Investment Philosophy

The blog mainly functions as my personal investment diary and as a platform to discuss investment ideas with anyone willing to share his/her thoughts. The blog portfolio is a VIRTUAL portfolio, meant to test if the strategy works at a starting level of 10 mn EUR.

General portfolio management rules:

1) max. position limit : 10% of total fund
2) minimum net long position of 50% of net asset value, max. 30% short positions  max. of 130% long positions
3) no taxes
4) transaction cost: EUR 15 / order
5) interest: current deposit rates for retail brokerage accounts
6) max. trading limit: 25% of VWAP per day.
7) Short positions are allowed, up to 30% of net asset value
8) Permitted investments: Stocks, bonds, fund certificates, convertible bonds and other listed securities
9) Permitted stock exchanges: All exchanges available through normal German retail brokers (DAB, Consors etc.)
10) All currencies are allowed
11) currency risks could be either hedged or increased through currency derivatives

Benchmark:

I recommend my readers a broadly diversified investment into ETFs. Myself, I consider a combination of:

25% Stoxx 50 Europe
25% Stoxx small 200 Europe
30% DAX
20% MDAX

as an adequate benchmark.

I try to achieve a higher return for the portfolio against this benchmark, but also try to realise lower volatility of returns. In between, portfolio and benchmark will differ significantly as many of the investments will not be included in the benchmark and will have little or no correlation to those benchmark securities.

The investment philosophy is based on fundamentals and “value” based. 50% or more of the portfolio should be allocated into stocks of “good” or even “great” companies whose share price is lower than what we would consider as fair value (“Core value”). Up to 50% of the portfolio shall be dedicated to special situations (“Opportunity”).

I do not attempt to do any active market timing. Stocks will be bought if they are fundamentally cheap and sold if they are expensive irrespective of general market conditions. However I do not want to be fully invested at all time either. If I don’t find cheap stocks, I won’t invest.

Some Criteria for “Core value” investments:

– fundamentally “cheap” (EV/EBITDA, EV/EBIT, P/E, P//B, P/S, P/FCF)
– historically cheap as meassured by my “Boss Score” model
– low debt leverage / net cash position
– organic growth preferred
– good competitive position
– Quality of profits – adjusted earnings vs. comprehensive income
– shareholder yield – dividends, share repurchases, deleveraging
– low beta/volatility
– return on capital / capital allocation

Opportunity investments are investments where due to special circumstances, the price of the investment is significantly lower than it normally would be. This can happen because of a variety of reasons. In many cases, those special situations are very unique and are uncorrelated to the overall market development. Examples are:

– spin off / demerger
– deeply discounted rights issues
– law suits / cartel fines
– uncommon or complex types of securities
– intransparent company structures /Holdcos
– subordinated or convertible bonds

17 comments

  • Hi Value&Opp 🙂 May I ask you how the taxation of shares is in Germany when you are a normal investor (not for Pension)? How large is the % you have to pay of your gain, and is there something about 0 tax if you hold a stock longer than a year?

    • The current rate is around 30% both, for gains and dividends. Holding period is irrelevant.

      • Okay thanks for the reply, I must have confused Germany with some other country… Guess Germany is not the ideal place to move to after all 😦

        • If you want to live from investment income, Luxembourg or Switzerland are better.

        • Okay, thanks for the suggestions 🙂 I also just found out, that Sweeden is quite nice. There you can have a special ISK account, where you only pay around 0.5% of the balance each year, and there is no other tax on gains or dividends. I.e. for each 200SEK you have invested, you pay 1SEK to the IRS each year – not bad at all! (in Denmark we pay between 28% and 59% of our gains) 😦

  • Yahoo Finance hat einen screener fuer US Aktien: http://screener.finance.yahoo.com/stocks.html

  • Benutzt du zum screening tatsächlich bloomberg Daten? Ich komme mehr von der FI Seite, kenne deshalb nicht ganz so genau die hierdiskutierten Aktien. Da ich jedoch Erfahrung mit mbonds und High yield habe, habe ich das Problem, dass die Daten in Bloomberg mM Mist sind. Ich weiß ehrlich gesagt gar nicht ob die echte un erfahrene Analysten einstellen aber oft gibt es gar keine Daten (mbonds oder nicht Börsen notierte HY) oder aber im HY wichtige Anpassungen werden nicht vorgenommen ( operating leases, pensions) etc.
    Wie handhabst du das? Passt du manuell an oder ist es zum schnellen screening egal und wird später unter die Lupe genommen oder komplett ignoriert da unwichtig?
    Danke und sehr geile Arbeit! So genau sollten mal alle Analysten arbeiten! Da du bloomi hast, machst du das wohl auch hauptberuflich aber dann noch in der Freizeit den Elan zu haben, Respekt!

  • Hi,

    Maybe you can help me. I am living in Luxembourg and I would like to open an account in Germany in order to buy german bonds. (In Luxembourg isn’t easy to do it). Do you recommend any broker/bank?

    Thnk you in advance,

    Rachel

    • hmm,I am not sure if I can actually recommend one specifically. I use CortalConsors and DAB Bank which are OK. Comdirect seems to be OK as well. For german bonds you don’t need any “special” abilities so you might just go for the cheapest one.

    • @rachel
      I recommend using an online broker (see mmi007) instead of a common branch bank (i.e. Sparkassen, Volks & Raiffeisenbanken, …). Online brokers enable trading of almost all bonds. Regularly branch banks have problems with “special” cases (e.g. bonds or genussscheine after due date with fixed interest rate until later refund date, bonds over due date with open refund, like former Argentina bonds, etc.). Everytime I have to call, discuss and convince my branch banks advisers to enable trading or even selling of these bonds.

      If you dive deeper into the bond market, special cases are often more interesting and bear sometimes higher yields with less risks.
      An informative German internet platform is http://www.bondboard.de/forum .

  • “In general, I would not be comfortable with a single position above 10% of the portfolio”

    What I miss in your rules list is up to what limit you want to go with multiple investments in same or cyclically similar industries.

  • Gentlemen,

    I would appreciate your advice on the following. I try to find a site that presents quotes for German stocks warrants (xtra), ideally in English. Could you point out any? Best wishes.

    Pieeye

  • Klasse Blog (den ich schon lange regelmässig lese). Was ich mich frage: wie ist Deine Methode für das Pre-Screening? Zum Beispiel, auf der Basis von welchen Daten berechnest Du den BOSS-Score? Wo finde ich gute Finanzdaten von europäischen Small Caps und was kostet das? Mir ist aufgefallen, dass z.B. bei comdirect schon die Marktkapitalisierung von Nebenwerten nur schlampig nachgeführt wird.

    Danke für einen Tipp
    Christian

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