Panic Journal (1) – “Baby steps”
This post is written mostly for myself in order to document my thoughts and actions and to learn from my obvious mistakes. But I promise that the blog won’t turn into a short term trading site !!
Today was a lot worse than I expected. Who would have expected that OPEC members disagree and the Oil price would tank more than 30% overnight ? In general, lower oil prices are good for most economies, but such a move will create some issues with regard to margin loans, counter party risk, indebted frackers etc etc.
So instead of the expected Monday “Corona panic” we have now the “Corona + Oil super panic”. Plus some strange moves like the EUR gaining strongly against the USD, despite Europe always being in the weaker position, even now with the Corona Virus.
Nevertheless, I started to put some money at work. Surprisingly not in the tourism sector, as I need to do more homework there. Not everyone might have read the comments but this is what I bought today:
- an increase of my TGS Nopec position by 0.3% of the portfolio value. TGS Nopec has always doing better than the oil services industry. After the merger with Spectrum they should do even better in the long run in any scenario with their asset light business model
- an increase of my Admiral position by 0,5% of the portfolio value. Admiral has released very decent 2019 numbers and its business is as close too bullet proof as it gets, or even benefits from lower economic activity. Plus, the reinvestment just covers the expected dividend payout for this year.
- I bought a 0,4% position in Sol SpA, an Italian stock I analyzed deeply some years ago. The industrial gas business might be vulnerable, but the health care part grows strongly and will benefit from Covid19 treatment in the short run (oxygen therapy)
- I bought a 0.4% position in MutuiOnline, A stock that I never wrote explicitly about but had on my watch list for a long time as a great company which is now available at an attractive price
- Already last week I put 4% of the portfolio into a special situation that I will wirte soon about
Together, I put around 1.6% of my existing cash pile to work today exclusively on companies that I know well and that I think will prosper in the mid- to long term.
TGS Nopec was relatively spontanious, the two Italian ones were the first step towards a “Italian mini basket”, as Italy now seems to be the country hit hardest by the virus. This was a plan I made on the weekend.
I am pretty sure that this was too early, on the other hand if we see a quick rebound I will be angry of being too conservative.
However for me this is the way to do it. If I wait too long, I become too afraid to do anything. If I do too much in one go I become nervous if the market goes down further significantly. So “Babysteps” like today are my strategy which worked relatively well over the last decades.
One comment on the special situation investment: Special Situations investments in crisis scenarios are for me mostly a behavioral hedge: The money is invested, but the outcome is depending on a very different risk factor and the situation will be resolved in 6-12 months. Therefore if the market really tanks I will get some cash back in 6-12 months which I can then put to work, while ideally earning a decent spread in the meantime.
value and opportunity 
Bought a 0.5% Richemont at 49,48 CHF
Bought a 1% position in Brentag today at 29,85
Bought a 1% position in Walt Disney at 82,45 USD
where is all this fire power coming from?
Since when do you read the blog ? Then you might know that I was running around 20% cash for some time which cost me performance in the last few years.
Year end 18%: https://valueandopportunity.com/wer-sind-wir/
Plus some sales as mentioned in the posts in between.
Are you related to “Der Teufel” ?
Increase Amadeus IT for 0,5% at 38,30
Bought another 1% of Sixt pref shares. Now haldf position (3%) reached.
Bought 0,5% TGS Nopec at 112,55 NOK
Bought another 1% of Mutui at 13 EUR.
Hi MMI,
I am aware you did not yet publicly write up your investment thesis on Mutui.
Had a quick look at them and was wondering why you buy this company now already.
What I did not like so much:
-stock price: With currently at 13€ still well above IPO only back to where it was 2018.
-business model BPO financial industry/leasing heavily impacted for prolonged term
-business model mortgages as well, given a slump in housing market / related real estate prices.
-2018: 75 Mio€ Trade receivables mainly to leasing/financial industry (probably from BPO revenues) with an allowance of 3,5 Mio €. Q3/2019: Increase to 95Mio€ TR. Recovery rates will drop significantly, since this industry will be hit hard.
-As of Q3/2019 they also invested 50 Mio€ in financial assets valued at fair value. Not sure how exposed these investments are.
-Business acquistion in 2018 with 45 Mio Goodwill, when valuation were potentially much richer then now. Further impairment risk
-2018: Already non-compliant with loan covenant (debt to equity ratio). Asset side of the balance sheet might be strongly impacted (see 3 points above), reducing equity further.
Conclusion: Both revenue and asset side will be adversely impacted and I am not sure the current stock price fully reflects this.
Furthermore allow me to thank you for your work during all this time on your blog, it is a great source of inspiration & thought.
Keep up the good work & stay healthy!
Christian
Thanks for the comment. One quick remark: Comparing the stock price to its IPO level doesn’t make a lot of sense to me. I do like the company. They have great management and not only survived the “euro crisis” but got stronger. I expect from them the same this time. Yes, based on “hard” numbers there might be cheaper stocks but I have mentioned, now for me is the time to look for quality in businesses as such.
Personally I do think that recoverability of receivables against big banks will not be such a huge problem, as no makjor financial institution will be allowed to fail.
Only history will tell us what was reflected in stock prices and what not. That’s the reason why I add slowly. the current 2% of the portfolio is only 1/3 of my normal position size.
Bought 0,5% of porttfolio Amadeus IT
bought ~0,35% of portfolio Mutui at 13,95 EUR
Bought another 0,6% position in Sixt. That really hurts…..
I like your Sixt idea. They should get some cash from the sale of Sixt Leasing soon. Interestingly, they now offer long-term rent to their clients (between 1 week and 3 months). Actually not too different from leasing a car and mostly due to the rapid slowdown in their business these days.
Sold my Metro Bank Plc shares. > -60% loss. Big mistake.
A good day to clean up the portfolio. Sold my Draegerwerke Genußscheine for EUR 220. Maybe the company profits in the short term, but overall it is not a well run company.
Somehow I can’t stop buying. Bought 0,4% Admiral at 18,98.
Added another 0,5% to Sixt. Taht’s it for today. Not the time to become too greedy yet.
I got greedy and added another 0,5% Sixt. Most likely I will regret it.
Maybe on general comment: One of my “rules” for panic situation is the following:
Buy only on down days, sell only on up days. This makes you think twice if you really want to transact.
I am now sahreholder of Sixt Ag. Bought 0,5% portfolio value of the pref shares
Ticker?
The ticker for Sixt ?
MMI, out of curiosity: Why do you prefer perferred shares in this case? Because the voting shares are held by a stable long-term shareholder (founding family), therefore impliying little value of the votes you can potentially purchase?
Thanks
Yes, correct. It is unlikely that Sixt is being taken over. So buying the prefs gives you the same access to future Cashflow at a better valuation.
baught another 0,5% of portfolio value of TGS Nopec at ~120 NOK
I also like TGS here 🙂
I like Visa and BLK. A lot.