Performance review 9M 2024 – Comment: “How to train patience during periods of underperformance”
In the first 9 months of 2024, the Value & Opportunity portfolio lost -0,4% (including dividends, no taxes) against a gain of +6,8% 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 9M 2024 (values taken from public websites, no guarantees for correctness):
Partners Fund TGV: +7,5%
Profitlich/Schmidlin: +9,6%
Squad European Convictions: 6,8%
Frankfurter Aktienfonds für Stiftungen: 1,8%
Squad Aguja Special Situation: +10,8%
Paladin One: -1,5%
Gehlen & Bräutigam: +5,4%
Performance review:
Some Performance reviews are more fun to write, some less so. This one is clearly in the second category, as was last quarter.
Within my subjective small cap peer group, the portfolio performed significantly below average. In relative terms, the last quarter was one of the weakest relative to the benchmark that I ever recorded. The monthly returns clearly show that both, August and September were bad in relative terms:
Whereas the broader market nicely rebounded, my portfolio stocks kept going down. As in the previous quarter, this is most likely a function of owning unpopuplar sectors in unpopular countries in an unpopular format (small caps). Looking back the last 13,75 years, these months of subsequent underperformance was often followed by significant outperformance, but who knows what is coming ?
Some of my companies were hit by unexpected slow downs in business (Sto, TFF), some went down although guidance was increased (EVS). For this market environment I was clearly not positioned correctly but that is one of the risks of investing “off benchmark” in less liquid markets.
Transactions Q3 2024:
With regard to transactions, Q3 was relatively normal. I sold Admiral after more then 10 years. I bought “Hidden Champion” Fuchs and Ocean Wilson as a special situation. Since then I have reduced Ocean Wilsons as I made a mistake in the calculation which resulted in a somewhat lower upside than initially thought.
Average Holding period is now 3,7 years, cash is at 7,2%.
The portfolio, as always, can be seen in full on the portfolio page.
Comment: “How to train patience during periods of underperformance”
In a year like this, I am more than happy that I never started a fund and took in 3rd party money, as the only ones who could complain are my family and myself. Personally, it hurts me much more if I have a relative underperformance than losing money in absolute terms. If I lose money and I am better than the benchmark, I am a very happy person for some strange reason.
As mentioned above, in the last 14 years since I track performance in a systematic fashion, these periods of underperformance were always followed by periods of substantial outperformance. The worse the situation looked in the past for the companies that I invested, the better the rebound. In 2019 for instance, I underperformed in 9 out of 12 Months, resulting in a total underperformance of -12,9% for the year. In 2020 in turn, I outperformed in 9 out of 12 months and +23% relative to the benchmark. There were at least 5 or 6 similar episodes in this 14 years with the same outcome. Of course it would be great to outperform every year but this is just not realistic. But staying the course and not panicking is clearly the best way in the long run.
Nevertheless, it is not so easy to remain patient for me in the current situation. There is a internal urge to “do something” and try to catch up with the market or peers. However, as mentioned above, in the end it always pays off to stay the course. So I decided to force myself into more patience until year end with a few “hacks”.
Doom scrolling on Twitter, where almost everyone seems to be up between 20% and 250% YTD, clearly doesn’t help at all. I have to admit that I most likely spend way too much time on Twitter, so I might cut that down. In a first step I put a 30 minute per day limit on my Twitter mobile app.
Looking at the portfolio multiple times a day to see if it does better or worse than the market doesn’t help either. I have actually slowed down looking at the portfolio (and updating it manually) from once a week to once a month. No real time updates anyway for me.
Sometimes I also experience a frantic rush to explore a lot of new ideas and extend my watchlist in order to find the stock that will help me to improve my performance but I think this is also not the best way to do things. My goal is not to trade that much until year end, unless fundamentals change significantly or something really “jumps at me”. For Q4, I give myself a limit of 3 transactions (Buy or sell).
So overall my plan for Q4 looks is to slow down significantly my investment activities by
- Reduce Online time especially on Twitter (I don’t use Facebook or Instagram anyhow)
- Trying to compound “deep knowledge” instead of trying to follow the daily news flow
- Focus a little less on the daily movements of the stock market and more on other things like Music, Books etc.
- Accepting that 2024 will most likely not be a good year
And with that, as always a bonus sound track: Guns and Roses – Patience:
value and opportunity 
This blog is awesome and I have learned a lot. Thank you. Your track record is still quite impressive considering that you mostly invest in european small caps.
But why did you not invest all your money in Nvidia, are you stupid? 😉
Many investory are in the same boat. My long term observation led to the hypotheses that the performance of small cap or value is effected by the accelerating or deaccelerating economic growth.
If growth accelerates smal cap value outperformes and in times of deacceleration it underperformes. In the last years we have long phases of decreasing growth number interrupted by short periods with high growth acceleration.
Thanks for the post. Just keep focused on the process and you will be fine.
Exactly my thinking and it seems mmi is on the same line. If it gives any comfort I like more of your (mmi`s) ideas currently then ever before. Of course it can take quite some time as many of the business you are betting on are not exactly seeing a lot of tailwinds right now, but it is always darkest at midnight. Last but least I repeat myself by saying thanks for a great blog!
Are you sure that reducing your turnover is the right answer to your worse performance? I read a lot on your site over the past years and the more you do it, the worse your results got. At least thats my impression.
I checked a lot of quant trading systems and the thing is if you can truly generate alpha, you should trade more, not less. If you can’t generate alpha, you should buy ETF’s and forget about the active approach.
„In 2019 for instance, I underperformed in 9 out of 12 Months, resulting in a total underperformance of -12,9% for the year. In 2020 in turn, I outperformed in 9 out of 12 months and +23% relative to the benchmark.“
This is terrific. Do you remember how much of this outperformance was due to „value“ catching up with „momentum“ and how much of it was portfolio alpha?
I don’t understand why some investors stubbornly refuse to benchmark themselves to main references & best-in-class indices (S&P500, QQQ, MSCI World, MSCI Quality), to get a better, qualified perspective.
I understand we all have particulars. Me too. Yet, when year after year after year there is evidence that a simpler & cheaper solution (ie. investing in aforementioned indices) systematically gives better results, not only signals stubbornnes, but worse than that. And raises questions.
Not aiming at changing MMI (lost cause), but willing to openly address this issue with the readers without prejudices… Omitting this crude reality may have consequences for them & their families.
And sorry for mmi to adress this in a quarter with poor performance.
No need to feel sorry for me as a reader, rather the other way around, some readers will feel sorry for you.
Judging by your posts, perhaps you are not investing in the indices/ETFs you mentioned. Or why did you get so worked up about the last review in which a miscalculation crept in? How many miscalculations or just rough estimates do you think ‚professional‘ analysts make without ever mentioning it again?
You also criticized MMI for not buying until 48 hours after the presentation itself. Why should he, it’s also a personal stock market diary and nobody recommends you buy it. No wikifolio or model portfolio announces its purchases in advance, as you would like. It wouldn’t change anything for you either, as the share price could still react.No, I think MMI is well positioned and most readers here are happy to learn from strategies, suggestions and mistakes.
The fact that your criticism is also published here is another sign of high transparency. But I don’t share it.
100% agree. Just shows that confirmation bias is real and people will see only what they want to see.
Me neither. I don’t understand why some investors stubbornly refuse to benchmark themselves to main references & best-in-class (Bitcoin, Nvidia, Rheinmetall for the German investors) to get a better, qualified perspective.
As I mentioned, everyone is free to voice his opinion. My only question is, why you are reading this blog. If you are so dissatisfied then kindly go somewhere else
I think I know why he reads. He’s looking to make a quick buck by buying into your writeups. And he’s disgruntled for losing money on his OCN speculation. All that preaching about index benchmarking, yet he couldn’t even do proper due diligence on a company.
Thanks for the post. Regarding the special situations. Do you have a go to website or tool you use to find them? I am referring in general to special situations (spinoffs, mergers, acquisitions etc.)