2018 Performance review – Outlook 2019

In 2018, the Value & Opportunity portfolio lost -11,3%* (including dividends, no taxes) against –15.4 % for the Benchmark (Eurostoxx50 (Perf.Ind) (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%)).

Links to previous Performance reviews can be found on the Performance Page of the blog.

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

Partners Fund TGV: +1,74% *
Profitlich/Schmidlin: -8,27%
Squad European Convictions -9,75%
Ennismore European Smaller Cos +2,65% (in EUR)
Frankfurter Aktienfonds für Stiftungen -13,72%
Evermore Global Value  -20.92% (USD)
Greiff Special Situation -7,02%
Squad Aguja Special Situation -11,7%

*TGV Partners as of 15.12.2018, to be updated

Since inception (01.01.2011), this translates into +152,6% or +14,0% p.a. vs. 66,6% or 6,0% p.a. for the Benchmark.

Current portfolio / Portfolio transactions

The current portfolio can be seen as always on the portfolio page. I have already mentioned the 2018 transactions in the “My 22+1 stocks for 2019” post.

Portfolio strategy

From a portfolio strategy point of view, I achieved most of my goals

  • overall average holding period of the portfolio is now 3,5 years , up from 2,9 years end of 2017 and within my target range of 3-5 years
  • the number of positions is still within my “sweet spot” of 20-25 compared
  • The top 10 positions have a weight of > 50 % (51,9%)

So for the time being I am quite happy with the structural aspect of the portfolio but I still try to work hard on extending my average holding period. Although working hard is maybe the wrong expression as this is a KPI which I can improve by doing just nothing. But doing nothing is the hard part.

Performance review 2018

2018 was clearly the worst year in absolute terms since i started the blog. Here is the table of annual returns for the last 8 years:

Perf BM Perf. Portf. Portf-BM
2011 -13.8% -4.1% 9.8%
2012 26.6% 37.4% 10.8%
2013 29.3% 32.8% 3.5%
2014 2.2% 4.9% 2.7%
2015 12.5% 14.1% 1.7%
2016 4.6% 12.4% 7.9%
2017 16.1% 20.9% 4.7%
2018 -15.3% -11.3% 4.1%

Looking at my personal long-term track record (since 1999, the years 2008 (-16,9%) and 2002 (-34,6%) were (much) worse, but clearly a double-digit loss is not nice.

At first sight, a +4,1% outperformance (and a continuing “strike” of positive Alpha) looks pretty OK, but overall I am very dissatisfied with my outcome. Why ? Because:

  • As I mentioned this year, I made a few individual mistakes (Silver Chef, Metro) where I didn’t follow my own rules and lost significant money in avoidable situation
  • I have too many stocks in my portfolio where I am not convinced (any more) for the long-term
  • Finally I misjudged the impact of Brexit or more precisely how much of a negative “hard Brexit” was already priced into the market

For me the look at 2018 relative monthly performance is even most interesting:


Perf BM Perf. Portf. Portf-BM
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%
Oct-18 -6.8% -6.3% 0.5%
Nov-18 -1.2% -2.1% 1.2%
Dec-18 -6.1% -6.4% -0.3%

What is extremely unusual for my portfolio is the fact that the portfolio underperformed in the 4th quarter. In the past, the “alpha” of the portfolio came mostly from the bad months. This was actually one of the stated goals of my investment strategy to outperform (strongly) in a down market and slightly underperform in up markets with a portfolio of relatively low beta stocks that might have individual risks but a limited amount of systematic risk factors.

What happened in Q4 ? A few things:

  • small caps underperformed large caps. Even (or especially) the low beta small caps dropped like a stone.
  • Especially French small caps underperformed. I still hav a significant overweight in France (~25% of the portfolio). The French small cap indices lost around -28% percent in 2018, much more than for instance German ones or even Italian ones. A good example is DOm Security / SFPI: After the 75 EUR offer for   DOM and the subsequent merger into SFPI, the stock lost ~-45% in a few weeks without any negative news from the company. Either that negative news will turn up later or somehow the market overreacted to the “Yellow vest” protesters.
  • In general, my personal opinion is that a lot of “quant money” was flowing into the small cap sector in the past few years. This boosted performance but increased volatility when the Algos want out. However this is clearly a price to pay when investing in small caps. The “small cap premium” is there but you pay for it with volatility in certain circumstances.
  • additionally, a few of my UK stocks got hammered, especially Majestic Wine. It looks like that I had underestimated how much of a hard Brexit was already built into stock prices
  • Some of the stocks that I own had strange year-end 2017 “Peaks” that got reversed especially in the 4th quarter (Cars.com)
  • Finally, even a relatively well performing stock in 2018 like Electrica got hit by an unrelated policy change in Romania that was bad luck but contributed clearly to the December underperformance.

Additionally, due to less time available, i didn’t manage to allocate more money into “pure” special situations. The special situations add to diversification especially in down turns but this is something that I have to live with in the future.

Outlook 2019:

As always, I don’t find it very useful to project anything like where will the DAX be at year-end 2019 etc. However I find it useful trying to identify some major risk factors. In my opinion, the most relevant “known unknown” risk factors are.

  • BBB- corporate debt. This has been accumulating for years in pension funds, bank and insurance balance sheets as it offers yield without much capital requirement. This would turn if these papers would be downgraded to “Non investment” grade and potentially trigger massive forced selling and other secondary effects. So I think it makes a lot of sense to watch this space, including credit spreads.
  • Inflation and interest rates: Our current generation does not know how it is to live with rising interest rates and rising inflation. Maybe we have seen just a small uptick and then back to low inflation /low-interest rates. It he trend would actually turn, then a lot of things would suddenly become very different to the previous 3 decades.
  • Brexit: This is an obvious one. Less obvious is clearly how much of this is already discounted in the market (Stocks & Pound). Something to watch and maybe I mange to create a UK Watchlist for the worst case.
  • Tariffs: Of the many stupid stuff that TRump does, the most damaging for the global economy are clearly his tariffs. It is no coincidence that the German index performed worst among the large European ones as the German economy is extremely dependent on open international markets, Especially in Germany, people are very complacent and think the current boom will last forever but this could turn quickly

Some of those factors have combined impacts. For instance in my opinion, the combination of BBB- debt and rising inflation is one explanation why US Insurance stocks are so cheap, as they will be hit double if those risks actually materialize. If not, then US Insurance could become more interesting.

Overall in 2019 I will need to focus on reviewing some existing positions more intensively. Nevertheless I hope I can develop some new ideas as well.


  • Good luck with your 2019 investing 🙂

    • Think what would Edward Thorpe do 😛
      Kidding. Build up your case study for the investments, entry, exit plan etc.
      Good luck 🙂

  • Ert einmal: Glückwunsch zu deiner tollen Langzeitperformance und herzlichen Dank für das ausdauernde Fortführen dieses interessanten und lehrreichen Blogs!

    Ich habe aber eine mathematische Anmerkung. Da sie etwas komplizierter wird, bleibe ich lieber bei Deutsch: Bei der Bewertung von Depotperformance zu Benchmark-Performance habe ich früher auch “Depot – Benchmark” subtrahiert. Mir wurde dann aber die mathematische Schwäche dieses Vergleiches bewusst und ich bin auf einen “Divisionsvergleich” umgestiegen (also (Depot+100%)/(Performance+100%) – 100% ).
    Erklärungsbeispiel von 3 Fällen:
    Fall 1: Benchmark -20% ( Gesamt 80%), Depotperformance 0% (Gesamt 100%)
    Fall 2: Benchmark 0% (Gesamt 100%), Depotperformance 20% (Gesamt 120%)
    Fall 3: Benchmark 0% (Gesamt 100%), Depotperformance 25% (Gesamt 125%)
    Nach Subtraktionsvergleich wäre der Unterschied 20% in Fall 1 und Fall 2, 25% in Fall 3. Also war Fall 3 am besten, während Fall 1 und Fall 2 gleich gut waren.
    Nach Divisionsvergleich wären Fall 1 (100%:80%-100%=25%) und Fall 3 (125%:100%-100% = 25%) genauso gut, und Fall 2 (120%:100%-100% = 20%) etwas schlechter. Die Performance im Fall 1 wird also relativ besser bewertet als im Vergleich via Subtraktion.

    Warum halte ich die Division für die mathematisch sauberere Vergleichsrechnung?
    Angenommen im nächsten Jahr erreicht die Benchmark in allen drei Fallbeispielen bei 125%, das Depot nur bei 100%.
    Wie haben sich die drei Fallsbeispiele dann nach zwei Jahren entwickelt?
    Fall 1: Benchmark, 80% x 125% = 100%, Depot: 100% x 100% = 100%, –> Beide gleichauf.
    Fall 2: Benchmark, 100% x 125% = 125%; Depot: 120% x 100% = 120%. –> Depot schwächer als Benchmark.
    Fall 3: Benchmark: 100% x 125% = 125%; Depot: 125% x 100% = 125% –> Beide gleichauf.
    Bei dieser identischen Entwicklung in Jahr zwei wird offensichtlich, dass die Depots in Fall 1 und Fall 3 im relativen Vergleich zur Benchmark gleich gut waren, hingegen das Depot in Fall 2 schwächer war. So wie wir es oben schon das Divisionsvergleich zeigte, nicht aber die Subtraktionsvergleich.

    In dem Sinne: Auf ein erfolgreiches 1^4+2^4+3^4+5^4+6^4!

  • My 2018 performance was quite bad too… -9.3% 😦

    • For the record: French-Small Cap gurú “Independance & Expansion” got a discouraging (~ -33%) result too.

      Congrats on your relative outperformance and all the best for 2019 !

      (Ps. your 2018 summary does not take into account your best investment in years!! 😉 )

  • Rene-Ojas Woltering

    Congratulations on an impressive streak of benchmark outperformance. Though I understand the absolute result is not satisfying for you.
    As you are no longer convinced about the long term prospectives of many positions, I think I would deemphasize the goal of a long average holding period. I don’t see too much value in this goal on a stand alone basis. I think a big success of managing our own portfolios is not being subject to many restrictions. I would not like to deliberately cut off that freedom. Of course, there is a tendency to trade too much. But I believe just be sharing your ideas publicly, you are alread limiting that risk very much.
    All the best for 2019!

  • LookingForValue

    „Especially in Germany, people are very complacent and think the current boom will last forever but this could turn quickly“ -> I think you can see this when looking at real estate prices in Germany. There is not much room for error in this space, especially in Southern Germany. A correction in real estate is a also a big risk in my opinion, although it’s a local risk.

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