling this ? Well, when I decided in April to artificially slow down my transaction frequence to 1 transactions per month I did not know that volatility would make a big comeback in the stock market and resemble the “stop-and-go” traffic on Munich’s Autobahn. However, I pretty soon discovered that my restriction had a very calming effect on my nerves. Knowing that I only have one “shot per month” takes away a lot of hectic and pressure especially in volatile times.

I discovered for instance that I can better focus on fundamental research if I know that I can’t trade in the next 2 weeks anyway compared to previous times where I would have “watched the tape” all the time and look at all the stocks which would have gone down the most. Also that “gut feeling” when you sometimes have a bad feeling and an urge to sell down at exactly the wrong moment goes totally away. So you can compare it nicely with keeping a bigger distance to the car in front which allows for much more relaxed driving.

Additionally I managed to build up a good watch list of good to great companies which I am prepared top buy at a certain price (Handelsbanken, Vetoquinol, Aggreko). As I am still in the early phase of the slow lane startegy, I have yet to prove it, but similar to my Autobahn experience I am pretty sure that in the long run I will move forward faster than people on the “Left lane” i.e. people trading in and out of stocks all the time, especially taking into account tax effects on my personal account. I have already identified some “refer

So my advise for everyone is pretty easy: If the stock market gets into “stop-go” modus, slow down, move to the slow line and take it easy. Don’t trade in and out in an ever-increasing speed but rather do less. You will reach your goal at least at the same time but with less stress and more fuel in the tank remaining.

(Try to) R.E.L.A.X.