value and opportunity

First things first:

I wish all my readers a nice summer break. For the rest of August, posting will be very light, I have lined up further posts of my “all Swiss Shares” series but that will be it…..

Short comment: “Feeling (too) smug”

I just completed my monthly performance review and I couldn’t help myself to think: “Wow, you have been really smart lately”. Out of the last 17 months, 16 months have shown a positive performance and the Portfolio is up more than +50% vs year end 2019. 

A lot of new investments have worked well (Alimentation CT, BioNTech, Euronext etc.) and I feel that I can easily increase the risk as I know exactly what I am doing. After my successful bet with BioNTech for instance, I read the book “The Code Breakers” and seriously considered to invest into a few CRISPR stocks (for instance the Caribou IPO, which went up +30% over the past few days). I also have to confess that I was even close to make a small investment into a Fintech SPAC whose team I know well.

However, in the past, whenever I felt so “smug” about my investment abilities, I usually go punished rather earlier than later. One of the major risks in the current environment is clearly to load up too much on riskier stocks and then not holding them through if the inevitable correction occurs. Another risk is that I get sloppy with my “due diligence” and invest into stocks like Silver Chef, Metro and Cars.com where I thought that I would understand the business model but I did not.

For me, the most dangerous combination is always to own a more risky stock and not understanding the business model fully which then increases the risk to sell at the wrong moment.

Looking at my current portfolio, I would consider around 15% of my portfolio belonging to the category “risky and not understanding the business model enough”: VEF, Zur Rose, Play Magnus, BioNTech and Euronext. This amount is already at the upper end where I would intuitively become a little bit nervous. On top of that, current cash (after my partial BioNTech sales) is at around 8%, slightly below my personal comfort level of 10% 

So overall I do think that I should not increase my risky bets, but maybe rather decrease them.  

The other problem is that in a market as the current one, you always look stupid when you sell a share and it keeps going up (see SFPI, BioNTEch). However what I experienced in the past is that in many cases, things that looks tsupid in the short term (buying too early, selling too early) look much smarter a few months or years down the road

So overall I need to remind myself that I still haven’t really figured out how the stock market works and that I should not overly rely on a continuation of luck. And prepare for adverse things happening.