Search Results for: fortum

All German Shares part 14 (Nr. 251-275)

This week there are as always a couple of “zombies”, some hyped real estate companies but also some interesting watch candidates and two former portfolio companies. Enjoy !!

251. Atoss Software AG

Atoss is a 620 mn market cap Enterprise Software company specializing in HR software solutions. As many Software companies, the stock has performed very well over the past few years:

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Special Situation “quicky” – KAS Bank (ISIN: NL0000362648) take-over

DISCLAIMER: This is not investment advice. Please do you own research !!!!!


Some readers of my blog might remember KAS Bank. I bought the stock in August 2012 and then sold it with a decent profit in MArch 2015 because I had not paid attention to the pension liabilities.

Looking at the stock chart, the decision to sell in 2015 was a good (and lucky) one:

kas bank 5y

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The Value and Opportunity “All Time Flop 10”

During my Silver Chef “Post mortem” some days ago, I decided to look at the 10 biggest losses I made since I started the blog in order to check if I have actually learned from mistakes.

These were the (by absolute performance) 10 worst investments in the 7+ years of Value and Opportunity:

10. Medtronic -18,93% (2011)

Medtronic was one of the initial portfolio investments. I kicked them out in August 2011 as I was not very comfortable owning US large caps and I never deeply looked into the company myself. Medtronic since then outperformed the S&P 5000 IN USD terms (~17,1% p.a. vs. 15.3%) or ~ 233% in EUR terms. This is slightly better than my portfolio which made around 215% in the same period.

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Performance review March 2015 – Comment “Should an active investor give money to a money manager ?”

Just a quick reminder: this will be the last monthly update, from now on I will switch to quarterly updates.


In March, the portfolio gained +2,1% against +3,6% for the Benchmark (Eurostoxx50 (25%), Eurostoxx small 200 (25%), DAX (30%),MDAX (20%)). Year to date, the score is +11,5% against +20,2% for the benchmark. Since inception, the portfolio is up 104,3% vs. 73,3%.

Major winners were TFF (+19,6%), Drager (+8,4%), Hornbach (+6,5%) and Thermador (+6,0%). Losers were Ashmore (-7,1%), Van Lanschot (-6,4%) and TGS (-4,3%).

Overall, performance was again behind the benchmark but with around (2,1/3,6)= 58% of the upside fully in line with the current allocation of the portfolio with regard to cash and beta of the investments.

Portfolio transactions

In line with my self-prescribed “slowness” I only made one position change this month: The full sale of my KAS Bank position in mid march. Within my existing positions, I added to my Romgaz stake following the good results.

Cash and “cash similar” positions are now at around 27%, a pretty high percentage but maybe not too bad going forward. So far of course, the conservative approach has cost me a lot of performance, but the year is not over yet. The current portfolio, as always can be found under the respective portfolio page.

Comment “Should an active investor give money to a money manager ?”

I am currently preparing my first investment into a fund actively managed by someone else. For me, as an active investor, this is quite unusual, so far I have only invested in ETFs in order to gain exposure to sectors or directly into stocks and bonds. The big question here is of course: Why should I pay management fees for someone doing the same stuff that I actually enjoy doing myself ? So for myself a tried to rationalize the decision a little bit and came up with 5 criteria which are important to me for trusting my hard-earned money with someone else:

1. The manager has to be trust worthy
2. The manager should have most of or even better all his money in the fund
3. the manager has a different skill set than oneself or just better skills or access to different assets
4. The manager should still be “hungry”
5. The fund manager is not only in for the money
6. The investment vehicle should be a “fair” structure

Interestingly, those criteria are not that different from investing into a stock, but let’s look at them one by one:

1. The manager has to be trust worthy

This sounds more easy than it is. In order to know if someone is trust worthy, you either know someone really well or there is a long track record of this person proving that she/he will always act what in German we would call “in Treu und Glauben” or in English as a true Fiduciary of one’s money. In a standard asset management organisation, this cannot be taken for granted. In many large asset management companies, the main target is not performance but management fees and not the performance of the money invested.

One of the worst cases would be investing into someone where you know that this guy is “bending the rules” somewhere and hoping that still everything would be ok with your money. With Bernie Madoff for instance, many people thought that he was making the nice and easy money in his “hedge fund” by scalping and front running his customers on the trading side of his business and thy were OK with it. Without accusing him in any way, Bill Ackman for me would be also a questionable character. Both, with Herbalife and Valeant he is “bending” the rules to his advantage, how do you know that he will never does the same within his investment vehicles ? I think this is clearly the area where one should never make the slightest compromise.

2. The manager should have most of or even better all his money in the fund

This is something which is especially important if there is a performance component in the fee structure. A performance fee is essentially an option and the value of any option increases with volatility. If a portfolio manager however has invested all his money in the fund, he will think twice about maximizing only the option value…..

3. the manager has a different skill set than oneself or just better skills or access to different assets and the investment process is transparent

Sounds pretty obvious but is still worth thinking about. If I invest in a value investing strategy, this only makes sense if I am sure that the manager does have skills that I don’t have. This could be either very deep research and a concentrated long-term portfolio or access to markets/assets which I don’t have as a private investor. in any case this requires that the manager is transparent on what he is doing at that an investor understands the investment process. Fundholder letters or even better “manuals” are a big plus here.

4. The manager should still be “hungry”

The typical story in investment management goes like this: Manager starts small fund, has great returns, nobody is interested at first. After 3-5 years of great returns, fund gets onto the radar screen of large investors and grows quickly. Performance drops as investment style cannot easily be scaled up and/or investment manager cares more for his Ferrari collection. In any case, I think it is more interesting to invest in the early phase than in the later phase despite a potentially higher fee percentage.

5. The fund manager is not only in for the money

That sounds strange at first, why should a money manager not be in for the money ? What I mean here is that there are a lot of people in the investment management business who see this as the fastest way to make a lot of money. In my experience, those people are generally not good money managers in the long-term. The really good ones are those who actually like what they are doing and do it because its their passion. Those guys will go the extra mile and read annual reports on week ends and in their vacation because they don’t consider it as work.

6. The investment vehicle should be a “fair” structure

As I am an individual investor I would for instance have a problem with a structure where I pay upfront commissions or custody fees that an institutional investor would not pay. Also, if I plan to invest long-term, I would not want to invest in a structure where other investors could hurt my returns by either putting in a lot of money on a daily basis or pulling their investments at any time. As a long-term investor, I would need to be sure that also the others are in for the long-term and no “hot money” can disturb the investment success.

It makes also a lot of sense to look at other investors in a fund vehicle. It is an advantage if other investors are known and reliable.

Those are the 6 criteria which are important for me for trusting my money to someone else. Of course this is no guarantee that the investment will perform well, but at least the risk to the downside is limited to a certain extent if all criteria are met.

More on the specific fund investment will come in a later post this month.

Why buy and hold is great – if you are already an investment genius

When I did my 2014 review a few days ago I observed the following:

Interesting for me is the fact that 4 of the 5 top losers were new positions whereas only 2 of the 5 best stocks (Koc, Citizens) were bought in 2014.

This leads of course to the question if any of what I have done here over the past 4 years has added any value. The good thing is: It is relatively easy to test the hypothesis. I just took the old starting portfolio and calculated roughly what the return would have been with a simple buy and hold. Let’s have a look at the numbers:

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EGIS minority buy out – What’s next ?

Only 4 months after I bought EGIS for the portfolio, majority owner Servier has offered (for me totally unexpected) 28.000 HUF per share to minority shareholders.

This is roughly a 40% gain in 4 months, so quite oK, although in my opinion, the stock should be worth more especially compared to peers. The current offer is around 8.3 x 2013 earnings (ex net cash) and 1.1 x book value.

That’s what I wrote back then:

I think one doesn’t need to be to sophisticated here. A decent company like EGIS with a solid, non cyclical business should not trade at a P/E of 5 and P/B of 0.8. A fair price in my opinion, taking into account some issues from above should be a P/E of 10 or 1.5 times book, which would be still significantly below western peer companies.

Now the problem is the following: Acceppt the offer (and/or sell) or wait for a better offer ?

In most German cases I had so far, the first offer was ususally followed by a better offer and/or much higher stock prices, such as AIRE KgAA and Draegerwerke Genußschein.

In the EGIS case, Servier communicated the following:

– there will be no second offer
– they will ask the AGM to delist the company after the offer is settled

After googling a little bit, I found this from Lawfirm Weil (written in 2005):

In general, a simple majority of the votes is required to adopt a decision at a shareholders’ meeting. However, certain fundamental decisions (eg changes to the charter, merger or winding-up of the company, listing/delisting of shares) require a three-quarters majority of the votes. The charter may also impose supermajority voting requirements for decisions which, by law, could be adopted by a simple majority.

A 75% majority of votes is most likely relatively easy to achieve, unless an activist fund steps in and buys a large anough stake. I don’t have any clue how likely that is and how chances are in Hungarian courts.

So all in all, I guess the best will be to accept the offer and try to find another place to invest in. Somehow the number of cheap shares seem to become smaller and smaller….

Sold, rejected but not forgotten: Tracking 2nd level and 3rd Level investing mistakes

Some 15 months ago, I had a post about stocks I had either sold or not bought after analyzing them.

This time I want to update that list plus provide some “theoretical” background why I think this is an important part of any investment process.

Types of investment mistakes

Of course there are many mistakes to be made in investing. Nevertheless, for this exercise I would categorize “investment mistakes” into 3 general categories along the typical process of most “stock pickers”. The process normally looks something like this

A) Stock screening & quick analysis
B) Deeper Analysis
C) Buy decision (or not buy)
D) Sell at some point in time

At all stages, mistakes are easy to be made. Nevertheless I would argue that most analysis goes into what I would call Level I mistakes:

Level 1 mistake: Buying a stock which performs badly.

This is quite easy to identify, because if one looks at most investment reports, one will see the performance of the current portfolio with the bad performers “jumping out of the report”. I guess most of the efforts in many investment firms goes into finding out the reasons for those underperformers and then trying to improve.

A lot less effort usually goes in what I would call “level II” mistakes:

Level 2 mistake: Selling a stock which outperforms strongly after selling.

This is a little bit more tricky. There is a lot less literature of “when to sell” compared to “when to buy”. Once you have bought a stock, there should be already a fair amount of time and effort been made to analyse the stock. So in my opinion it makes a lot of sense to keep stocks on one’s radar screen even after selling. Nevertheless it is of course much more fun to look at new stocks and forgetting about the old stuff. Especially if sold stocks systematically outperform, one should check if one is not a prisoner to some well known investment biases

In my opinion, it also makes a lot of sense to systematically track the performance of sold stocks in order to find out if one could (and should) improve the investment process

Finally, there is a third systematic family of mistakes:

Level 3 mistake: Stocks analysed intensively but not bought

This is one of the advantages of blogging: Whenever I write a longer post, I already have invested quite some time on the specific stock. So it is quite easy for me to track those posts where I did for any reason not buy such a stock.

Again, I think one should look at this closely in order to identify potential biases etc. in one’s investment process.

From theory to practice: The last 17 months

So let’s look first at all the stocks I sold since the March 2012 post:

Stock Reason sold /not bought Date Perf Perf BM Delta
KPN Special situation expired 10.05.13 34.2% 3.3% -31.0%
IVG Conv ESUG 21.05.13 16.1% 1.1% -15.0%
Bouygues Portf. Mgt. 28.06.13 21.7% 7.1% -14.6%
Total Prod dissapointing CI 08.03.13 21.3% 7.1% -14.2%
Mapfre Autumn cleaning 31.10.12 30.1% 19.9% -10.2%
Dart Too expensive 18.07.13 7.1% 2.7% -4.3%
Total Prod dissapointing CI 10.04.13 12.1% 9.0% -3.2%
OMV Autumn cleaning 30.10.12 22.6% 19.5% -3.0%
Dart Too expensive 26.07.13 4.5% 2.8% -1.7%
Buzzi business model problems 23.05.13 2.8% 2.7% -0.1%
WMF too expensive 11.04.13 5.0% 8.1% 3.1%
Fortum Autumn cleaning 30.10.12 6.4% 19.5% 13.2%
Piquadro Sold because of business problems 08.08.12 2.7% 24.5% 21.8%
Nestle Sold because of Pfizer acquisition 23.04.12 11.8% 35.0% 23.3%
EVN Autumn cleaning 31.10.12 -9.9% 19.9% 29.8%
Praktiker Sold because of Anchorage 04.07.12 -81.3% 30.6% 111.9%
        avg 6.6%

Explanation: a negative number means that the stock has outperformed my BM since I sold it, a positive number means the Benchmark outperformed vs. the stock.

On (unweighted) average, the stocks I sold underperformed the benchmark, so this looks OK. This is clearly driven by the Praktiker bonds, where I am very happy that I sold them. On the other hand, I missed out some nice gains as well. With KPN for instance, I think I was a little bit too quick with the trigger finger. My “autumn cleaning” exercise was on average also positive. So this is a good encouragement to follow-up on this exercise.

Next come all the stocks I have analysed but not bought in the same format:

Stock Reason sold /not bought Date Perf Perf BM Delta
Reply Cashflow red flag 31.08.2012 140.6% 24.5% -116.1%
Banknordik forgot to follow up 26.11.2012 70.1% 19.5% -50.5%
Curanum not really interested 05.09.2012 66.7% 25.0% -41.7%
Severfield Too expensive stand alone 21.03.2013 47.7% 7.9% -39.8%
Walgreen M&A 04.07.2012 62.7% 30.6% -32.1%
Osram Target of 23 EUR not hit 08.07.2013 35.7% 6.1% -29.7%
M6 only short analysis, issue with CI 26.11.2012 43.0% 19.5% -23.5%
Cairo undecided 27.06.2012 58.1% 38.9% -19.2%
Halfords Negative momentum 06.06.2012 55.1% 40.5% -14.6%
Hankook could not buy privately 29.10.2012 31.0% 21.0% -10.0%
Astaldi too much debt 23.07.2013 11.2% 3.0% -8.2%
Porsche still don’t like them 29.11.2012 24.3% 17.7% -6.6%
CIR no margin of safety 17.07.2013 7.3% 4.0% -3.3%
EAC Watch only 29.07.2013 2.8% 2.6% -0.2%
Canal+ no real upside 19.09.2012 19.1% 19.6% 0.5%
Rallye leverage 25.01.2013 8.4% 9.3% 0.9%
Bongrain Doesn’t earn coc 26.11.2012 17.0% 19.5% 2.5%
Greek GDP linker   10.06.2013 -2.6% 3.7% 6.3%
Accell low FCF, insider selling 26.10.2012 12.3% 20.5% 8.1%
Solvac not cheap enough 13.12.2012 4.4% 14.9% 10.4%
Mr. Bricolage Too much debt 13.09.2012 9.4% 20.9% 11.5%
Viel Underlying busienss 18.12.2012 2.4% 14.0% 11.6%
Morgan Sindall no mean reversion potential 23.10.2012 1.0% 21.6% 20.6%
WSU because of US problems, not cheap 19.04.2012 10.6% 31.9% 21.2%
Maisons France Cycle 29.01.2013 -12.5% 9.4% 21.9%
Energiedienst Business model 04.02.2013 -12.3% 12.5% 24.8%
TNT Express Too expensive stand alone 21.11.2012 -5.2% 20.8% 26.0%
KHD insiders 30.07.2012 -0.7% 27.7% 28.4%
Fabasoft track record 25.06.2012 -2.7% 40.3% 43.0%
        avg -5.4%

Here unfortunately, the average doesn’t look so good. On average, the stocks I analysed but did not buy outperformed the BM as well. The most obvious miss is Reply SpA. However here, I still think that in the long run it pays to avoid companies with questionable accounting. In this case, clearly at least for now I was wrong to discard it.

A little bit more bothers me that 2 of my potential special situations, Osram and Severfield outperformed. Both were pretty clear-cut cases (Osram, classical spin-off, Severfield classical rights issue), but somehow I was lacking conviction to follow through on the idea. I think I have to be more careful to separate my careful market view and focus on quality from the special situation area.


Looking at sold stocks and stocks rejected lat e in the investment process makes a lot of sense. In my case, I think selling looks OK, whereas I will have to work on my “special situation” investments.

Utility companies – The Warren Buffet perspective

In 2012, I sold my two utility stocks EVN and Fortum because I realised that I didn’t really understand the business model. I looked a little bit more general into utilities here, but with no real results. However,at least in Europe, the utility sector looks like one of the few remaining “cheap” sector.

If you don’t know a lot about a sector but need to start somewhere,it is always a good idea to look ifWarren Buffet has something to say about it

Although mostly his well-known consumer good investments like Coca Cola and Gilette are mentioned, Buffet runs a quite sizable utility operation called MidAmerican Energy.

Starting with the Berkshire 2011 annual report, let us look how the “sage” describes the business:

We have two very large businesses, BNSF and MidAmerican Energy, that have important common characteristics distinguishing them from our many other businesses. Consequently, we assign them their own sector in this letter and also split out their combined financial statistics in our GAAP balance sheet and income statement.
A key characteristic of both companies is the huge investment they have in very long-lived, regulated assets, with these partially funded by large amounts of long-term debt that is not guaranteed by Berkshire. Our credit is not needed: Both businesses have earning power that even under terrible business conditions amply covers their interest requirements.

So let’s note here first: Buffet uses “large amounts” of debt for his utility company.

Just below we find the following statement:

At MidAmerican, meanwhile, two key factors ensure its ability to service debt under all circumstances: The stability of earnings that is inherent in our exclusively offering an essential service and a diversity of earnings streams, which shield it from the actions of any single regulatory body.

I would argue he second point is interesting: Diversification in utilities works across regulators, not necessarily geographic location.

What I found extremely interesting is that Buffet is allocating a lot of capital to the utility sector. Out of the 19 bn USD Capex in Berkies operating businesses from 2009-2011, MidAmerican Capex summed up to ~9 bn USD, so almost half of Berkies total Capex.

One can assume that Buffet is not making all share investment decisions nowadays, but I think capital allocation to operating companies will be still made by him personally.

Buffet seems also quite interested in renewable energy, as the following comment from the annual report shows:

MidAmerican will have 3,316 megawatts of wind generation in operation by the end of 2012, far more than any other regulated electric utility in the country. The total amount that we have invested or committed to wind is a staggering $6 billion. We can make this sort of investment because MidAmerican retains all of its earnings, unlike other utilities that generally pay out most of what they earn. In addition, late last year we took on two solar projects – one 100%-owned in California and the other 49%-owned in Arizona – that will cost about $3 billion to construct. Many more wind and solar projects will almost certainly follow.

Here, he also mentions that he doesn’t extract any dividends out of his utility group. He considers it a growth opportunity rather than a cash cow. I think this is also worth keeping in mind, as many investors would judge utility stocks mainly by dividend yield.

From the 2009 report we learn the following:

Our regulated electric utilities, offering monopoly service in most cases, operate in a symbiotic manner with the customers in their service areas, with those users depending on us to provide first-class service and invest for their future needs. Permitting and construction periods for generation and major transmission facilities stretch way out, so it is incumbent on us to be far-sighted. We, in turn, look to our utilities’ regulators (acting on behalf of our customers) to allow us an appropriate return on the huge amounts of capital we must deploy to meet future needs. We shouldn’t expect our regulators to live up to their end of the bargain unless we live up to ours.

This is as clear as it gets. Utilities are a “natural” monopoly. If you play by the rules (at least in the US), you are guaranteed a decent return.

In the same report Buffet once more explains why he is suddenly more interested in utilities:

In earlier days, Charlie and I shunned capital-intensive businesses such as public utilities. Indeed, the best businesses by far for owners continue to be those that have high returns on capital and that require little incremental investment to grow. We are fortunate to own a number of such businesses, and we would love to buy more. Anticipating, however, that Berkshire will generate ever-increasing amounts of cash, we are today quite
willing to enter businesses that regularly require large capital expenditures.

From the 2008 report, this sentence is reinforcing Buffets strategy:

Indeed, MidAmerican has not paid a dividend since Berkshire bought into the company in early 2000. Its earnings have instead been reinvested to develop the utility systems our customers require and deserve. In exchange, we have been allowed to earn a fair return on the huge sums we have invested. It’s a great partnership for all concerned.

On acquisition of utilities, we can also find his thoughts in that report:

In the regulated utility field there are no large family owned businesses. Here, Berkshire hopes to be the “buyer of choice” of regulators. It is they, rather than selling shareholders, who judge the fitness of purchasers when transactions are proposed.

There is no hiding your history when you stand before these regulators. They can – and do – call their counterparts in other states where you operate and ask how you have behaved in respect to all aspects of the business, including a willingness to commit adequate equity capital.

When MidAmerican proposed its purchase of PacifiCorp in 2005, regulators in the six new states we would be serving immediately checked our record in Iowa. They also carefully evaluated our financing plans and capabilities. We passed this examination, just as we expect to pass future ones.

So being nice and trustworthy to the regulator is what counts in this business.

Finally let’s look at some “hard numbers” from MidAmerican, in order to be able to compare this to other utilities. I will use the MidAmerican 2011 annual report for this.

  2011 2010 2009 2008
Total Assets   47.7 45.7 44.7 41.4
Shareholders Equity   14.1 13.2 12.6 10.2
total financial debt   17.8 18.2 19.3 18.2
Sales   11.2 11.1 11.2 12.7
EBIT   2.684 2.502 2.465 2.828
Net Income   1.331 1.238 1.157 1.85
Int. Exp   1.196 1.225 1.257 1.333
Op. CF   3.220 2.759 3.572 2.587
Capex   2.684 2.593 3.413 3.937
ROE   9.8% 9.6% 10.2%  
NI margin   11.9% 11.2% 10.3% 14.6%
EBIT Margin   24.0% 22.5% 22.0% 22.3%
Debt/equity   126.2% 137.9% 153.5% 178.4%
EBIT/Int exp   2.24 2.04 1.96 2.12
ROA   2.9% 2.7% 2.7%

We can clearly see that this is low ROA business. Only the significant leverage allows Buffet to have ~10% ROE on average. Additionally, he seems to provide some “contingent” capital to MidAmercian, i.e. to promise a capital contribution of 2 bn USD if required. I think this keeps down the cost of debt without explicitly guaranteeing it. MidAmerican has a credit rating of “only” A- against Berkshire’s AA+. Also one can see that he reduced leverage over the last few years since taking over MidAmerican.

Nevertheless he seems to prefer this vs. returning cash to shareholders. Interesting.

So let’s quickly summarize Warren Buffet’s perspective on utilities as far as I understood it:

– he only started to invest into utilities relatively lately because he needs something where to invest his growing cashflows from the other operations
– he prefers regulated utility business, diversified over different regulators
– he invests a lot of money into renewable energy
– he uses significant leverage to achieve 10% ROE
– he is not looking at the busienss as a cash cow but a long term growth business and therefore does not extract any dividends

Performance October 2012 & Comments

October has been a “normal” month for the portfolio. The Benchmark (Eurostoxx 50%, Dax 30%, MDAX 20%) gained 2.5%, whereas the portfolio “only” gained 1.5%. Year to date, The portfolio now shows a gain of +30.6% against 21.1% for the Benchmark. Since inception(1.1.2011), the portfolio is up by 25.3% against 4.4% for the benchmark.

Main performance drivers in October have been Dart Group (+15.1%), AS Creation (+11.8%), HT1 (+7.5%). Main “detractors” were Cranswick (-5.1%), Vetropack (-4.9%), Bouygues (-2.2%) and Rhoen (-2.1%)

Just for fun, I calculated the Sharpe ratio based on the 22 available monthly returns, both for the portfolio and the benchmark. The sharp ratio for the Benchmark is 0.2, however for the portfolio it is an incredible 0.90. I don’t think that I will manage such Sharpe ratios over the long run but it is still interesting to see.

Portfolio as of 31.10.2012:

Name Weight Perf. Incl. Div
Hornbach Baumarkt 4.7% 5.1%
AS Creation Tapeten 4.3% 21.6%
WMF VZ 3.8% 49.4%
Tonnellerie Frere Paris 5.0% 25.4%
Vetropack 4.5% -7.6%
Total Produce 5.3% 26.8%
SIAS 6.0% 39.4%
Installux 3.0% -0.1%
Poujoulat 0.8% -4.6%
Dart Group 2.8% 28.2%
Cranswick 4.8% -6.4%
April SA 3.4% 20.9%
Bouygues 2.4% -4.5%
KAS Bank NV 5.1% 12.6%
Drägerwerk Genüsse D 10.1% 104.6%
IVG Wandler 3.5% 9.5%
DEPFA LT2 2015 3.0% 45.1%
HT1 Funding 4.6% 29.4%
EMAK SPA 5.0% 26.9%
Rhoen Klinikum 2.5% 0.5%
Short: Focus Media Group -1.0% 2.4%
Short: Prada -1.1% -6.1%
Short Lyxor Cac40 -1.3% -0.5%
Short Ishares FTSE MIB -2.2% -2.9%
Terminverkauf CHF EUR 0.2% 4.9%
Tagesgeldkonto 2% 15.9%  
Value 60.9%  
Opportunity 28.7%  
Short+ Hedges -5.4%  
Cash 15.9%  

Following the “autumn cleanup” post, I have already sold down all the “low conviction” positions, as the two last days of the month were “up days”. I increased only IVG and Rhoen so far.

In detail, the following positions were closed:

EVN, total return -4.87%
Mapfre +44.75%
Short Kabel Deutschland -52.87%
OMV -3.92%
Fortum -24.17%

Apart from the hedges, the portfolio has now 23 “single names” which is something I consider within the optimal range considering the amount of time I can spend on the portfolio.

The other announced position increases will be executed in November and as a general rule only on “down days”.

Comment & Outlook

One fascinating aspect of the current stock market is in my opinion the obsession of many money managers with the US Fed and the ECB and low interest rates in particular. Just as an example, one could read for instance the latest publication from Steve Romick (FPA) which argues quite strongly against the current policy of Fed Chairman Ben Bernanke.

The argument more or less goes as follows: The low interest rates inflate asset prices (Bonds, real estate, stocks) which distorts capital allocation and will in the medium to long run create even bigger problems than today’s problems.

I have to admit that I can only partly follow this logic. It is true, that interest rates are relatively low and maybe artificially so for certain segments. On the other hand we see a lot of deflationary developments for instance within the Euro zone.

However, I find it strange that many people relate the level of the stock market directly and exclusevily to the interest rate level. Interest rates are one of many factors in valuing stocks. Although many people make their living in trying to explain on CNBC or Bloomberg why the stock market has moved up or down, obviously no one knows the reasons, otherwise they all would be rich and counting their money from successfully predicting the market.

Many people seem to think that stocks should be cheaper because of “macro uncertainty”, although in my opnion this is wrong. There is always macro uncertainty, for me it seems that only the majority of commentators seems to forget about that sometimes.

Going back to Steve Romick: I guess his commentary might have something to do with the recent underperformance of his flagship fund which has missed out a significant part of the rally. Although I really like those guys, this comment sounds a little bit like a lame excuse to blame the “market bubble” for the underperformance.

So to make it short: In my opinion one should either ignore all those commentators which try to explain why the market is over- or undervalued based on macro factors or consider them as “entertainment”. Uncertainty and central bank intervention are part of the market since many many decades. For all those pundits who think that a “free” capital market without central banking is the answer, I would highly recommend to read some history books how markets and banks behaved BEFORE central banking had been established.

Portfolio maintenance – autumn cleaning

One of the things I tend to avoid is a regular review of all portfolio holdings. It is much more fun to look at new companies than to refresh the analysis on the existing companies. As I usually scale into a position slowly, I somtimes get distracted or disturbed by stock price movements or fundamental changes.

As a result, the number of position in the portfolio increases over time and in my opinion this makes it much harder to focus.

As November is a quite dull month anyway it might also be a good month to review the portfolio.

In a first step I will look “high level” at all positions and try to come up with a “conviction” level which has only three levels: HIGH, MEDIUM, LOW and a short descritpion why this is the case.

In a second step, I want to apply the following logic:

1. If I have “HIGH” conviction, then the position should be a “FULL” position or close to full (5%) unless there is a specific reason against this
2. IF I have “LOW” conviction, then I should sell or close the position
3. For “MEDIUM”, I will have to define at a later stage what will lead either to an upgrade or downgrade for the coming year

The following list is the result of this exercise:

I will therefore “upgrade” Installux, Dart Group and the IVG Convertible to “full” 5% positions. On the other hand I will sell Mapfre, Fortum, EVN and OMV and close the Kabel Deutschland Short.

For Rhoen, I will increase to 2.5%, as I am still in the “early” stage of the investment but so far it goes according to plan.

After this exercise, the portfolio will be around 90 net long, which is kind of the “Normal” allocation.

Maybe some additional comments to the “Energy sector” which I comletely exit after this exercise:

– my initieal “simple” investment case was the following: If energy prices rise, companies with large renewable/nuclear capacity will outomatically profit as well as Oil companies
– Finland and Austria are non-critical from a regulatory point of view

The first thesis obviously was not correct. Both, EVN’s and Fortum’s Earnings decreased from the 2010 level which was the basis of the analysis. Although their balance sheets are comparably stronger, stock prcie performance was only average against the non-PIIGS peers. In relative terms, the stocks are more expensive.

At the moment I just don’t really have an invetsment case for all three companies any more. They look kind of cheap but I do not have a clear view if they will earn their cost of capital going forward. The classical utiliyt business model has been somehow disrupted by alternative energy.

Maybe I invest into them at a later stage, but currently I just do not have any special insight why they should be superior investments.


I already sold Fortum and OMV yesterday at October 30th prices as well as the increase in Rhoen Klinikum shares.

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