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
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
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