Some years ago I introduced a 27 point “beta version” of an investment check list. This check list contained a lot of quantitative aspects, such as P/E, P/B or other multiples as well as some qualitative aspects. I used this as a rough guideline for analyzing potential long-term holdings but I found out that the quantitative aspects in a check list are not very helpful, because it leads to discarding really well run companies at a very early stage.
On the qualitative side however some things were missing, especially how a company is run for me became more and more important over the past years.
I think this aspect is not well covered by many other investors as most concentrate (only) on the “what”:
- What moat does a company have ?
- What industry are they in ?
- What ROE/ROIC/EBIT Margin does the company generate ?
- At what EPS/EBIT/Book multiples does the stock trade ?
- What is the “Magic Formula” that generates Alpha without actually looking into the companies I invest
For me the “what” in many cases is actually only a secondary result of the “how”. Moats for instance are not created out of thin air.
Provident Financial is a UK-based “financial service provider”. What makes Provident “special” is that the company is extremely profitable:
Market Cap 4,2 bn GBP
Among its shareholders there are many “famous” investors for instance Marathon AM, Neil Woodford and Tweedy Brown.Stock analysts are quite bullish, according to Bloomberg 9 out of 12 have the company as “buy”, although the target price at 31,00 is only a few percent higher than the current price.
The stock has done pretty well over the last years, “the great financial crisis” had almost no impact on the share price:
The Pixar / Steve Jobs story
Bloomberg story about the “uber quant” hedge fund Renaissance Technologies
Hilton Hotel is going to split into 3 companies
Stock Buybacks in Europe seem to have lost their magic
Wexboy celebrates 5 years of blogging as well as Alpha Vulture. Keep it up guys !
“How I built this” podcast – Herb Kelleher & Southwest Airlines (via Valueinvestingworld)
A very interesting piece on Mark Zuckerberg and how he runs Facebook
I think it is no exaggeration to say that Clayton Christensen is THE management guru on innovation. His first book, “The innovator’s dilemma” is a must read classic management book.
Taleb has written a foreword to the upcoming biography of Ed Thorpe. (This is the book I am really looking forward to….)
Jason Zweig on the stamina required for longterm investing success
Damodaran on the perils of family owned (Indian) companies (Tata)
Morgan Housel on (non traditional) sources of competitive advantages
Steve “the big short” Eisman is short European Banks
And yes, finally a few Trump related links worth reading:
– Howard Marks
– Ray Delio
– Bill Gross
– and of course the full interview with Warren BUffett
When I looked at Novo Nordisk 3 months ago, I found the stock too expensive at 315 DKK/share. That was my summary back then:
What could make the stock interesting again ?
Well, that’s simple: Either a lower stock price or higher growth. Maybe management has low-balled growth ? Who knows. Maybe the market over reacts if the next quarters don’t look that good ? According to Bloomberg, analysts officially still expect double-digit earnings per share growth well into 2019. Even adjusting for share buy backs, this will be difficult to achieve based on the growth rates communicated by management.
For me, the stock would become more interesting at around 250 DKK under the current growth assumptions. I think I would also like to see more negative comments from analysts.
With the stock now trading at ~229 DKK, it is clearly necessary to revisit the stock again.
Guranteed “Trump Free”:
India has been “demonetized” this week. Interesting to see how this will turn out.
Freakonomics podcast on why expensive wines seem to taste better (and other stuff)
The Brooklyin Investor has a look a Och-Ziff, the listed US Hedge fund
Geoff Gannon is blogging again and answering questions like “How to find sutainbale profitable companies” or “How to invest if you have only one hour a day”
Due to the well-known Brexit troubles in the UK, my contrarian instincts seem to motivate me to look more at UK companies these days. One of the UK companies on my watchlist was Staffline Plc, a recruitment and “human resources outsourcing company”.
The company got on my radar screen because friends mentioned that it looks like an interesting company and that the have a “great CEO”.
Those are the usual multiples:
Market Cap 232 mn GBP
P/E 2015: 15,6
P/E 2016: 7,4
The company grew sales almost 10-fold over the last 10-12 years. Interestingly however GAAP EPS in 2015 was at the level of 2006.
Currently there are a lot of articles in the financial press about the perceived “fight” between active and passive asset management styles.
The passive guys make the point that on average, after fees, active funds have to underperform against the index and low-cost index funds, which is difficult to counter. On top of that, “alpha” created by large active funds is not very persistent.
From the active side, there is the argument that if there is too much money invested in index funds, market efficiency will suffer and stocks will go up and down together because not enough people are analyzing single stocks. If stocks go up and down together without reflecting fundamentals, at some point in time “good stocks” should be too cheap and bad stocks to expensive. Which then should be some easy money for any good stock picker.
Is the market already inefficient ?
This argument reasonable at first but is there any evidence that the market is less efficient ? Let’s look for instance at the DAX 30, the major German index. It is hard to come up with good numbers but I do think that maybe between 10-15 % of the DAX is somehow invested via index funds with a clear trend towards more index ownership.
So let’s look how the DAX constituents have performed so far this year (as of Nov. 2nd). The Dax itself ytd is down -2,8% This is the YTD performance of the constituents: