Search Results for: rhoen

Annual Performance Review 2013


Performance for the month December was +1.2% vs. +1.3% for the benchmark, an underperfomrance of -0.1%. For the year, this resulted in +32.8% vs. +29.0% for the Benchmark (50% Eurstoxx 50, 30% Dax, 20% MDAX), an outperfomance of +3.8%.

Since inception (1.1.2011), the score is now +75.0% for the portfolio (20.5% p.a.) vs. 40.7% (10.4% p.a.) for the Benchmark.
Read more

My 24 (boring) investments for 2014

December is always a good time to look at the portfolio and revisit the initial investment case in order to decide if all the investments are still “on track”. I did sort out a few already some weeks ago, so this is kind of “double checking” on the ones I decided to keep.

Warning: Almost all of my 24 positions are pretty boring. So anyone looking for “hot tips” might skip this post. As most reader might know, I prefer rather “boring” stocks. In order add a little excitment, I added the company logos this time….. ūüėČ

Before jumping into the stocks, looking back at last year’s 22 for 2013, 14 of last year’s selection are still “in”. This is in line with my goal to have an average holding period of at least 2-3 years for the normal value stocks. The number of stocks has grown by 2 but this is well within my range of 20-30 positions I am targeting. I am not a big fan of extremely concentrated portfolios.

1. Hornbach Baumarkt

A stock which is in the portfolio since the beginning. Had to fight several headwinds in 2013 like bad weather in the all important first half-year, a (now bankrupt) competitor who was selling for cash flow (Praktiker) and of course the internet. Nevertheless in my opinion a very good, ultra solid long-term holding. Could surprise to the upside next year.

2. Miko BV

Plastics packaging and Coffee distribution. Strange combination, but again ultra solid and cheap stock with relatively good growth over the years. Could surprise to the upside because of lower input costs (Coffee.

3. TFF Group (formerly Tonnellerie Francois Freres)

Despite the good performance still a very attractive French stock. Typical, family run solid and long-term oriented business. As one of the biggest Oak barrel manufacturers, TFF did clearly profit from rich people in BRIC countries buying expensive French wines and Whisky. They did take over the number 2 producer Radoux some time ago and seem to harvest the benefits now. A “luxury stock in hiding” so to say.

4. Vetropack

Swiss based, ultra solid producer of glass bottles. Currently struggling both, with high energy prices and low growth in some of its main markets, esp. Eastern Europe. Nevertheless a solid position. Some potential upside via a new thinner but equally solid type of glass bottle which might even replace PET bottles.

5. Installux

Very cheap and unspectacular French aluminium parts manufacturer with large cash pile. Surprisingly resilient business despite the weak home market. More like a “deep value” stock. 4.3% dividend yield.

6. Poujoulat

Another unspectacular French small cap, specialist for chimneys of all sorts. Large top line growth via entrance into wood pellet business, however large depreciation reduced overall margins. If margins recover, stock could have a lot of upside.

7. Cranswick

UK-based “pork centric” food group. Again, nothing spectacular but very solid performance. Still cheap compared to the quality of the business

8. April SA

French based insurance broker / specialist insurer. Currently struggling with French health care regulation. Nevertheless still one of the most attractive business models for financials.

9. Sol Spa

Technical gases and healthcare related gas business. Very well run, good growth in the Healthcare sector. True strength not shown in the numbers due to large upfront write-offs. Long term holding.

10. Gronlandsbanken

Basically only bank in Greenland with high margins and good return. Potential upside if rare earth mining projects and other natural resources projects get started. Potential “Global warming” beneficiary. 8.3% dividend yield makes waiting easy.

11. G. Perrier

Interesting French specialist for electrical installations. Growing business especially in the nuclear power area. Barriers for competitors due to certification requirements.

12. IGE & XAO

French based software specialist for electrical CAD. Quasi monopoly in France. Good margins and good growth plus large cash pile. Shareholder structure might make some “corporate action” possible.

13. Thermador

Very interesting French home building and improvement supplier company . Unique “outsider style” business model and corporate culture. Currently struggling a little due to low domestic French demand but very good company at an attractive price. 4.6% dividend yield.

14. Trilogiq

French production optimisation company. Based on Japanese production philosophy, company provides solution and know how to optimise production. Active mostly in the car industry. Net cash, good margins and still cheap.

15. Van Lanshot

One of the leading Dutch Private banks. Did make some strategic mistakes in the past. Now with CEO trying to focus on “traditional” private banking. If turnaround is succesful and “normal” private banking margins can be achieved, stock has good potential. Additional tailwind because of tax crack down on Swiss private banks.

16. TGS Nopec

Seismic data company with an “outsider style” business model. Doesn’t own ships, was very disciplined in “Underwriting” explorations in the past. Currently more competition from struggling “traditional” competitors with ships and oil companies. If business stays “normal” significant upside. 5.6% dividend yield and share buybacks.

17. KAS Bank

Dutch bank, specialising in securities services. Due to low-interest rates, profitability under pressure. Will benefit if short-term rates start to rise. In the meantime, 6.7% dividend yield “sweetens” the wait.

18. SIAS SpA

Italian toll road operator. Very cheap infrastructure asset, “under leveraged”. Paid large special dividend but also reinvested in additional toll roads. If traffic in Italy stabilizes, stock has good upside.

19. Draegerwerk Genußscheine

Capital structure arbitrage. One Genußschein is equal to 10 preference shares but trades only at a multiple of 4-5 times. Patience required.

20. Depfa LT2 2015

Lower tier 2 bond of nationalised Depfa bank. At the current price solid 7% expected return p.a. until maturity 2015 with relatively low risk.

21. Commerzbank HT1 Funding

Tier 1 Commerzbank bond with a twist: Coupon is guaranteed by a third-party. At the current yield level of around 7% still a good “hold” until I have better ideas.

22. Rhoen Klinikum

I bought the stock after the first failed take over attempt. Now it looks like that the sale of the majority of the business to Fresenius will be cleared. To be sold if my price target of EUR 22.50 is hit.

23. MAN SE

Another special situation, betting on Volkswagen having to pay more than the 83 EUR compensation initially proposed after implementing a profit and loss transfer agreement.

24. Celesio stock /Convertible 2018

Newest addition to the portfolio. Speculation that acquirer Mckesson will have to pay more than the 23 EUR offer due to Elliott (Paul Singer) blocking position.

Current Watchlist:

1. Valmet, Metso Spin off January 2014
2. Portugal Telecom: Merger with Brazilian OI in 2014
3. Maisons France: Potential “outsider style” company in tough market.

Special Situation: Celesio AG / McKesson take over – “Swimming with sharks”

DISCLAIMER: The securities discussed in this post are very risky and the author might have already bought some before publishing the post. The overall situation is tricky and not really recommended for “normal” investors due to the involvement of some well known capital market “sharks”.

Celesio, the German pharmaceutical wholesaler has received a takeover offer a few days ago from US giant McKEsson at 23 EUR per share under the condition that at least 75% of shareholders will tender their shares

A few facts/background:

– majority owner Haniel (also largest shareholder of Metro) needs money and committed to tender their controlling block of 50.01% for around 2 bn
– in the meantime however Elliott, the US Hedgefund acquired more than 25% and threatened yesterday to block the deal
– under German law, 75% is the threshold to establish a profit & Loss transfer agreement which gives full control to the acquirer as well as tax benefits

As a result, the share price of Celesio dipped slightly below 23 EUR after hitting 23.70 EUR earlier.

The offer
McKesson has actually created a dedicated website for the offers with all documents, some videos etc here including the detailed offer document.

The acceptance period runs until early January with a potential extension period until end of January. Similar to Vodafone/Kabel Deutschland, talks about the take over become public already several weeks before the official offer. I think this is clearly part of the game from the seller in order to get a good price.

Nevertheless I found it surprising that since the first announcements of the deal, McKesson’s share price surged and dropped when Elliott said that they want more. Elliott is even using this as their main argument according to this article:

The surge in McKesson’s value by $7.7 billion since early October, when reports on a takeover offer appeared, was a clear sign the Celesio acquisition offers high synergies for the U.S. group and is a bad deal for minority shareholders, Elliott said.

Celesio looks clearly expensive at 23 EUR. However even without operational synergies there is a lot of potential for improvement. Celesio pays ~150 mn interest on 2bn loans, a 7.5% interest charge. McKesson is able to refinance below 2%, this alone is more than 100 mn p.a. savings.

Elliott Management

Elliott Management is a well known US hedgefund ran by Paul Singer. They are most famous for their over a decade long fight with the Argentinian Government, where some months ago, the even went so far to seize the sailing ship of the Argentinian Naval forces.

In Germany, they were already active in two similar Deals, Demag Cranes and Kabel Deutschland. At Demag Cranes, they already cashed out with a nice profit (~+30%), after blocking the threshold at 90% which allows a complete squeeze out. At Kabel Deutschland, the hold 11%, again blocking the squeeze out which works only if the acquirer has more than 90%.

With Celesio they seem to slightly change the tactic by acquiring 25% and actually threatening to block the entire bid. However, one aspect remains the same: They involve themselves only when Anglo-Saxon bidders are in the game. I guess they don’t want to involve themselves with potential unpredictable players in “Local feuds” like in the Rhoen case.

Anyway, one thing is clear: Elliott is clearly not a player which gets pushed around easily. On the other hand, they are in to make money. This is the main difference to the Rhoen case, where some of the players (B. Braun) wanted to block the deal at any cost.

Simple “Valuation exercise”:

I would assume that the “undisturbed” Celesio share price in the months before the offer was around 17 EUR. So if the deal falls through, at the current price one would experience a loss of -25%.

If we assume that there will be no “top up”, than we can easily calculate the implied current probability that the deal will not happen based on a simple “binary” model:

x = (current price-offer price) / (undisturbed price – current price) = (22.80-23)/(17-22.80) ~ 3.4%

Now if we want to speculate on a top up, we have to make two assumptions: How likely is a top up and how large will it be ? In order to keep it simple, I would assume a 50/50 chance for a top up and as I like “round” numbers, I assume 5 EUR per share or a final offer at 28.

This leads us to the following expected value under those assumptions:

Exp. value Celsio share = (3.4% x 17) + (48.3% *23) + (48.3%*28)= 24.25 EUR or around 10.6% higher than the current share price.

Not a monster undervaluation but still a very attractive “bet” as the time horizon is rather short until the end of January.

A Twist: The Convertibles

Up until recently, Celesio had to struggle to refinance their debts. So they had to offer two convertibles in the past, each with an amount of 350 mn EUR which convert each into 17 mn extra shares (current total shares out: 170 mn).

The 2014 convertible will mature in 2014 nd is not a big issue with regard to the take over. However, the 2018 convertible is in my opinion much more interesting. First of all, the official strike price of 22.49 EUR will be adjusted down in case of a take over to compensate bondholders for the conversion premium paid at issuance.

Unfortunateley, I could not locate the full prospectus, only the 4 page summary from Celesio’s homepage. One 100 k EUR bond allows the holder to convert into 4.448 Celesio shares at the initial conversion price of 22.49 EUR per share.

But now it gets interesting: In the case of a “change of control” event, the conversion price is adjusted downwards based on the following formula:

cls formel

This means that holders of the bonds now get more shares than before.

The “new” conversion price now would be now approx. 18.99 EUR, and the amount of shares accordingly 5.266 per 100k nominal. This in turn, multiplied with a share price of 23 EUR would mean a fiar value of the convertible of 121k or 121%, pretty much exactly where it is trading now.

In total, the 2018 convertible will be exchangeable into 19 mn shares, more than 10% of total outstanding shares at any time after the take over happens. However, this could turn out to be a big problem for McK. Any company doing such a takeover wants to get rid of minorities as quickly as possible and is therefore trying hard to squeeze out shareholders and delist the company.

With the 2018 convertible, this could be very difficult. Even if McK owns more than 95% of the shares, convertible holders could suddenly convert bonds into shares and then make a squeeze out impossible. The 2018 convertible therefore has a quite high “annoyance factor” for McK. In general, when a company has a more complicated capital structure, an “annoying” security can be a very good security to own.

In the case of the convertible, the only possibility for MCK to get rid of the convertible early, is the so-called “soft call feature”. This enables the issuer to call the bond, if the stock price is at or above 130% of the initial conversion price of 22.48. This would mean a stock price of around 29,20 EUR or an implict bond price of 154%.

EDIT: The soft call in the complete prospectus refers to the “applicable” conversion price. So in our case, after a change of control, it would be ~19 EUR and the call level would be around 24.70 EUR. This reduces the upside potential of the convertible, but it might increase the chances of a better offer overall.

That those thoughts are not totally without merit could be indicated via the disclosure int he offer documents that they seem to be already buying busily convertibles with the focus on the 2018 bond:

McKesson International Holdings IV S.à r.l., eine mit der Bieterin gemeinsam handelnde Person, hält 105 Anleihen 2014, welche zum regulären Wandlungspreis Wandlungsrechte in 233.437 Celesio Aktien gewähren, was 0,137% der derzeit ausgegebenen Celesio Aktien entspricht, und zum angepassten Wandlungspreis infolge eines angenommenen Kontrollwechsels am 17. Januar 2014 Wandlungsrechte in 242.494 Celesio Aktien gewähren,
was 0,143% der derzeit ausgegebenen Celesio Aktien entspricht, sowie 139 Anleihen 2018, welche zum regulären Wandlungspreis Wandlungsrechte in 618.327 Celesio Aktien gewähren, was 0,364% der derzeit ausgegebenen Celesio Aktien entspricht, und zum angepassten Wandlungspreis infolge eines angenommenen Kontrollwechsels am 17. Januar 2014 Wandlungsrechte in 730.042 Celesio Aktien gewähren, was 0,429% der derzeit ausgegebenen
Celesio Aktien entspricht.

Swimming with the Sharks

Why did I call this “Swimming with the sharks” in the headline ? Well, this is clearly not a small unknown company. We have Goldman Sachs (advisor McK) and Elliott in the game, both very very clever financial market players which i would consider as “sharks”.

The true “decision” tree ogf the players involved clearly includes a lot more branches with some of them resulting in negative payouts for “innocent bystanders”. So there is always the possibility that one ends up as “prey” in such situations, so be careful and don’t bet the house on any outcome.

So to summarize this quickly:

1. The Celesio share looks like “good value” if one believes in a certain upside due to the Elliott involvement and no dirty deals on the side
2. The 2018 convertible looks like the even more interesting part. In order to get rid of this bond, MCK will have to offer ~30% more than the current price which I think is very likely even if the Elliott trade doesn’t work out

In order to play both “games”, I will allocate 1.25% each for the portfolio, the stock and the 2018 convertible at current prices (22.80 EUR, 121%).

Performance review October 2013

Performance October 2013

October 2013 was the best month for the Benchmark (50% Eurostoxx, 30% Dax, 20% MDAX) since January 2012 with a gain of 5.9%. The portfolio increased only by 3.1% resulting in an underperformance of -2.8%. YTD 2013, the portfolio is up 30.5% against 24.4% for the benchmark.

Clearly the ~20% cash position explains almost half of the underperformance. Other underperfomers were Sol Spa (-9.4%), Cranswick (-8.6%). On the plus side was EMAK (+27%), Installux (+11.8%), Tonnelerie (7.6%).
Read more

Performance review September 2013


September was a very strong month in most markets. The Benchmark (50% Eurostoxx, 30% Dax, 20% MDAX) gained 5.6%, this is the best month for the market since January 2012, where the BM started into the year with an 8.4% gain. Interestingly in September, the Eurostoxx outperformed both, DAX and MDAX.

The portfolio gained 4.9%, an underperformance of -0.7%. As discussed many times, I expect the portfolio to underperform in these markets, especially now when I own around 25% cash.

On a year-to-date basis, the portfolio is still ahead the benchmark with a gain of 26.6% against 17.5%.

The September performance was boosted significantly by two special events: The new buy out attempt for Rhoen Klinikum (+8.6%) and the minority buy out of EGIS (+30%). Other outperformers were Sol (+9.1%), Tonnelerie (+9.7%) G. Perrier (+9.5%), IGE (+7.1%). Underperformers were April (-1.3%) and Miko (+1.6%).

Nevertheless it is also important in my opinion to assess the own performance as objectively as possible with regard to skill and luck. Yes, 26.6% YTD sounds like a lot of skill. But in reality, there is a huge percentage of luck (in the form of BM performance) involved as well. European small and mid cap indices are performing like crazy (MDAX +30% YTDT, French mdi/small caps +22%, Italian Small/midcaps +31% and +37)%. As I am investing mostly into those small and midcaps, my performance doesn’t really look so good compared to those benchmarks. Yes, the decision to invest half of the portfolio in French and Italian small and midcaps was a good one, but the stock selection was rather mediocre and the cash allocation so far value destroying.

Portfolio activity

Portfolio activity was rather high with 3 transactions. I sold Pharmstandard after a few days because I overlooked an important aspect (record date). I increased the Rhoen Position and I added Trilogiq as a new “half” position. I am actually considering putting a “hard” limit on portfolio transactions per month in place (maybe 2 or 3)

Portfolio as of 30.09.2013:

Name Weight Perf. Incl. Div
Hornbach Baumarkt 3.9% 8.8%
Miko 2.5% 4.3%
Tonnellerie Frere Paris 5.9% 99.9%
Vetropack 3.8% 7.3%
Installux 2.8% 24.5%
Poujoulat 0.8% 11.4%
Cranswick 5.5% 44.7%
April SA 3.8% 33.0%
SOL Spa 2.9% 54.9%
Gronlandsbanken 1.8% 12.3%
G. Perrier 3.7% 50.3%
IGE & XAO 2.1% 18.5%
EGIS 3.2% 35.0%
Thermador 2.6% 8.2%
Trilogiq 2.4% 8.4%
KAS Bank NV 4.9% 45.7%
SIAS 5.1% 75.1%
Dr√§gerwerk Gen√ľsse D 8.2% 169.2%
DEPFA LT2 2015 2.6% 67.3%
HT1 Funding 4.1% 49.9%
EMAK SPA 4.6% 54.2%
Rhoen Klinikum 4.6% 12.1%
Short: Prada -0.9% -17.5%
Short Lyxor Cac40 -1.1% -17.5%
Short Ishares FTSE MIB -1.9% -15.4%
Short CHF EUR 0.2% 6.4%
Cash 21.9%  
Core Value 48.0%  
Opportunity 33.9%  
Short+ Hedges -3.8%  
Cash 21.9%  

Performance review August 2013 – Comment: “Circle of Competence”


The portfolio lost -0.6% in August, compared with -1.1% in the BM (50% Eurostoxx, 30% Dax, 20% MDAX). YTD the portfolio is up 21.4% against 12.5% for the benchmark.

The major driver was of course the 25% cash allocation in a down month, the single stocks were all within low single digit perfomance in either direction, so nothing special here.

Portfolio transactions

August was a rather active month with 4 relevant transaction:

1. AS Creation was sold out
2. MIKO came in as new “Core Value” investment (half position)
3. A 1% position in Pharmstandard as potential special situation was established
4. In parallel, I am building up a position in a yet undisclosed French company where I did not yet manage to write a post but I include it “anonymously” in the portfolio

Portfolio as of August 31st 2013

Name Weight Perf. Incl. Div
Hornbach Baumarkt 4.0% 5.0%
Miko 2.6% 2.6%
Tonnellerie Frere Paris 5.7% 82.6%
Vetropack 4.0% 6.8%
Installux 2.6% 14.2%
Poujoulat 0.9% 11.4%
Cranswick 5.4% 33.0%
April SA 4.1% 34.7%
SOL Spa 2.8% 42.3%
Gronlandsbanken 1.9% 12.3%
G. Perrier 3.6% 37.8%
IGE & XAO 2.1% 10.6%
EGIS 2.6% 2.5%
Thermador 2.6% 3.0%
Not yet disclosed 0.6% -1.9%
KAS Bank NV 4.9% 37.0%
SIAS 5.1% 49.6%
Dr√§gerwerk Gen√ľsse D 8.5% 168.9%
DEPFA LT2 2015 2.6% 61.4%
HT1 Funding 4.2% 48.3%
EMAK SPA 4.8% 53.3%
Rhoen Klinikum 2.3% 17.0%
Pharmstandard 1.1% -0.6%
Short: Prada -1.0% -20.7%
Short Lyxor Cac40 -1.1% -13.0%
Short Ishares FTSE MIB -1.9% -11.5%
Short CHF EUR 0.2% 6.9%
Cash 24.8%  
Core Value 45.5%  
Opportunity 33.6%  
Short+ Hedges -3.8%  
Cash 24.8%  

Comment: Circle of Competence

For most value investors, Warren Buffet’s concept of “Circle of Competence” is a very important guideline.

Here is a video of the Oracle himself explaining the concept.

Most famously, he avoided the Dotcom bubble by staying within his circle of competence and not investing in tech companies. Many people therefore take this advice as granted and tend to stay in an area which they know best, like German small caps etc.

However I have a serious problem with this concept or at least with the interpretation of it.

First of all, in reality, each of us is born without any circle of competence with regard to investments. So whatever you consider as your CoC now, has been outside your initial CoC. So at one point in time one had to step out this “zero CoC” to build up any kind of competence.

It is also funny to listen to Warren Buffet explaining this concept. His CoC is HUGE. Clearly, his most well-known investments are Coca Cola, Gilette etc. But if your really follow his investment career, you can clearly see that he continuously expanded his circle of competence..

I mean he started with delivering newspapers and putting pinball machines into Barber shops, but then over his career he almost did everything. Starting with buying department stores, newspapers, he invested in commodities (Silver) Chinese companies, Israeli companies, sold CDS, S&P 500 puts, bought reinsurance companies, provided LBO financing etc. etc.

Expanding one’s CoC however only works if you step outside your CoC a least a little bit at one point in time. Clearly, jumping blindly without any knowledge for instance into US listed Chinese stocks normally does not end well.

I think the best way to expand one’s circle of competence is along the following dimensions:

a) Geographically
So if one has a lot of knowledge in one sector like for instance car manufacturers, it is not that difficult to look at those companies in other countries in order to gain experience. Due to the fact that many companies today are very international, this kind of knowledge in my opinion is extremely important anyway. Just looking at the 3 German car manufacturers for instance is a quite useless task. Usually it is easier to look at “familiar” countries first before going to more exotic places. In that way it is easier to learn about specific issues in other countries if you know the sector well.

b) Sector wise
Similar to geographically, it is also relatively easy to move from a sector one knows well to a sector which is in some way connected. So if you are strong in chemicals, to their direct suppliers (Oil companies) or customers should be easier if not necessary. If you know a lot about consumer staples, retailers would be logical next step etc. etc. For me for instance, it was much easier to understand IGE & XAO, the Electro Cad software company after I had analysed what their client G. Perrier is actually doing

c) Along the capital structure
A more unusual way to expand one’s circle of competence is along the capital structure of a company. Usually many people buy stocks and then maybe some bonds. However if you want to more systematically improve your knowledge, start with a company with a more complicated capital structure, including, bonds, loans, Hybrid debt, convertibles and work your way thorough. You will be rewarded with a much better understanding how the financial side of a company works and you might dicover some interesting opportunities along the way.

There are clealry many ways to expand one’s circle of competence, but the three mentioned have worked quite well for me. I think it is important to move in relatively small steps and be patient. Whenever you step out, you will most likely experience a set back, but one should consider this as an investment.

So to sum it up: Don’t let you fool you by Uncle Warren. If he would have stayed with delivering newspapers and putting pinball machines into Barber shops, he most likely would not be one of the richest people of the world. Only if you expand your circle of competence continuously, you will reap the reward over time. However make sure not to jump too far…..

Performance review July 2013 – Comment “Did you see the Gorilla ?”


July was a strong months for equities. The Benchmark (50% Eurostoxx, 30% Dax, 20% MDAX) increased by +5.0%, resulting in a YTD performance of 12.5%. The portfolio in comparison gained “only” 3.1%, YTD it is up 21.4%.

The underperformance in July is to be expected. 25% of the portfolio is now in cash, a further 7% in bonds. Most of the stocks have betas significantly below 1. So underperformance in a strong market should be expected.

Best performers were some of the French stocks, G. Perrier +18.6%, April +16.0%, plus Dart Group at a whopping +25.2%. Losers were AS Creation -8.7% and EGIS -4.6%.

The only 2 transactions in July were the complete sale of Drat Group, with a gain of total +226 and my add ons to the Hornbach position. Due to low trading volume, I only got up to 4% from 3.7%, so I will continue to buy in August.

Portfolio as of July 31st 2013

Name Weight Perf. Incl. Div
Hornbach Baumarkt 4.0% 6.1%
AS Creation Tapeten 3.6% 27.7%
Tonnellerie Frere Paris 6.1% 96.8%
Vetropack 3.9% 5.8%
Installux 2.6% 14.2%
Poujoulat 0.9% 11.4%
Cranswick 5.3% 33.4%
April SA 3.9% 30.5%
SOL Spa 2.7% 35.3%
Gronlandsbanken 1.9% 12.3%
G. Perrier 3.6% 40.2%
IGE & XAO 2.0% 7.6%
EGIS 2.5% 1.3%
Thermador 2.6% 3.9%
KAS Bank NV 4.7% 31.9%
SIAS 4.9% 43.0%
Dr√§gerwerk Gen√ľsse D 8.9% 181.3%
DEPFA LT2 2015 2.6% 63.5%
HT1 Funding 4.2% 49.4%
EMAK SPA 4.8% 54.5%
Rhoen Klinikum 2.3% 21.4%
Short: Prada -0.9% -15.8%
Short Lyxor Cac40 -1.1% -14.2%
Short Ishares FTSE MIB -1.9% -10.4%
Terminverkauf CHF EUR 0.2% 7.1%
Cash 25.5%  
Value 45.7%  
Opportunity 32.5%  
Short+ Hedges -3.8%  
Cash 25.5%  

Comment: “Did you see the Gorilla ?”

There is a classic psychological experiment being done in many seminars which goes the following way:

A video is shown with two 3 person basketball teams, one with white shirts and one with black shirts. Both teams in a somehow chaotic fashion pass the ball to each other. The viewer gets the task to count the passes between the white shirt players over a time period of around 90 seconds.

You can try this yourself for instance here:

Participants get then asked how many passes were played. Most participants get the number right. The second question then is unexpected: Did you see the gorilla ?

I have to admit that when I did this experiment the first time in a seminar, I didn’t see the gorilla. I had the exact amount of passes, but no, I didn’t really see that a guy in a gorilla costume was walking slowly through the picture.

In my opinion, the current situation in the financial markets is very similar. Everyone (and his grandmother) is looking at Ben Benanke. Every single speech gets analysed down to the last word and market react violently on any interpreted change etc. Every speech, minutes etc. get analyzed over and over. For me, watching every word of Bernake is like counting the passes of the white shirt basketball team.

Yes, the FED does impact certain things but real business activity depends on a lot of other things. If you are a Bavarian “Mittlest√§ndler”, you do not build a new production hall because Ben Bernanke is saying this or that. You expand if you expect more orders from China, Brazil, Australia etc.

And this is in my opinion the big gorilla dancing in front of our noses: The slow down of the BRIC (and associated) economies. Despite any faked official numbers it is clear, that the high time of BRIC/EM growth is over. I watch closely many companies which are active in China and all of them are reporting problems. Interestingly, very few people seem concerned about this. One can now read many articles which talk about “soft landing” in China or “decoupling” of the US. Yes, both of those things could happen, but my experience tells me whenever you here “soft landing” and “decoupling” you should actually prepare for the worst case.

So what does that mean for the portfolio and investment strategy ?

For me, it doesn’t mean to get out of the stock market right now. Market timing is an art I do not understand. Nevertheless I will follow (further) some general guidelines:

– be extra careful with companies with EM market exposure
– rather err on the conservative side when analyzing companies. Take less risk, not more.
– focus more on special situations
– do not rely on stock momentum for existing position. Sell when too expensive
be patient, don’t invest just because cash is piling up
– expect and prepare for significant underperformance in the next few months
– Don’t count the passes, but focus on the Gorilla …..

Performance June 2013

Performance June 2013:

Performance in June 2013 for the portfolio was -1.6% against -4.3% of the BM (50% Eurostoxx, 30% Dax, 20% MDAX). YTD, the portfolio is up +17.7% against 7.1% for the BM.

Interestingly, this was the first negative month for the portfolio after 18 consecutive positive months, for the BM the “run” were 12 months of positive returns. The positive aspect is the fact, that the draw down was a lot less than the benchmark, even adjusted for cash.

Graphically this looks as follows:

Positive contributors were EGIS (+6.6%), Rhoen (+6.5%). Loosers were SIAS (-15,1%), EMAK (-12,4%), AS Creation (-7,1%).

Portfolio transactions

As discussed, I closed the Kabel Deutschland short after the official offer of Vodafone. The result was a loss of ~-22% on this position.

Only new entry of the month was Thermador. In order to remain within my 20% allocation to France, I sold Bouygues at the same time, resulting in a profit (incl. dividend) of ~+11%.

Portfolio as of 30.06.2013

Name Weight Perf. Incl. Div
Hornbach Baumarkt 3.7% 2.4%
AS Creation Tapeten 4.0% 39.2%
Tonnellerie Frere Paris 5.8% 81.6%
Vetropack 4.1% 6.6%
Installux 2.7% 14.2%
Poujoulat 0.9% 11.4%
Dart Group 4.7% 167.3%
Cranswick 5.7% 37.0%
April SA 3.5% 12.5%
SOL Spa 2.7% 31.5%
Gronlandsbanken 2.2% 23.2%
G. Perrier 3.2% 18.8%
IGE & XAO 2.0% 4.8%
EGIS 2.8% 7.6%
Thermador 2.7% 1.5%
KAS Bank NV 4.7% 28.7%
SIAS 4.8% 36.7%
Dr√§gerwerk Gen√ľsse D 9.1% 180.1%
DEPFA LT2 2015 2.6% 58.3%
HT1 Funding 4.6% 56.2%
EMAK SPA 4.6% 45.1%
Rhoen Klinikum 2.3% 18.1%
Short: Prada -1.0% -15.3%
0 0.0% 0.0%
Short Lyxor Cac40 -1.1% -11.0%
Short Ishares FTSE MIB -1.8% -3.6%
Terminverkauf CHF EUR 0.2% 6.9%
Cash 20.4%  
Value 50.5%  
Opportunity 32.9%  
Short+ Hedges -3.7%  
Cash 20.4%  


Nothing really new.

Performance review May 2013 – Comment “Position sizing”


May has been s surprisingly good month for the portfolio. Despite ~15-20% cash, the portfolio gained +4.9% against +4.5% for the benchmark (50% Eurostoxx, 30% Dax, 20% MDax). YTD this results in +19.6% against +12.0% for the Benchmark. Since inception (Jan 1st 2011), the score is now +57.7% against 22.1%. As I have said many times, this is still highly unusual if the portfolio outperforms in such a strong month, especially now with the high cash percentage.

Main drivers were: EMAK (+27%), Dart Group (+22%), April (+16%) and Tonnellerie (+13%)

Portfolio activity

May has been an unusual active month. As discussed, the following transactions took place:

– sale of IVG convertible with a total loss of -16,3%
– sale of Buzzi with a total gain of +34% (incl. dividends)
– Sale of KPN shares & rights with a gain of 11.1%
– Purchase of IGE & XAO
– Purchase of EGIS
Edit: – Short Position Focus Media has actually been bough, exit with a loss -11.9%

Portfolio as of May 31st 2013:

EDIT: Buy out of Focus Media updated

Name Weight Perf. Incl. Div
Hornbach Baumarkt 3.7% 3.4%
AS Creation Tapeten 4.3% 49.3%
Tonnellerie Frere Paris 5.7% 83.3%
Vetropack 4.1% 9.7%
Installux 2.7% 10.1%
Poujoulat 0.8% 6.4%
Dart Group 4.7% 171.2%
Cranswick 5.4% 33.8%
April SA 3.6% 19.4%
SOL Spa 2.7% 35.8%
Gronlandsbanken 2.1% 23.2%
G. Perrier 3.0% 11.3%
IGE & XAO 2.0% 4.1%
EGIS 2.5% 0.4%
KAS Bank NV 4.6% 27.6%
SIAS 5.5% 59.5%
Bouygues 2.4% 7.0%
Dr√§gerwerk Gen√ľsse D 9.2% 186.2%
DEPFA LT2 2015 2.7% 64.1%
HT1 Funding 4.6% 58.2%
EMAK SPA 5.2% 64.9%
Rhoen Klinikum 2.2% 10.8%
Short: Prada -1.0% -20.4%
Short Kabel Deutschland -1.0% -5.7%
Short Lyxor Cac40 -1.2% -15.5%
Short Ishares FTSE MIB -2.0% -14.0%
Terminverkauf CHF EUR 0.2% 7.9%
Cash 21.0%  
Value 47.5%  
Opportunity 36.4%  
Short+ Hedges -4.9%  
Cash 21.0%  

Comment “Position sizing”

One topic which constantly bugs me is how to size positions.

There are two extremes:

On the one side, Modern Portfolio Theory (MPT) says that the only kind of “free lunch” available is diversification. Adding additional positions means more or less the same returns but with lower risk.

On the other side are very succesful investors, including of course our heroes, Warren and Charlie, argue that one should concentrate on the big ideas only as those are the ones which drive the returns. Similar results come out of the “Kelly criterion” which says that you should bet overp proportionally more if the odds ar in your favour.

Personally, as a “part time” investor, I have the following problems:

1) I can oversee only a limited amount of companies&investments, my max is around 25-30 based on experience. So further diversification on a single investment level does not make sense

2) As I am in general very sceptical and commit only a limited time per day on research, I never really came to a stage where I was 100% sure about any investment. Even if I am 95% sure I have the nagging feeling that I missed something

3) I usually find my “edges” only in small cap stocks or smaller special situations. Small companies have much more unique risk factors than large caps. It is a real difference in risk if you invest lets say 40% into a small French software company than investing 40% of your portfolio into an international company like American Express

Point 2) is really the major issue why I hesitate to commit more than 10% of my portfolio into a single stock. I am just not confident enough in any company or investment to do so.

Looking back, my historical best investments, like for instance German bank hybrid in 2009 was made under a lot of uncertainty and I didn’t really know for sure if it plays out the way it did. The same goes for Draeger. Yes it was a multi bagger, but at least for me I was never really sure about it.

On the other hand, some small ideas where I didn’t really have a lot of conviction, performed outstanding, like Dart Group which was rather a kind of “mechanical” buy. Also sometimes a basket approach to risky or very illiquid small caps (France) makes sense.

In general, I think that there is no single optimal strategy for postion sizes. As every part of the investment process, this has to fit with the overall character of the investor, including risk tolerance, investment style and time available. With regard to the “kelly formula”, I have the fundamental problem that I neither determine the payouts nor the probabilities, so this is not a big help eithet.

For the time being, I do not have a better system for my personal situation than my current one which looks like this:

–> Full positions at 5% (increase via peformance until 10%)
–> half positions at 2.5% if I buy into a stock
–> plus a basket approach for my illiquid French small caps.
–> occasionally small position for “half baked” ideas
IMPORTANT: Weed out weak conviction positions if overall numbers of investments get close to 30 single stock investments (long & short, ex index hedges)

So far it has worked quite well, but there is always room for improvement.

« Older Entries Recent Entries »