Performance review 9m 2020 – Comment “Covid 19 Portfolio Lottery & the allure of speculation”
In the first 9 months of 2020, the Value & Opportunity portfolio gained +3,7% (including dividends, no taxes) against a loss of -6.9% for the Benchmark (Eurostoxx50 (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%), all TR indices).
Since inception (01.01.2011), this translates into +201 % vs. 98% for the Benchmark.
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 9M 2020:
Partners Fund TGV: +6,3%
Squad European Convictions +5,99%
Ennismore European Smaller Cos -19,82% (in EUR)
Frankfurter Aktienfonds für Stiftungen -6,1%
Evermore Global Value –18.37%(USD)
Greiff Special Situation -3.69%
Squad Aguja Special Situation 12.45%
Paladin One 15.94%
Q3 was relatively calm compared to Q2. Gains in July and August were followed by losses in September. What I find most interesting is however the extremely divergent performance in my “peer group”. I think I cannot remember such divergent outcomes for these funds as in principle they share a similar philosophy. it clearly is a stock pickers market, but you need to be lucky in having some big (tech) winners in the portfolio and hopefully very few losers.
In Q3, I sold some further Zur Rose shares with lucky timing near the peak at around 290 CHF/share. My timing was a lot worse with Tiffany, where I sold at 109 USD when it was clear that LVMH wanted out with a loss of -8,40% including the USD devaluation. If I would have waited one day more, I could have reduced my loss by +5% or so.
I also sold German Startups and Miko as outlined here.
New positions were the Active Ownership Funds, Netfonds, Freenet and Grenke bonds.
The current portfolio as always can be seen on the portfolio page.
Cash is at around 9 % per end of September.
Comment: “Covid-19 portfolio lottery and the allure of speculation”.
As mentioned above, the performance of my small “peer group” is extreme diverse in 2020, although all these guys use a similar “value based” approach. Without digging into each fund, part of the explanation is that all fundamental investors unwillingly and unknowingly participated in a Covid-19 lottery.
When you do your fundamental research and try to find stocks that perform well in the long term, I guess the impact of a pandemic has not been part of any check list or analysis. As we found out now, some areas are hit super hard like anything with tourism, restaurant, aerospace industry, oil, retail/malls etc., other areas actually profited like home improvement stores, E-Commerce, video chat, tele medicine or certain medical equipment,
For a trader/speculator this is not such a big issue as one they are able to turn the portfolio quickly and ride the next wave. For fundamental investors however, turning a portfolio is not so easy and not so quick. Bill Ackman famously identified the thread early on, but I guess for many fundamental investors the strategy was “wait and see”.
If you were given a few winning ticket (Software, home improvement, e-commerce), YTD 2020 your performance looks great without that much active contribution. If you got the losing side (hospitality) your performance most likely sucks. SO I guess 2020 perfomance comparisons must be taken with a grain of salt as this external shock was clearly not foreseeable and the outcomes at least in the short run are driven by some kind of “systematic luck” or bad luck.
Personally I was lucky to have some winning tickets (Naked Wine, Zur Rose, Bouvet) and only very few loser tickets like TGS Nopec, so overall performance is pretty OK.
The allure of speculation
I get often asked if the blog portfolio represents my private portfolio. I usually say yes, (besides the assumed size) and to a percentage of 90-95%. The main differences are slighly different weightings, cash in- and outflows, legacy positions, super tiny small cap stocks and a single “Angel investment” in a start-up of a friend of mine (the company still exits after 2 years which can be seen as success).
More recently however, the divergence became greater. The reason is that I found it harder to identify long term attractive stocks and that I had some shorter term ideas that I didn’t think were “good enough” or “too speculative” to publish in the blog. For some reason or the other, I made these trades in my personal account anyway (too high cash position, too much time…).
Now a strange thing happened: These “Trades” are much more successful than my current portfolio, As an example, I invested small amounts into 2 recent spin-offs from Aker Solutions, one called Aker Carbon Capture, the other Aker Offshore solutions. Both spin-offs are essentially Venture Capital style situations with some cash, a small team, a technology and a project pipeline, but no sales and losses. Aker Offshore is up around +70% since then and Aker Carbon Capture almost doubled, both without any specific additional news and within a few weeks.
Interestingly my own brain is now trying to play tricks and I am starting to come up with a lot more short term trading ideas. One idea which unfortunately I didn’t do was Canada Goose. The idea would be that people stay more outside this winter than usual and will want a real warm jacket. Since I first had the idea, the stock went up more than 30%. I actually started doing a write up but thought that the idea is not “Good enough” for the blog.
As this kind of divergence is first of all even more work intensive and secondly not intended, the question now clearly is: What to do going forward ? Should I introduce a “pocket” into my blog portfolio where i publish these ideas without a deep analysis ? Or should I just stop doing these trades. The last time I was doing similar trades was 1999/2000 and we know how that ended. On the other hand, maybe a bit more agility is a good thing in these times ?
I am currently not sure what to do here, so some structured input and personal experience with “Trading pockets” from my readers would be highly appreciated !!!!