Performance review Q3 2025 – Comment “Keep waiting for that European Economic rebound”
In the first 9 months of 2025, the Value & Opportunity portfolio gained +6,6% (including dividends, no taxes) against a gain of +16,7% 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.
Performance review:
After two relatively good monhts in June and July, August and Septmeber once again were underperforming months and I am now 100% sure that this will be the third underperforming year in a row.
Again, some stocks did really badly (Fuchs, STEF, AOC Fund) whereas the winners were not winning enough to match benchmark performance.
As mentioned before, the good thing is that I don’t have to care about unhappy external investors and/or paying subscribers. As I have indicated in the last review, I have been adjusting my approach and improving my investment “infrastructure” but it would be foolish to expect a short term rebound in relative performance in the current market environment. For next year, I am currently considerung to switch to 6M Performance reporting.
Transactions Q3:
The main transaction was that I sold Fuchs (with an overall profit of 6%) and bought and sold Novo Nordisk with a ~11% gain. Fuchs stays on my watchlist but is clearly exposed to sectors that are currently not doing so well.
Average holding period is 3,5 years, Cash is at ~13,7% (vs. 4% at year end 2024).
Comment: Keep waiting for that European Economic rebound
2025 is now the third year in a row, when the much anticipated “second half economic rebound” in Germany & Europe will very likely not happen. One of my biggest investment mistakes in the past 3 years was clearly that I had too many bets that were more or less directly depending on such a rebound and some kind of mean reversion. I have trimmed most of these positions to a certain extent but not all. And I have to admit that I am still tmepted to put on these kind of trades but I have mostly resisted so far.
The big question of course is: Will the Rebound finally come in 2026 and under what conditions ?
When I would describe the current economic situation in Germany & Europe one could do it with this picture:
We are currently mostly left with the Bad and Ugly and very little of the Good.
Especially in German politics, people as always are looking for “simple” solutions. Inspired by MAGA and Trump, some of those easy solutions proposed are for instance to stop all Renewable Energy efforts and go back to “cheap” fossil fuels (and/or Nuclear). Another “easy fix” would be that cancelling the commitment to phase out ICE engines which would magically solve all problems of the all important German Car industry.
Maybe, but only mabye such changes could create a short term bump in confidence in some sectors but in my opinion the issues are deeper and much more structural and Energey as usch is not the key driver.
Looking a few years back, 2019 was already a very difficult year and Germany/Europe were heading into a recession despite (or beacause of) ultra low interest rates that have kept the evonomy somehow afloat. This was only held up by COVID which lead to a short shock and then to a low interest rate, high Government induced spending boom that lasted 1-2 years..
The natural selection process of bankrupting weak companies had been deliberately switched off in order to avoid a total melt down and then only slowly reinstated.
Europe and especially Germany’s business model looked for a long time as follows:
- import cheap fossil fuel and raw material mostly from Russia
- Efficiently manufacture energy intensive Chemical/metal products in big clusters
- Export into the world focusing on cars and factory equipment
- Use the net proceeds to mostly put them into bank accounts
- Mostly Ignore whatever happens in Software and many new technologies
This business model has been now attacked from several sides. This is for instance the list of the largest trading partners in 2016, sorted by exports from Germany’s perspective in 2015:
Among the large 5 trading partners, we have the US, which has just declared a tarif war against Europe, France which has its own problems, UK which has since then exited the EU and China, which now in many areas is at least an equqal competitor or even worse, partially thanks due to “us helping them to build the most modern prodcution facilities.
In addition, the cheap energy and raw material imports from Russia are no more. Another example: In 2018, more than 50% of the Natural Gas was imported from Russia and Russia was also a Top 15 Export market.
I am not sure how many of my readers think that it would be a good idea to reastablish the Gas pipelines to Russia under the current Russian leadership, but I don’t think it is a good idea.
Finally, the long stretch of ultra low interest rates which mainly supported the construction and real estate industry for a long time, are over. In 2018, construction accounted for around 10% of GDP in Germany, in 2024 it fell to 5%.
The European stock market had reacted partially very positievely mostly on the announcement of much increased speanding from Germany on Defense and Infrastructure, but so far very little tangibel stuff has happened.
So what’s the upside ?
- Serious reforms
- Significantly lower interest rates
- German spending kicks in an creates a (short term) upswing
- Peace in Ukraine and massive rebuilding effort
- Attracting more gloabel tech talent due to US hostility against immigrants
Short term, serious reforms are quite unlikely wherever one looks. The most likely tailwind in my opinion could be that spending kicks in and together with lower interest rates ignites some kind of bounce back.
If politicians would be smart, they would try to mobilise private capital with tax breaks to build housing, as lack of housing is clearly an issue in most of Germany’s larger cities but I am not sure if this happens.
But make no mistake: In my opinion, the traditional, energy intensive, steel based export model of Germany is permanently broken. We will not be able to compete against the Chinese and the US will not allow imports to rise significantly.
Therefore I think it is very important to avoid longer term investments into companies that rely on the old model. The biggest mistake one can make is to bet on mid- or long term mean reversion of businesses that are fully exposed to the “old German/European” business model.
The big question clearly is: What kind of business models can create long term value under a such a long term structural shift ? I am not sure but we will find out.
There is the famous saying that you have reached the middle of the tunnel when it is the darkest. So maybe we see a broader rebound of the economy in Germany and Europe in 2026, but I will not increase my bets on that right now. If we don’t see that rebound once again, then 2026 might not be a very good year for stock investors.
value and opportunity 
The analysis and outlook on Germany’s economy is, frankly, somewhat misleading. Germany’s business model has produced a massive trade surplus — for many years even the largest in the world — driven by highly sought-after products such as cars, machinery, chemicals, and countless hidden champions. So it couldn’t have been “wrong” — and it won’t be in the future. Cars, machines, and chemicals will remain among the world’s most important industries with solid long-term growth prospects. There’s plenty of room for German companies in these global markets.
What we are witnessing now is simply an adaptation to a new reality: German companies are transitioning to become greener, building production facilities in the U.S. (while already having major ones in China) to hedge against currency and tariff risks, and investing heavily in their future. Most are also embracing software and AI, integrating them deeply into their products to maintain and strengthen their competitiveness.
At the same time, Germany had no significant military technology sector during the past 30 years, while the internet and most of today’s digital ecosystem essentially evolved from U.S. defense spending. So it’s no surprise that many of the world’s leading software companies — especially those tied to the internet, cloud, and cybersecurity — have their roots in the U.S. defense and security sector. Reviving Germany’s own defense and security industry will therefore create new technological nuclei for the future — fostering innovation, dual-use capabilities, and long-term industrial strength.
So what we are likely to witness is a rebound — maybe not everywhere by 2026, but a few years later. That’s why I wouldn’t stay away as a stock investor, but rather see this as a once-in-a-generation opportunity to buy world-class industrial companies at incredibly low valuations. Remember Apple in the late 1990s — written off by many, yet it turned out to be one of the best buying opportunities in history.
Thanks for the opposing view. I would however argue that most of the current AI/Tech Front runners (Nvidia, Google, Open AI etc) have little or absolutely no Initial connection to Defense. DARPA investing the Internet is a very long time ago.
[deleted, AI slob]
Edit: Your comment is 100% AI generated. I guess we end the discussion here unless you use write your comments yourself.
Hang in there. But unfortunately I also doubt a European rebound in 2026.