Performance review 9M 2018 – Comment “Anti Buffett or Beyond Buffett ?”

Performance 9M 2018:

In the first 6 months of 2018, the Value & Opportunity portfolio gained +3,38% (including dividends, no taxes) against -2,2% for the Benchmark (Eurostoxx50 (Perf.Ind) (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%)).

Some other funds that I follow have performed as follows in Q1 2018:

Partners Fund TGV: +6,95%
Profitlich/Schmidlin: -0,21%
Squad European Convictions +1,97%
Ennismore European Smaller Cos +2,16% (in EUR)
Frankfurter Aktienfonds für Stiftungen -4,42%
Evermore Global Value -1,59% (in USD)
Greiff Special Situation -1.91%
Squad Aguja Special Situation -3,86%
Paladin One +1,5%

Performance attribution:

The top 3 performers on a weighted basis were for 9M 2018 were:

Weight 12/17 Perf ytd Attr
TGS Nopec 3.1% 80.6% 2.5%
Bouvet 3.8% 36.6% 1.4%
Tonnellerie Frere Paris 9.8% 8.2% 0.8%

The worst 3 performers for 9M were:

Weight 12/17 Perf ytd Attr
Majestic Wine 4.8% -12.5% -0.6%
Silver Chef 3.4% -30.8% -1.0%
Metro 6.1% -36.5% -2.2%

Clearly this year my direct Oil exposure via TGS and the indirect one (Bouvet, Norway) has helped the portfolio. However more important is that around 2/3 of my positions are positive, so the performance itself is driven not only by a few winner but by the majority of the portfolio,

Looking at he monthly returns YTD, it is interesting to see that as in the past, the outperformance is generated in “down months” whereas durung “Up months” the portfolio generally lags significantly:

Perf BM Perf Portf. Delta
Jan-18 2.6% 3.0% 0.4%
Feb-18 -3.9% -1.3% 2.5%
Mar-18 -2.5% -3.0% -0.5%
Apr-18 3.5% -0.4% -4.0%
May-18 -0.8% 1.7% 2.4%
Jun-18 -1.4% 1.6% 3.0%
Jul-18 3.6% 0.1% -3.5%
Aug-18 -1.8% 0.8% 2.5%
Sep-18 -1.3% 1.0% 2.3%

As mentioned before, there is some time-lag in play but alos the rather defensive character of the portfolio.

Portfolio transactions:

In Q3, I sold my Metro shares, unfortunately a little bit to early. If I would have waited a week or so I could have gotten 1 EUR more per share. Still the Metro loss did hurt. I also tendered 40% of my DOM Security shares for 75 EUR/share. The only purchase was to increase Paul Hartmann from 2% to 3%. As a result, my cash allocation has now reached 19% which is the highest since starting the blog almost 8 years ago.

The current portfolio, as always can be seen under the dedicated portfolio page.

My average holding period now has reached 3,3 years (ex cash) which I find very satisfying.

For the friends of details: I have re-arranged the “Buckets” of my portfolio a little bit. Instead of separating between Contrarian and Special situations, I combined these into an opportunistic” bucket.

The others (Boring, Different, Buffett/Munger) stay the same.

Comment: “Anti Buffett or Beyond Buffett”

In my last post on FitBit, one commentator mentioned that FitBit as an Investment would be “Anti Buffett”.

I think this comment implies 2 important parts that I here often within the “Value Investing” community:

  1. Only “Buffett” like investments are good investments
  2. Only “Value investing” is good investing

Personally and over time I get more and more annoyed and also bored with this kind of quasi-religious behaviour. I honestly do not understand why one should spend most of his time reading and re-reading Buffett’s annual letters or even deeply analyzing his investments from many decades ago.

Yes, there is a lot of interesting stuff in there but personally I think it makes much more sense to understand the underlying philosophy which in my opinion is relatively simple:

It’s all about long-term and “business like” investing.

Also I think there is no “Buffett-like” investment as such. Buffett has changed his style more  than once and I am pretty sure that a lot of what he does these days is the result of size. He did a lot of net-net in the beginning plus special situations and then moving slowly with the help of Charlie Munger into “quality growth”.

For instance for decades he didn’t like airlines and many of his followers didn’t like them either until….suddenly he liked them. Another example: Instead of laying “all eggs into one basket” he hired Ted and Todd who now run their own portfolio with very different positions than his own. I would call this move “diversification”…..

So what’s the alternative ? Although many “value investors” would wrinkle their nose at them, I do think that especially (good) Venture Capital investors do think much more long-term and business like than most value investors that I know. An early stage VC is stuck with his investments for at least 7-10 years and normally has no chance to trade out of an investment. There are no historical numbers, only the people who run the venture. This makes investing very forward-looking.

For instance these days a guy like Fred Wilson or Paul Graham in my opinion has much more interesting things to say than your typical “value guy”.

Clearly, in the VC world there are many “spray and pray” investors as well but therefore it is really important trying to learn from the “Good guys”. And there is a lot to learn.

I find it for instance very interesting that Buffett and especially Munger never got Software companies. Buffett always stresses that he doesn’t understand “technology” but Software as such is not really technology but quite predictable “Moaty” companies with often absurdly high ROCEs. Whenever they tried their luck with “technology” they stuck to old school, hardware based companies (e.g. IBM or now Apple).

Or take newspapers for instance: Buffett loved the business model of a dominating local newspaper but he clearly didn’t see the fundamental change coming and doesn’t know himself what to do.

So reading in Buffett’s 1963 Partnership letter will most likely not help you in understanding Software companies or finding out which industry will be seriously disrupted next. Reading stuff from guys like Paul Graham and Fred Wilson however does give you some insight where change is happening. Personally, I do think that we are currently seeing a major “tectonic” shift in all financial services as well in the mobility sector.

But just to be clear: I do not recommend to go and invest in technology companies NOW. There is a lot of hype and too much money in technology, so now is not the time to go big time into the sector. But as I have written almost exactly one year ago, I recommend every “value investor” to take some time and read also stuff from some of the great VC guys instead of rereading Buffett’s 1966 partnership letter for the seventh time.

21 comments

  • Thanks for saying/writing the things about Buffett (again to everybody who still misses it: it’s double tt at the end!!). He’s a prime example for adaptability. As long as things were working, he was doing them and when they didn’t work any longer (e.g. because of the size of the companies or simply fewer available net-nets) he had to find new ways to evaluate a company. So when reading his letters from decades ago you shouldn’t say ‘Warren wrote this and that and therefore it definitely works (still today)’. That’s just not right for everything he wrote/said.

    For me ‘value investing’ simply is ‘to try to determine a value of a company based on some hard facts like numbers in a 10-Q or 10-K combined with some assumptions like growth rate and fair multiples’ and comparing that value with the current market price. Taking into account a flexible margin of safety you can come up with a ‘this might (not) be a good investment’. And I prefer this kind of ‘value investing’ over other investing methods (like pure technical analysis or pure market timing) because it makes more sense to me. I’d never say ‘technical analysis’ or ‘market timing’ doesn’t work. I respect people doing it, but ‘value investing’ just make a little bit more sense to me.

    Anyway: congrats on your performance so far this year. Your portfolio is still a prime example for diversification and thoughtful stock picking.

    PS: Werde heute Nachmittag mal prüfen, ob die Bierqualität auf der Wiesn genau so gut ist, wie letztes Jahr 😀

  • All investors try to create value, ie. (Output – Input ) > 0, with different recipies for success. Hence all may claim they are value investors, opportunist investors, fundamental investors etc, in the end it is just a “marketing exercise”. You chose the term that sounds better for you, as much as you choose the taste of icecream you like best.

  • Do you see Expedia as Special Situation (allocated to the “Opportunistic” bucket)? Looks more like a quality compounder to me.

  • Sorry again – newbies here. But is there a place on this forum where avid readers share and debate interesting ideas? Like a “Submit your tip of the month” kind of thing….
    Some of the people commenting seem to be on the ball. A large pool of knowledge to tap into it seems.

  • Lange, widersprechende Erwiderung auf Deutsch (zu lang für dieses Blog) in deinem Heimatforum.
    Freue mich, wenn du darauf einsteigst.

  • Totally agree on the comment on Buffett. People follow him in a fanatic religious way which is wrong, he absolutely is a great investor but even his long-term holdings such as Coca-cola or American Express have not done as well as Pepsi or Mastercard, it is something to think about….

  • Equity Investor

    Just my 2 cents to the “Buffett-like” Investmentstyle, where I agree fully with the author. What I can see, there is a public definition / awareness what a Buffett-like investment should look like and public writters often seem just to give kind of stamp “this is buffett style” / or this is “value investing” depending on price-book-ratio or whatever.
    Well, if you just listen what Buffett and Munger say by themself to value investing, “the definition” has to be recaptured. In his (this August) birthday interview, Buffett clarified, that for example book-value was just a good orientation…in the past(!)
    And Charlie Munger puts it even better /clearer in perspective: “number one rule for fishers should be: fish, where the fishs are”. And to put that even in broader pictures, it’s not relevant in which sector you’ll invest as long as it’s an intelligent investment…”All intelligent investments are value investments”. (see charlie munger interview https://www.youtube.com/watch?v=YqAMVmtlMtk ,starting around minute 13:30)

      • This is also how I like to think about “value” investment. For me, “value investing” has nothing to do with the size of the company or low P/E or low P/B. Figuring out what the business is conservatively worth and paying a lot less is how I think about value investing. It sometimes bother me when people define a company as a “value” or “growth” stocks and think value investors are stepping out of their philosophy when investing in such “growth” companies. It is more of a broad concept and not really tied to one metrics for cheapness.

  • “In Q3, I sold my Metro shares, unfortunately a little bit to early.”
    You could have said the opposite regarding Silver Chef!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.