Time flies !! 5 years of Value & Opportunity
Almost exactly 5 years ago the first post (still in German) went online.
Those anniversaries are always a good occasion to step back a little bit and reflect what happened and what changed.
Big “Thank you” to all readers !!!
First of all, I want to say “Thank you” to all my readers. Especially for those who comment on a regular basis because this feedback is really important. It is like having a really sophisticated investment committee to which I have to “Pitch” my ideas where any weak point will be highlighted directly. Also a big “thank you” to all readers who send me Emails. Actually I feel more motivated than ever to continue with this “hobby”, so let’s look forward to the next 5 years !!!
Blogging Highlights 2015
1. David Einhorn himself commented on my post. Honestly, I don’t think the post was that brilliant but I guess it hit a nerve even with this billionaire hedge fund investor. As I have said many times, I do think Einhorn is one of the very good HF investors. He really had a hard year. If I would be responsible for allocating money to hedge funds, I would actually increase my investment as good managers very often come back strongly after a bad streak.
2. The Globo PLc story was also a rather obvious case and not such a brilliant analysis. Nevertheless for some reason Globo had been a value investor favourite. There were a lot of things to learn. I think the main learning for me is that even very good investors with intensive contact to management can be fooled by crooks big time.
3. Avoiding Energy investments such as Cheniere Energy despite “Uber Gurus” like Seth Klarman and Carl Icahn investing heavily
Overall I think my major achievement in 2015 was to convince myself to be less hectic and take more time to make decisions, both for buying and selling positions. I think this takes out a loss of stress and over time should translate into better returns after tax and less “Behavioural mistakes”.
The “Top 10 most read posts” in 2015 were:
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. Dear David Einhorn: Why are your interns doing all the cost of capital estimates (Consol Energy) ? (2015)
5. Buffett & Munger on Cost of Capital: Don’t listen to what they say but look at what they do (2015)
6. Globo Plc – Value superstar or too good to be true ? (2015)
7. “Risk free” rates and discount rates for DCF models
8. Why on earth is Seth Klarman investing 1,7 bn USD in Cheniere Energy (LNG) at 7x P/B ? (2015)
9. Deutsche Pfandbriefbank AG “forced IPO” – “Superbad” or interesting special situation ? (2015)
10. https://valueandopportunity.com/2015/04/24/aercap-holdings-nv-isin-nl0000687663-how-good-is-einhorns-new-favourite/ (2015)
Interestingly, the top 3 posts are “old” general posts that seem to be quite popular even 3 or more years after I have posted them.
5 years ago:
As I have mentioned many times, on of the great things about blogging is that I can easily check what I have said and thought 5 years ago and compare it what I do and know now. If I look at our first portfolio, many of the stocks we bought back then would now not pass my (improved) filter.
For instance today I would not touch today:
Buzzi SpA – too capital intensive
Bijou Brigitte – Retailer in decline are rarely good investments
Ensco/Noble – cyclical commodity business, doesn’t matter if Einhorn owns a stock or not
Westag – mediocre business
Einhell – weak business model
Tsakos – why the hell did I own that ?
The good thing at that all shares were cheap, so I made money on some of them and only lost a little on the really bad ones like Bijou and Tsakos.
But why did I buy them back then and why wouldn’t I invest now even if they were cheap ? The reason is that back I looked too much at Price/Book ratios, dividend yields and trailing earnings. I even looked a lot at net-nets back then. I didn’t consider other aspects as business models, competitive environment and capital intensity as much as I do now. Interestingly my relative performance was best in 2011 and 2012, however looking back this was much more due to timing and luck and less skill.
I think I was very lucky that I started the blog when everything was cheap and one couldn’t make that many mistakes or you even made money with mistakes. And mistakes there were many…
Some of my biggest mistakes over the 5 years:
1. Trying to “play” distressed debt (Praktiker/IVG)
2. Thinking Kabel Deutschland was too exensive at 30 EUR and going short
3. Thinking the Bankia IPO could be interesting (wipe out for shareholders soon thereafter)
4. Investing in European utilities as sold long term inevstments
5. Assuming Netflix is expensive at 133 USD and going short ( I still made money on it…, Now at around 800 adjusted for split…)
6. Buying RWE as “opportunistic investment” in 2011
7. Selling many stocks too early (Total Produce, WMF, Dart Group)
8. Rejecting a couple of multibaggers (Conduril, Reply, Washtec)
9. Not buying more of the good stocks (Perrier)
10. Thinking I could pick stocks in Russia (Sistema, ouch….)
I think one of the reasons that I still performed well was that I mostly corrected those mistakes quickly. I sold most of them relatively soon sometimes even at significant losses. For me “doubling down” is a very bad strategy. It might work for some people but in general selling losers is the better and safer way.
Although I made a lot mistake, I avoided a lot of potential “traps” by improving my filters. Luckily I avoided mostly anything to do with Solar, China, Greece, Commodities, Utilities.
Best learning experiences
From my own perspective, I think the major “development” over those 5 years were the following
A) keep stocks for longer if they perform well
B) improve “filter” for aspects
C) trade less, don’ worry too much about short term market movements
We’ll see how the next 5 years will go……