Time for some portfolio changes again. I have continued to contemplate what I’m comfortable with in my portfolio and have come to some conclusions:
Philip Morris & Kirkland Lake Gold – Swapping my defense
PM International was bought as a highly defensive holding in my portfolio, a way to get a higher return over time than sitting on cash when I was negative on the market. I have slightly re-evaluated how defensive PM is. Partly because of declining tobacco sales (which I did know about), but because Corona obviously shows the need for healthy lungs, which perhaps will speed up this process. The other part is the debt load that PM is sitting on. Instead I decided to move into the ultimate defensive – gold. My thesis is that all this money printing by FED, ECB and other central banks in combination with banks actually at the same time lending more, will over time devalue fiat currencies. Most likely we will see a short deflationary shock initially, but I think this will turn to inflation for a number of reasons. First the mentioned money printing, secondly because supply chains and just in time delivery is going to revised – at a cost, which also adds inflation. On top of that air cargo will probably be more expensive as well, at least for a few year. With interest rate near zero, the “cost” of holding gold becomes very low at the same time as fiat currency is devalued. I’m not putting on a tin foil hats here going all in on gold, but a small allocation to gold feels good in this case. Kirkland Lake Gold is as close to what I can find to a well run gold mining company in an industry full of crooks. They don’t have mines in countries with problems and have a track record of building a good business creating shareholder value even without gold price going up. So, I’m selling my full holding in Philip Morris as of today, basically around the same levels as I bought it. This gives me some 2.4% of my portfolio in cash. I allocate 3.5% of my portfolio to Kirkland Lake Gold as an Opportunistic holding. Opportunistic because this is more of a mid/short term hedge, than necessarily something I planned to hold 5+ years.
Veoneer – Sell
Another opportunistic holding was car safety company Veoneer. It’s been a hell of a ride these past month, but now I’m back to flat. They have written of parts of their business recently, showing me that things I thought had value seems to have almost none. This was speculative, I can’t say I have been right, neither wrong. But the stock was apparently not as undervalued as I thought when I bought it. The revaluation might come later, but the probability of Geely bidding for Veoneer I think has gone down as well. I choose to move on to other holdings as my conviction is not so high anymore, I sell my full Veoneer holding as of close today, which releases 1.6% cash.
Vinda – Reduce
This stock has had a fantastic performance year to date (up +58%). The stock surge is partly warranted, but partly just hype in Asia around the whole toilet paper thing. I decide to take some profit here and reduce my position from some 7.5% of the portfolio to 5%. There is nothing more sophisticated about it than that I think the valuation is somewhat stretched short term, I think it’s still a great long term holding.
Valneva – back in the portfolio!
Finally Valneva, the company I previously owned, made a quick buck on and then sold. Here is my write-up: Valneva Microcap Vaccine Producer. Later when I sold I wrote: “If I had a strong belief they would succeed with the launch of a Lyme disease vaccine, I would be happy to hold this company through the 5 year process they have in front of them. Instead I will sell my full holding as of today’s close.”. Basically what has changed is that they have landed a good agreement with Pfizer to develop the Lyme vaccine. Thanks to that I know feel the company is investable again, unfortunately I have to pay the price of having this information known. I sold at ~3.4 EUR per share and today I will have to pay ~4 EUR per share. But I feel this is reasonable given that the company might have a revenue share in a new block buster vaccine. Again to weave in the Coronavirus into this case (it feels like you should mention Corona in every stock pick you do nowadays), I think the anti-vaxxers will be less loud when the whole world has got use to taking another vaccine here in the next year or so. It will raise the awareness of how important vaccines can be, and Lyme to be honest is also such a case. This is an important point, because the previous Lyme vaccine was discontinued due to loud anti-vaxxers. I take in Valneva at a 3% position of the portfolio.
Hello, I am assuming you know Hong Kong well but in case you are not currently here, a bit of anecdotal evidence for your DairyFarm position. I was in the Causeway Bay Ikea over the weekend and it was back to the old days, properly busy even down to the most of the sofas being used for socializing in an A/Ced environment. Also I am not sure if you are aware that DF opened the first Ikea in Macau last month … it has proved to be a bit of hit https://insideretail.asia/2020/04/24/ikea-macau-opens-with-a-two-week-wait-to-get-inside/
Thanks for the on the ground update! My worry is if the protest we seen last few days is going to scale up massively again like before. Basically my bet in Dairy Farm has been that such large scale protest with teargas in the streets will not come back. And in a few months HK will open to Macau and China. With mainlanders having few places to travel to, HK will be one off few spots to visit and that will boost Hk economy and Dairy Farm a lot. Would expect 6-7 usd per share again in such scenario
Here is another name you may want to add to your Hong Kong watchlist – 1897 HK – Million Hope Industries. The Company, through its subsidiaries designs, manufactures and installs , aluminium windows, doors, curtain walls, and cladding. Million Hope Industries Holdings serves customers in Hong Kong. Not a very sexy business on the face of it, I grant you but it has it charms, this year on a COVID effected basis (slow down in construction activity) should be on about 7x earnings, net cash is more than current market cap. Aluminium windows are 90% of window installations in Hong Kong and after a series of incidents with windows falling out from a great height the government has installed a rigorous system of window safety checks and licensing of contractors that can install and maintain windows. Furthermore, Million Hope uses a German system for the fabrication of windows that appears to be of a higher quality than the tradition products that have been used.
Positives
– Trades Below Net Cash
– Has an current order back log 3X current market cap. back log is @ HKD 900 million
– David Webb has taken a 5% stake !! (always a interesting sign)
– The government will construct 400k units of public housing in next 8 years in addition to the construction of @ 200k private residential units. This is very supportive for aluminium framed windows.
– Redevelopment of old building / Ginzarisation will support glass curtain wall business.
– Major shareholder is Cha family (Super well connected, in the sense that they are well aligned to HKs future. Their JV project partner since the 1970s on Discovery Bay development is Citic (Chinese Government) and we are not talking some provincial SOE here … it is directly owned by the Ministry of Finance.
Negatives
– Super illiquid even for retail investors
– Major shareholder is the Cha family ( They are honest and run good businesses, pay divs etc … they just don’t seem to care too much about shareprice … 480 HK and 896 HK are well run, have very conservative accounting and some super assets … for example 480 HK owns 50% of https://www.swireproperties.com/en/portfolio/current-developments/hkri-taikoo-hui.aspx which alone is worth twice the market cap of 480 HK if it were ever revalued in the accounts.)
– Competition. Certainly there is some but their area is becoming increasingly regulated and given how HK construction works everyone will get a share, but the pie will grow and given Cha family background I would expect them to grow their share of the pie as well.
Fantastic, when do you start your own blog?
🙂 not for me I am afraid, I would not have the discipline for it …. also it would be very hard to improve on the good ones, like yours.
On the inflation / dilution, is gold as protective ? Will demand by society and the liquidity available to that society be expanded ? Maybe yes, not sure. Also, wouldn’t be more effective to invest in those companies with high demand of their products? Medical stuff / services (Alibaba Health, or Ping Ann Tech) or even cellulose mills….?
I’m not sure, nobody knows for sure what will happen. In my view though, the trust in fiat currency should be lower with this type of printing. USA Debt to GDP is sky-rocketing on back of this. Sure it’s flight to USD short term in the crisis, but when it calms down, what will happen to the USD?
Good post. Same thoughts here on the diluting effect of money printing. This time though it is to provide liquidity to the world that does not have it. Yet there is plenty of locked liquidity (not onlu the UHNWI, but also in pension funds or fonds in general, whose managers step back). Curiously Fundsmith increased PMI exposure (3rd largest position!)…. And PMI anticipates moderate impact on their eps.
I wonder how pmi performs, it is true that in corona times everyone wants clean, healthy lungs. But are all able / ready to sacrifice their tobacco habit? Myself I could not help with chocolate :-s during the lockdown. So the amount of discipline available to each of us is limited, and unless you train it hard, you always eventually surrender. During Katrina, I saw how the most vulnerable and probably less disciplined guys on earth where buying desperately alcohol and tobacco, like there would be no tomorrow.
While there are big societal differences, this example shows that many undisciplined people will keep hung on tobacco consumption. I guess TerrySmithh somehow has this view.
You and Fundsmith might be right that in bad times people smoke even more. Long term trend though I think is for more smokeless. I like my Swedish Match snus and Zyn exposure much more than PM
One of my thesis is that those profiting from higher liquidity will be money managers itself. Blackrock and CharlesSchwab being my preferred.
But like you said yourself, is the stimulus really going to financial asset liquidity this time? Maybe not..