Category Archives: Börsengeschichte

Performance review June 2016 – Comment: “Brexit, Excuses and Risk Premiums”

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Performance Q2 2016:

In the second quarter, the portfolio gained +0,6% against -3,5% for the Benchmark (25% EUR Stoxx 50, 25% EUR Stoxx small, 30% DAX, 20% MDAX). YTD the score is -1,4% for the portfolio against -9,5% for the Benchmark. On a rolling 1 year basis, its +1,0% for the portfolio and -8,4% for the bench.

Just for fun, here is the YTD/1 Year performance of some small funds that I follow and where I know the managers (I will track them in future reviews just to see how I am doing against the “Pros”, data from Bloomberg):

Partners Fund TGV: +1,71% / +7,20%
Profitlich/Schmidlin: -3,86% / -4,35%
Squad European Convictions -1,19% / +7,85%

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Movie review: “The Big Short”

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This is a clearly a first for the blog: A movie review and not a book review.

I had read the book from Michael Lewis a couple of years ago and it was clearly the best of many books trying to explain the sources of the “financial crisis” 2008/2009.

Honestly, I could not imagine how you can  make a Hollywood movie out of this book.

The  story is mainly about a couple of  fund managers who discovered at the same time around 2006/2007 that the US mortgage market was deeply flawed especially in the subprime area and that it was only a matter of time until everything would break down.

Most of those fund managers were “ousiders”, so not mainstream super star hedge fund managers but strange guys like Michael Burry, the now famous medical doctor turned fund manager with the Asperger Syndrom or the 2 guys who founded their fund as students with 100k start capital in a garage.

Another important role was played by a Deutsche Bank investment banker Greg Lippmann (in the movie the guy is called Jared Venett) who tried to sell the instruments to bet against sub prime mortgages.

Overall I found the movie extremely entertaining and very good. Why ?

First of all the actors are really really good. Especially Christian Bale (M. Burry) and Ryan Gossling (DB trader) play extremely well.

Secondly, the movie gets surprisingly almost all the facts right. They do explain the underlying concepts very well and often in surprisingly funny ways. One of my favourite scenes is when Selena Gomaz and Richard Thaler explain the conceptof CDS/CDOs at a Las Vegas Black Jack table.

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Of course they made some compromises to turn it into a Hollywood movie. Nevertheless I do think that the movie actually shows a pretty acurate picture of investment banking back in the heydays of 2006/2007.

Best learning experience: negative carry & patience

Of course the characters in the book and the movie were not the only ones who predicted the subprime crisis. Back then a lot of people were sceptical with regard to mortgages banks etc.

But I think what the movie really showed was how difficult it is to actually bet significantly on a “doomsday prediction”. Betting against subprime CDOs required those  guys to pay signifcant amounts of “insurance premium”. In Michael Burry’s case, the “negative carry” was something like -20% p.a. for the full portfolio. In all cases the managers were not credit specialists and investors clearly  didn’t like what they saw at first and in Burry’s and Iceman’s case tried to force them out of their positions because very few people are willing and able to sacrifice yield in order to make big returns.

It is very similar to what I wrote a couple of months ago: A great idea or a great strategy alone is worth exactly nothing. Yes, you can maybe sell some books as the guy “who predicted the last 5 crashs”. But if you manage money you have to actually execute it well in order to create value.

And I do think that this is the main lesson form the book and from the movie: It takes a lot of guts and a kind of “outsider” status to actually be succesful when you bet against the overall consensus. Talk is cheap, actions matter.

The second lesson was that patience also plays a big role in actually scoring big. All the portrayed fund managers were early with their trades and the position went against them at first. In Eismann’s case all his partners for instance wanted to sell quickly after they were back in the green, but he insisted on waiting.

Another good example of this rare persistence in adverse situation was Bill Ackman who at the same battled mortgage guarantee company MBIA on their role within suprime mortgage business. Hi fought them over years until he had finally his big pay off. There is a good book about this story as well, “Confidence Game”

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So my recommendation for anyone at least partially interested in finance is clear: Go and see the movie !!!!

I actually think the movie should be a mandatory part of any finance course at schools and universities like the original “Wall Street” movie.

 

 

 

 

 

 

 

 

 

 

The German Dax at 10.000 – looking back

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Following Mr. Draghi’s speach on Thursday, the German Stock Index DAX hit the 10.000 mark for the first time in history soon thereafter. Many major publications directly came out with headlines along the line “DAX 10000 – what’s next” and speculated where the DAX might go.

In contrast to that and only for reasons of personal entertainment, I want to take a look back into the DAX history. The DAX was introduced 26 years ago in July 1988 by the German Stock Exchange in order to introduce a modern, performance based stock index. The linked Wikipedia site gives a great overview on the history of the DAX and the change in constituents. Mathematically, the DAX times series was based on 31.12.1987 with a starting value of 1.000 although there exist some “Virtual” time series going back much further.

Just a few interesting facts about the DAX:

– only 15 of the original constituents are still in the DAX
– 3 (or 10% of the original 30) actually went bankrupt
– the best years since 1987 have been 1993 with +46,71% and 1997 with +47,11%
– the worst year were 2002 with -43,94% and 2008 with -40,37%
– the biggest cummulative loss was the 2001-2003 period with a cumulative loss -58,9%
– the Dax rarely ends up pruducing single digit returns over a full calender year. Only 5 out of the last 26 years produced “single digit” returns. So yes, long term stock returns might be single digits but short term single digit returns are an exception

Neverthess, the 10.000 level represents an annual return of ~9,02% over 26,5 years (from December 1987 until May 2014). This compares with around 10,1% for the S&P 500 (in EUR).

For me personally, the implementation of the Dax coincidently equals almost exactly when I bought my first stock. The first Stock I bought was a company called Hoesch in September 1987. I remember this so well because just a few weeks later, the “Black october of 1987” hit me with full force. I had used half of my earnings from a vacation job. As I wanted to increase my position after the crash, the people at the bank refused to take my order because they said that stocks are only for gamblers. As I was not yet of legal age back then, I had to come again with written permission of my parents to buy stocks.

This leads to another question:

Was this huge 26 year rally predictable or not ?

3 years ago I had reviewed the original “Market Wizards” from Jack Schwager which contains interviews with many then famous traders and hedge fund managers. Overall, one year after th 1987 crash, the sentiment was very very negative.

As I did not find historical P/Es for the Dax in 1987/1988, let’s look at this table of historic P/Es for the S&P 500:

P/E
31.12.1973 12,3
31.12.1974 7,3
31.12.1975 11,7
31.12.1976 11,0
30.12.1977 8,8
29.12.1978 8,3
31.12.1979 7,4
31.12.1980 9,1
31.12.1981 8,1
31.12.1982 10,2
30.12.1983 12,4
31.12.1984 9,9
31.12.1985 13,5
31.12.1986 16,3
31.12.1987 15,6
avg 10,8

Someone like John Hussmann might have said that stocks have nowhere to go as the P/E even after the 1987 crash was ~50% higher than the preceeding 15 year average. At the and of 1987, 10 30 year US Treasuries were yielding around 9%, another argument why stocks didn’t look that “apetizing” at that point in time. Why bother with stocks if you can earn double digits with corporate bonds any time ?

What followed

Looking back, it is easy to point out some of the events which led to this remarkable run especially for the DAX over the last 26 years:

– Communism broke down (“Peace dividend”)
– the Eurozone was created, stimulating cross border trading, increasing competition
– technology change (PC, Internet, Mobile)
– Corporate taxes in Germany went down form >50% to ~30%
– interest rates declined for now 25 years in a row
– old crossholding structure (“Deutschland AG”) dissolved, more professional management, foreign investors
– the BRIC story unfolded, further possibilities to export “core competency” goods like machinery and cars

In 1987/1988, few market pundits did even predict a single one of those factors. That’s why I think that just looking into the rearview (valuation) mirror should not be the only tool in the investing toolbox. Past P/Es will not predict future seismic shifts. On the other hand, one should not rely on such evcents happening over and over again and boosting share prices further. Clearly, interest rates and taxes will not fall that much lower and the effect of the end of Communism will not repeat itself.

For me the major conclusion is the following: Do not rely on any one system which tries to predict the future and/or future returns. Keep an open eye on everything, from valuations to macro economic factors and political shifts. Be prepared for surprises. Inthe long term, many surprises turned out to be positive for the economy and stock return.

Some musings on the Dax constituents

Just for fun, I created a table with the long term performance of the 15 “surviving” Dax constituents. Unfortunately I only got performance numbers back to 1992, but the p.a. Performance of the DAX was quite similar. lets look at those 15:

1987 Still in DAX Comment LT Perf (08/1992) p.a.
DAX     545,14% 8,95%
Allianz * 1   177,55% 4,80%
BASF * 1   3650,23% 18,12%
Bayer * 1   1598,15% 13,90%
BMW * 1   1723,82% 14,28%
Commerzbank * 1   -70,14% -5,40%
Continental 1   1962,28% 14,92%
Daimler-Benz (*) 1   90,50% 4,22%
Deutsche Bank * 1   89,57% 2,98%
Deutsche Lufthansa * 1   615,84% 9,47%
Henkel * 1   1200,08% 12,51%
Linde * 1   699,66% 10,03%
RWE * 1   308,71% 6,68%
Siemens * 1   742,92% 10,29%
Thyssen (*) 1   89,98% 4,32%
Volkswagen * 1   1690,10% 14,18%

Not surprisingly, financial stocks do not look good here. Overall, companies which are considered “well managed” did quite well such as Henkel, Bayer, BMW, Linde. Surprising for me is the fact that Lufthansa actually outperformed the DAX as well as Siemens.

Now let’s take a quick look at the new stocks. If I didn’t have returns from 1992, I made a comment:

    Total p.a. Perf. Since
Adidas 1   896,84% 13,23% 1995
Beiersdorf 1   1658,99% 14,09%  
Deutsche Börse 1   335,79% 11,74% 2001
Deutsche Post 1   103,80% 5,41% 2000
Deutsche Telekom 1   62,22% 2,80% 1996
EON 1   485,63% 8,46%  
Fresenius 1   4651,42% 19,42%  
Fresenius Medical Care 1   174,05% 5,90% 1996
HeidelCement 1   242,80% 5,83%  
Infineon 1   -80,66% -10,95% 2000
K&S 1   3084,30% 17,24%  
Lanxess 1   302,98% 16,11%  
Merck 1   555,53% 10,64% 1995
Munich Re 1   300,42% 7,24% 1994
SAP 1   3502,32% 19,98%

Not surprisingly, the best “newcomers” also lead the total Dax performance. Smaller companies which grow big are always the best investments, although it is often hard to identify them before.

Finally one other table. Let’s look at some of the best performers and their historical P/Es:

FRE SAP HEN3 BEI BAS
31.12.1992 28,6 24,4 19,6 18,9 11,4
31.12.1993 35,2 25,8 25,7 22,8 28,0
30.12.1994 19,4 36,7 15,0 20,6 14,6
29.12.1995 33,0 55,2 18,4 18,9 7,8
31.12.1996 64,4 52,1 25,9 28,7 14,4
30.12.1997 49,2 61,1 29,5 46,8 12,0
30.12.1998 30,8 71,5 32,8 30,4 11,8
30.12.1999 27,1 83,7 26,2 32,5 25,3
29.12.2000 37,7 60,0 21,7 41,9 23,6
28.12.2001 183,3 78,5 18,3 38,1 20,7
30.12.2002 10,8 46,3 20,0 31,3 13,9
30.12.2003 23,0 38,1 17,1 27,3 27,5
30.12.2004 18,2 30,9 5,3 21,9 14,5
30.12.2005 20,1 31,5 16,2 23,7 11,3
29.12.2006 23,5 26,2 18,9 16,7 11,6
28.12.2007 21,5 22,3 18,1 27,2 12,1
30.12.2008 21,2 15,5 54,7 16,8 8,9
30.12.2009 14,2 22,3 26,4 27,8 28,2
30.12.2010 16,3 24,9 18,1 29,7 12,0
30.12.2011 16,9 14,0 16,7 39,8 8,0
28.12.2012 16,3 25,8 18,3 31,6 13,6
30.12.2013 19,7 22,3 23,1 31,3 14,7

We can easily see that quality and growth NEVER is cheap. I am not sure if that Henkel 2004 P/E of 5 is incorrect data, but the solid “quality stocks” always traded “richly” and nevertheless delivered outstanding long term performance. Only BASF, as a “quality cyclical” company has been available at single digit P/Es at some years.

So after all, this is wat Warren B. likes to tell us: In the long term, quality does seem to beat anything else, especially if you factor in taxes, trading costs etc.

Summary:

So what does this all tell us ? I am afraid that I cannot come up with some “Magic Formula” to identify future winners. Nevertheless, I think the look back emphasizes three of Warren Buffet’s main points:

1) over the long term, stocks have been a unbeatable compounding machine. A return 10 times the original inevstment in 26 years despite several devasting crashes speaks for itself

2) over such a long time horizon, it seems that “quality buy and hold” seems to be at an advantage at least for large caps. Yes, introducing a backtested system (market timing, EV/anything) could generate fantastic returns as well, but just buying and holding well managed companies did produce spectacular returns

3) Just buying the index and sitting on one’s ass would have beaten almost all active strategies. To be fair although, the first DAX index funds were available mid/end 90ties…..

P.S.: To finish the story: What happend to my first stock, Hoesch AG ? Hoesch was taken over by steel company Krupp which itself merged with Thyssen. If I would held it all the time, it would have been a pretty weak investment……

Book Review: Baruch – My own story

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Bernard Baruch war einer der legendären Börsenspekulanten Anfang des 20ten Jahrhunderts. Im Gegensatz zu anderen erfolgreichen Finanziers hat er sich aber in späteren Jahren stark in der Politik engagiert und u.a. einen Plan zur Kontrolle von Atomwaffen entwickelt. Viele US Präsidenten und auch Winston Churchill zählten zu seinen persönlichen Freunden, siehe auch hier in Wikipedia.

Im Alter von 87 Jahren hat er noch eine Auto-Biographie geschrieben, die im Prinzip die Zeit zwischen dem amerikanischen Bürgerkrieg bis Mitte der 50er Jahre überspannt.

Interessant aus Sicht eines “Börsianers” sind v.a. Kapitel 7-14 über seine Zeit an der Wallstreet sowie Kapitel 19. in dem er seine Investment Philosophie zusammenfasst. Besonders spannend ist Kapitel 11 über die Panik von 1901 und den Northern Pacific Corner, quasi mal eine Crash Geschichte aus erster Hand.

Die wichtigsten Punkte sind seiner Ansicht

– nicht auf heisse Tipps hören
– Fundamentales Research über die Firma in die man investieren will
– kein Markt Timing
– Verluste schnell realisieren
– nicht überdiversifizieren, eher wenigere Positionen die man gut kennt
– die aktuellen Positionen in Abständen überprüfen
– immer einen gewissen Teil Cash vorhalten

Das sind im Prinzip zeitlose Tipps die sich über die Jahre bewährt haben.

Für die Analyse eines Unternehmens sind seines Erachtens folgende Faktoren wichtig:

– Wert der Assets abzüglich der Schulden
– Die sog. “Franchise”, nach seiner Definition ist das die Frage ob das Unternehmen etwas herstellt was wirklich gebraucht wird
– die Qualität des Managements. hier unterscheidet er sich von Buffet, den seiner Meinung nach kann auch ein schlechtes Management die beste Firma runterwirtschaften.

Was mir noch sehr gut gefallen hat ist, das Bild von der Börse und der Wirtschaft als Thermometer und Fieber. Seiner Meinung zeigt die Börse zwar den Zustand der Wirtschaft an (Thermometer), ist selbst aber nicht die Ursache des Übels, dass irgendwo in der Wirtschaft entstanden ist. Das steht natürlich in starkem Kontrast zu aktuellen Politik der FED.

Fazit: Kein klassisches “How to” Börsenbuch, aber dennoch ein faszinierendes Buch für historisch interessierte Börsianer inkl. einiger zeitloser Ratschläge die gerade in der jetzigen Zeit sehr sehr hilfreich sind.

Börsengeschichte: Die Panik an der Wallstreet von 1901

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Entgegen meinemm Vorsatz doch eine Art Marktkommentar von meiner Seite. “Inspiriert” hat mich dazu der Blog Post von Bronte Capital von gestern.

Bronte schreibt dazu:

You see the desperate selling of the biggest liquid names is a sign of margin calls.

The market is not puking. Some prime broker is puking the stocks held by one or more very large hedge funds.

So lets play the game: guess who got the margin call!

Seiner Meinung nach interpretiert er die aktuellen Turbulenzen als “Margin Call”, also unfreiwilliges Vrkaufen durch einen oder mehrere Hedgefonds. In den Kommentaren wird spekuliert, dass es evtl. der Hedgefonds von John Paulson sein könnte.

Ein Blick zurück: Eine recht ähnliche Situation gab es 1901 an der Wallstreet. In einer Zeit, als viele der damaligen Marktteilnehmer mit nur 10-20% Eigenkapital spekulierten, kam es zu einem der legendären “Corners” in der Aktie von Northern Pacific. Eine recht gute Beschreibung der Situation findet man hier.

Was passierte war folgendes: Zwei rivalisierene “Pools” kämpften um die Kontrolle von Northern Pacific und trieben den Aktienkurs in die Höhe. Viele Markteilnehmer waren überzeugt, dass der Preis viel zu hoch war und gingen short. Einziges Problem war, dass an einem bestimmten Tag leider keine Aktien mehr zum Leihen gab für die Shortseller. Um also Ihre Verpflichtungen zu erfüllen, d.h. die leer verkauften Aktien tatsächlich zu liefern mussten die Short Seller jeden Preis zahlen, den die Inhaber gefordert hätten. Nachdem aber die meisten Marktteilnehmer 80-90% gehebelt waren, mussten sie ihre anderen Positionen auflösen (Margin Calls) um sich die Northern Pacific Aktien noch leisten zu können. Dies wiederum führte zu einem brutalen Absturz aller anderen liquiden Aktien.

Am Ende haben sich die Beteiligten dann doch auf einen relativ fairen Kurs zum Begleichen der offenen Positionen geeinigt, der Spuk ging dann wieder relativ schnell vorbei, die Börsenkurse gingen aber vom Pesk bis zum Tief im Jahr 1903 insgesamt um 46% zurück. Damals folge übrigens die nächste Panik relativ bald im Jahre 1907, aber das ist einen eigen Post wert.

Fazit: Im Nachhinein lassen sich einige der “Panikreaktionen” am Aktienmarkt auf ziemlich banale technische Faktorn zurückführen, in der regel meist “Margin Calls” bei hoch gehebelten Martkteilnehmern. Natürlich weiss man das immer erst hinterher, aber diese Möglichkeit sollte man (neben den üblichen Weltuntergangsszenarien) immer im Hinterkopf behalten.