Performance review Q2 2020 – Comment: “What’s going on ?”

In the first 6 months of 2020, the Value & Opportunity portfolio gained  +0,9% (including dividends, no taxes) against a loss of -9.6% for the Benchmark (Eurostoxx50 (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%), all TR indices).

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 the first 6M 2020:

Partners Fund TGV: +0.9% 
Profitlich/Schmidlin: -4,1%
Squad European Convictions -4.7%
Ennismore European Smaller Cos 7.49% (in GBP)
Frankfurter Aktienfonds für Stiftungen -13.5%
Evermore Global Value  -23.6%(USD)
Greiff Special Situation -4.2%
Squad Aguja Special Situation -0.2%

Since inception (01.01.2011), this translates into +193,0% vs. 93.1%  for the Benchmark.

Performance review

Q2 was quite a reversal after ~-18% for Q1. The main relative drivers in Q2 were 2 stocks: Zur Rose and Naked Wines. Both stocks are considered to benefit from fundamental changes after COvid-19 and gained ~+100% (Zur Rose) and ~+80% (Naked). When distinguishing between luck and skill, these two stocks were clearly on the “Lucky side” as I didn’t plan for Corona when I bought them. Other winners were Bouvet which seems to be a proxy for Norwegian digitization and Sixt Vz.

Transactions Q2:

Q2 was comparably busy. I sold Vostok New Ventures (too early), Handelsbanken (structural considerations) and Electrica (long term disappointment). I bought and then sold Interactive Brokers with a small profit after reading the Schwab Autobiography. I bought and sold Coface, again too early as the stock went up like crazy exactly from the day I am sold. I do not understand why though.

Additionally I took partial profits on Bouvet and Zur Rose as the became really expensive.

New buys were Agfa Gevaert and FBD as opportunistic/contrarian investmentplus Tiffany as a special situation and Sino AG as a small addition to my German basket. I added to my initial Washtec position. The portfolio per 30.06.2020 as always can be found on the portfolio page of the blog.

Overall my goal was to clean up positions that I were not that happy before Corona (Handelsbanken, Electrica) and to add some positions with “idiosyncratic” risks such as Agfa (activist), FBD (Covid-19 claims).

Cash is at around 13% per end of June

Comment: “What’s going on”

A lot of people are puzzled by the quick reversal of the stock market (me too). As quickly as stocks went down, in aggregate they are now more or less where they were before despite a large increase unemployment numbers and increasing Covid-19 infection rates.

This is good news for all investors who kept calm but bad for the doom prophets such as Roubini, Taleb, Zulauf, Spitznagel, Hussmann etc. as this time they had only a few weeks “in the sun” compared to months and years after previous crashes.

One explanation is that an army of unemployed sports bettors moved the markets back up by using their checks from the Fed to open Robinhood accounts. To be honest, I do not believe this, as the amounts involved are just too small to move markets in such a way.

My own attempt to explain what happened this is the following (although I clearly don’t understand it either):

– a lot of people understand now that the stock market is the only game in town. Every Government, especially the US and China view the stock market as their scorecard and do literally everything to support it

– over the past 40 years, most investors have learned that every big or small dip is an opportunity to buy

– if you buy a stock, you want to own something that does well or even profits from the current crisis. Why bother with a potential loser even if its cheap ?

— and yes, some retail investors have more time and even some more spare money

– the machines just strengthen the trend as momentum is still the most popular quant strategy

– and interest rates in the US are significantly lower now (10 year treasury currently at 0,66% vs. ~1,9% at year end 2019) than they were before

Especially the interest rate shock in the US made future growth more valuable and alternatives (Bonds) less attractive.

So it’s clearly not a surprise that the large Tech players are all up nicely. Covid-19 for some of them has been the biggest Customer Acquisition opportunity ever. My guess is especially with the older generations there was a big push among people who would have otherwise not used these digital offerings at all.

Clearly at one point in time even these stocks will be too expensive but no one knows for sure when this is the case. In the current environment, these valuations can remain unrealistically high for a long time and there is no natural law requiring valuations to come down soon. Especially “story stocks” like Tesla are not predictable at all. There was a great graph in “The Reformed Broker” blog showing what has happened in 2020:


“Big Tech” dominated everything (once again). However this does not mean that the next crash must happen within a short period of time. If an effective Covid-19 vaccine will come by the end of 2020 or early 2021, even the non-tech stocks could rebound much more than they have so far.

However in some case things might have gone too far for “Covid-19 beneficiaries”. Just as a random example, let’s look at Zoom. The company has indeed increased Q1 revenues (including April) from 122 mn to 328 mn USD and shows a profit of ~27 mn USD. However with a market cap of currently ~75 bn USD, were are talking about a revenue multiple of around 50x. I do like Zoom but I also use Webex, Hangout  or other video chats. So far I haven’t identified any real moat. There is no real network effect and also scale is difficult compared to players like Microsoft or Google and the cost to switch to another service is close to non-existent and Zoom still has security issues. Yes, its’s a great tool but to justify a market cap of 75 bn. Another example is my former portfolio company Hornbach. As people stayed at home, a lot of them used the time to do some home improvement and sales were really good. Whenever stores run out of merchandise, it is usually good for margins. However does that justify an increase of +100% in the share price  from a year ago ?

Hornbach Aktie

I am not so sure as the overall sector is still a “red ocean” and these customers are most likely not “recurring revenue” for a long period of time.

It is now also much clearer clear that there will be some permanent losers such as business travel or offices or office caterers that most likely will not come back to 2019 levels any time soon as many companies have now experienced that these cost lines have a significant amount of slack. Some CEOs have already announced that they want to reduce office space by 1/3 or more and cuts to business travel are expected to be even higher.

However I do think that there are opportunities in the small(er) cap sector. Personally I do think for the mid- to long term oriented investor who can suffer some pain, there is a lot of opportunity out there, so no reason to put the head into the sand.

What are my learnings from the first 6 months of 2020:

  1. Again, timing the market does not make any sense for me. Looking into the past and assuming that a crash will play out exactly as the last one or the one before or the one from 1929 is stupid. Crashes are all unique.
  2. Being able to “sit out” volatility is maybe the  most important skill that a long term investor needs. I still think this Chuck Schwab quote is maybe the most important investment advice ever given: “It’s not about timing the market but time in the market”
  3. In order to “sit out” the volatility, every investor must find out for himself what allows him/her to do so. For me a 20-25 stock portfolio with a few rock solid long term plays plus  some idiosyncratic situations and a certain cash allocation has worked best.
  4. Creating and updating  solid “Buy list” for the future will be one of my big priorities. If this crisis is any hint for the future, draw downs or crashes will be deep and quick and if you only then start analyzing you might be too slow.


  • GNP - GlobalNosePicking

    One funny story of supporting the NakedWines epic: guys ordering a 2000$ wine, getting a 18$ wine, and praising its absolute grandeur… just to be eventually told someone switched bottles.

  • A lot of people are puzzled by the quick reversal of the stock market (me too). ”
    Are you familiar with Michael Green’s passive thesis about changes in the market structure?
    He has some interviews where he distills the role of passive flows and weight in the market as a structural change that begets increased volatility.

  • “A lot of people are puzzled by the quick reversal of the stock market (me too). ”
    Are you familiar with Michael Green’s passive thesis about changes in the market structure?
    He has some interviews where he distills the role of passive flows and weight in the market as a structural change that begets increased volatility.

  • Hello MMI,
    the performance page ends in 2017 – maybe you want to update it?
    PS. It seems that sometimes, user’s postings on WordPress are lost after posting them.

  • GNP-GlobalNosePicking

    One of my preferred managers dropped Alphabet 8 months ago. And now one pf my preferred mgrs, also dropped it. Something is wrong at Google… I can only recall the funny explanation of Terry: Alphabet invest in companies that fail… probably because Larry&Sergey want to take them out of the game.

  • Congrats. That is a very good result for a European investor.
    Hornbach has invested in their online shop and hybrid experience plus the SAP system. If you look at a longer-term chart, the price is still down. 100% gain due to the pandemic would be nonsense, but the price was too low to begin with. Maybe some new customers will stay with them after having invested more in their home+garden in the lockdown period. Compare their multiples to zoom and you will not see the same exuberance. With jitsi zoom has a strong opensource alternative, which offers also way better data privacy for free.

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