The company which collects toll fees at highway bridges in China and pays out a large share of the profits as dividends has been a long term holding in my private portfolio. But all good things come to an end. Time to sell Yuexiu Transport and Infrastructure it has been treading water for a while and the weak RMB risk to dissapoint investors at the next result update. I sell the full position as of todays close.
At the same time I enter a 3% position in the train and railway maker CRRC listed on the Hong Kong exchange. China has big plans for it railways but also to export their knowledge and sell trains and new railways around the world. Somewhat tricky owning a company which is so controlled by the Chinese government, but I believe this company will be a winner in the Chinese One Road One Belt strategic plan.
Most of my portfolio holdings are tied to a theme, with a few exceptions. The idea is to give me some tailwinds in my investments over the long-term. A risk is that you overpay for the tailwind, due to Mr market already pricing in a rosy future. When I evaluated other portfolio managers, we would say it’s extremely hard to call Macro events, a pure bottom-up stock picker has a better odds to create alpha. The problem for me is that this is a hobby, so I do not have the time, to sift through that many companies, to find the undervalued few gems. I need to think in bigger strokes and trying to exploit that I can see where the world is moving before the crowd does. I also see some edge in how long term I can hold the strategy and that I can express my views globally through big and especially small companies, that a fund manager can’t trade in. So let’s go through the Themes, I list the weight to the theme and the companies I invested in to ride the theme.
Virtual Reality (5%) – Sony
First up is a brand new theme in the Portfolio and therefore as of yesterday close, the portfolio has a new holding – Sony Corp bought at 5% weight. (Sorry I am a bit late to announce it). My bet is that VR products will be the Christmas gift of the year 2016. It’s not a hype, it’s real, and it will become mainstream very quick. Sony is well positioned to ride this trend.
Electric Vehicles (17%) – BYD, Coslight Technology, Highpower Int
I have talked a lot about Electric Vechicles, when I started my research about a year ago, it was not such a hype yet. Now a lot of junior Lithium miners with a potential mine up and running in 6 years have gone up 300% the last 6 months. Well the hype is here, I have struggled a bit how to express my view and belief that we will all be buying electric cars in 5 years (Getting it right). Currently I’m riding a shorter trend more geared towards China and how Chinese subsidies are helping my current holdings, which all are battery makers and BYD who also successfully sell electric buses around the world.
Modern Web-based Banks (11.7%) – Skandiabanken, Avanza Bank
I work in banking, I know what is happening, most us do and we are scared. Because we know a lot of the things we have been making money on for ages is going away – and it is going fast. It’s niche players as the companies I own that will be able to navigate this and come out as winners as Titans as Deutsche Bank and others fall helplessly. Or better yet, are bought by a Titan.
So almost everyone that invest in China/Asia is bullish on the whole Chinese middle-class consumer play. It’s easy, 300-400 million new people enter the middle-class and they want all the products and services we westerners consume, so buy companies that produce what they consume? Yes and no. Yes because the underlying story still holds, No because the obvious ways to play it through regular consumer staples companies etc is too expensive, the multiples are really high. I found my ways to play it, which I think brings a nice risk-reward.
Strong Growth/Consumption in Nordics (12.4%) – Ramirent, MQ
The Nordic consumer is today rich, richer than ever before, for a few reasons. Unemployment is low, interest rates are negative, house prices are at top or close to top levels, equity market is OKish. All in all, there is spending power. So we will build and we will consume, I found two companies were one is a bit of turnaround and the other has found a strong CEO/leader.
Stock Specific (16.8%) – Criteo, Zhengtong Auto, Microsoft
This is a mix of Criteo being a high growth company, Zhengtong Auto being a deep value play and Microsoft being somewhere in between.
I was expecting a higher degree of PTBD – Post Traumatic Brexit Disorder. But some markets are all almost back to their pre-Brexit highs. The Global Stock Picking portfolio fared extremely well and was even up on the Brexit week.
So here it is, performance updated with 3 new fresh weekly data-points:
Holdings as of yesterday:
Comments
The small-cap battery maker Coslight Technology has rallied sharply lately, without any major news. This is very common in smaller Chinese companies and it would not surprise me if good news of some sorts will be released within the coming months. Don’t underestimate insider-trading in China. The stock is high risk, high reward, so I might reduce my position if it keeps rallying. I have also read reports that the battery market in China is turning into an oversupply situation, at least short term towards end of 2016.
The weakness in the portfolio came rather the week before Brexit, with for example the Swedish clothes company MQ that I had my doubts about falling sharply. Here I regret not at least slicing my position when I had doubts, that would have saved me some dollars. I still believe though that the company has got a very good CEO, so long-term still feels OK-ish.
NetEase (which I increased my weight in recently) has soared on smaller news and analyst upgrades, I still feel there is upside short-term and long-term.
Yuexiu Transport might need to be sold, since they are hurt by the RMB weakness and it seems the Chinese government is on a path to further weakness. I need to do a more proper evaluation before deciding.
As a last comment, cash levels is somewhat high, although very short term (1-2 weeks) I think we will see a pull-back. I need to find 1-2 new investments, and potentially add to one of my current holdings.
The hardest hit sector due to Brexit is definately the European banks. Banks like Standard Chartered and Deutsche Bank have been making headlines long before Brexit with share prices plummeting. To me the share price weakness is starting to smell like a buying opportunity in selected European banks. On top of my list is Stan Chart, Credit Suisse and Deutsche Bank.
Lets put things in perspective by looking at Market Cap of the Swedish bank SEB (in red) which has performed reasonably well the last 5 years to the devastating performance of its much bigger competitors (i threw in Santander as well). Please observe the logarithmic scale.
As can be seen Stan Chart, Credit Suisse and Deutsche all have a total value in the same tange as tiny SEB. Top line revenue is a factor 5-7x larger for these companies compared to SEB. So is SEB expensive, the other three cheap, both, or the market is valuing these correctly?
My wager is on one or several of these giant banks being cheap at the moment, more study is needed before i take an investment decision.
It was the heat of the moment, as the 80s rock group Asia used to sing. For me personally true on several levels as Im taking some vacation in very hot Italy while the Brits decided to turn up the heat in the financial markets – wow I did not forsee that at all. Especially when the last polls just before the vote counting started, came out with 52% for Bremain. I should have listened to my old boss, who is british, he called this a long time ago.
Initial responses were strong sell offs in European equities (for the markets that were open) and of course an equally sharp response in the currency markets with GBP being the big loser. Interesting was that SEK and NOK traded even weaker than the EUR. From a USD investor perspective, as this is the denomination currency of the blogs fund, I see attractive opportunities in Europe where both stock prices dived and currency weakened against the USD.
My portfolio is somewhat underweight European stocks which will help somewhat to keep ahead of the benchmark, although a few of my holdings have really suffered lately. I plan to deploy my cash buffer from the SAS Pref sale a few weeks ago. Interesting times indeed..
SAS came with a surprisingly weak quarterly report today, well below consensus estimates. On top off that the Swedish Pilots are threatening to strike again and are demanding 3.5% salary increases as well as stronger protection for newly hired pilots (bacisxally meaning they should be paid well too). Although all this is not catastrophy as a Preference share holder, I no longer see the same upside in the Pref. In this case I must say my analysis done 3 months ago, so far turned out wrong, but my bet on the Pref share anyway turned out above expectation. I sold the first half a week ago and Im happy to give away the rest of my Prefs at these levels.
Incredible start to my fund +8% in less than three month – annualize that! This really shows what a skillful investor I am – just joking I have been lucky. This is way too short time-frame to evaluate an investment track-record, but it sure feels nice to have a bit of outperformance from the start.
A big contribution was of course the SAFT position which I now have sold, this gave almost 2% outperformance. I also managed to avoid heavier losses by taking action and cut my holding in Highpower International. The portfolio feels good, the weaker stocks in the portfolio as I feel right now are MQ and Yuexiu Transport. The Swedish retail market for clothes has come in much weaker than I would have thought and even if I believe in the new CEO for MQ (my reason for investing) that might not be enough. Yuexiu a owner of toll-roads in China, with very stable cashflows (high dividend) I’m worried of the weakening RMB having a big effect on results as well as government rulings on electric vehicles travelling for free through the tolls.
Portfolio stats
Although the portfolio is a mix and mash of very different styles, here is the Bloomberg harmonic weighted averages of some quick stats for the whole portfolio:
Dividend Yield: 1.81%
P/E: 15
P/CF: 6.54
P/B: 1.48
Debt/Equity: 191%
The trailing P/E is so high mainly because of Criteo, Ctrip and Coslight, the rest of the book is more Value oriented with a P/E between 5-15. But it is a conscious choice to blend the portfolio. The Debt levels are high from my Financials who carry much debt on the balance sheet.
Around the same time as I started this blog I also switched into a new area in my team at work. I’m once again faced with the struggle and joy of learning new things at work. As everyone interested in the field of finance, I read a tremendous amount of financial news stare at stock charts, etc. The deeper I delve into Finance there more I get the feeling how incredibly much there is left to learn. When I still was in University I was a more confident investor than I am today, when I today know probably 10 times as much.
We all know examples of extremely clever people, still making huge mistakes in investing, maybe the most famous one being Long Term Capital. You can be one of the world’s best at company valuations, knowing all the ins and outs of a balance sheet but still makes big mistakes. Investing requires you to be a master of so many fields, it’s more or less impossible for a single person to be all that. We can see how people try to handle this by narrowing the universe of what they are looking at, for example only one country or one sector across countries. Another way to slice it, is to become a master of an investing style. Many bloggers and investment professionals focus on one style, for example Small-caps, Value, others look at Growth, and some try to combine styles for example GARP (Growth At Reasonable Price), small cap Value etc. Other skip companies and invest more through Macro views, or given the low interest rates, Quality companies and High Dividend strategies has gained popularity. I have also seen a trend (hehe) more recently of Momentum investing gaining traction also outside of the CTA/Trend-following hedge fund space. All these styles requires tremendous effort to master fully – and I’m sure nobody is master of all.
Don’t choose your style to quick
In essence, the more knowledge you gain, the larger the chance is that you can skew the odds in your favor and generate alpha. It’s a never-ending learning journey where curious knowledge seeking people can express their knowledge into investment ideas – and potentially reap the rewards. I think that is the core of why I love working in and with Finance. I have still not reached the stage where I found my “style”. But I don’t want to rush it. I feel a lot of people for example read about Buffet and Munger’s success in investing and then they just decide – I want to be a value investor. They then gather up all great written books about Value investing with the mindset of, I want to learn to become a great Value investor. But they never really gave for example Growth investing the same chance to shine. They did not have a good picture of what the different investment styles had to offer, they already plunged in and decided Value investing is my thing. Well maybe it is, but for me personally I want to spend a few more years understanding both stock markets around the world, different sectors, as well as different investing styles. Because if it’s one thing I learnt from meeting all these great managers out there, with great track-records of alpha generation – there is not one style that is superior to others, all different styles of investing can work, if you do it right. And maybe as important, different investing styles will outperform during different times. We all know the story of how people laughed at Buffet around year 2000, and how his Value investing style came back with a vengeance when the bubble burst.
Weekend reading
In the spirit of learning more I have spent a larger part of the weekend reading up on different blogs, and also watched a fair amount of material on Youtube. Internet truly is a marvelous place for all us knowledge thirsty people. I wanted to share some good material I have come across.
I recently read a book by Guy Spier called The Education of A Value Investor. I read it after a recommendation from the blog Value and Opportunity.
In the book Guy talks about how he transformed his life in the pursuit of becoming a better investor. The book kind of grew on me, from being a bit skeptical in the first 3-4 chapters on what the “Value” for me was reading about Guy’s life, but it came around towards the middle of the book, delivering a lot of thoughtful insights. So I would also recommend a read, not so much for investing insights, but rather for personal change. One of Guy’s mentors is his friend Mohnish Pabrai, which he talks warmly about in the book as a great investor. Today I came across a blog that promoted a Video-lecture by Monish. I found the full material somewhat to long-winded, but I loved the short 5 min quick version of what Mohnish talked about, please check it out: Presentation on Stock Bubbles
I found the material resonated a lot with my own thinking, that the markets are currently a bit crazy, pricing FANG stocks (Facebook, Amazon, Netflix, Google) and others like Tesla at crazy multiples. We are in something of a new Nifty-Fifty scenario – and I don’t like it (since I don’t do shorts).
A hated guy who gives a lot
I read on another blog about someone called Martin Shkreli. I googled it and found out it’s that hated guy in the US that raised prices for a drug he bought the patent for. Well I guess I had too much time, but I spent like 2-3 hours watching videos of him and how he is building a fan-base through YT and other channels by actually responding to all the hate. He sits hour after hour and answers his phone from angry callers (you can watch it all through his YT live-stream) and explain things from his perspective, and his arguments are actually convincing. Anyhow, what I wanted to mention is that he also spends lots of time to educate the once interested in learning more about investing and valuation of companies. So if you would want to learn more about how to value companies do check out his videos, here is a link to his first lesson on Finance: Introduction to Investing
So my biggest position in the portfolio is the SAS Preference shares, this is somewhat of a high yield bond position and therefore has a different kind of characteristics than the rest of the portfolio. For instance the position would lose in value if/when the Swedish Riksbank decided to hike interest rates. I think the position has performed tremendously well, +6% since investment and even more (+7.5%) since I recommended buying the SAS Pref in one of my first posts on the blog. Given the strong performance I decided to slice my position in half as of today and I will soon allocate my money elsewhere. Although I don’t mind keeping a bit in cash after a good run over the last couple of weeks.
Another observation, SAS ordinary is trading at P/E of about 6.5 and Lufthansa P/E is below 5. Either profits are going to come down or valuations up in a not too distant future. If I look at ticket pricing the last 12 months, I’m guessing we as customers are getting a lot of the oil-price decrease. So another reason to stay a bit cautious on the SAS Prefs.
Poor Value investors
An Article has been hitting headlines the last few days talking about Growth vs Value investing:
“Using a formula created by Ned Davis Research that tracks changes in the relative performance between the two styles, growth has been in an uptrend versus value since July 2006, a stretch of dominance that outlasts virtually every other feature in the American stock market. At present, growth’s edge has gone on about three times what it normally has since 1932 and is the longest in history.“
In other words, it’s been pretty shitty being a Value investor over the last 10 years. But the bigger point is, maybe now it is time to shine? I for one believe that is the case, and I should try to shift my portfolio more towards Value than it currently is, a deeper dive into this is definitely needed as soon as I can find time.
I’m sitting 11 000 meters in the air, over the Siberian tundra writing this post, if someone told me ten years ago that I would be able to do that, I would probably have laughed. Technological advance often goes quicker than we can imagine and it also opens up opportunities for substantial new revenue streams. One such area is how mainstream gaming has become. About 20 years ago when I was a kid growing up, playing NES, early PC-games like Prince of Persia etc, gaming was definitely not mainstream – it was something mostly nerds did. And it kind of stayed nerdy when internet and multiplayer gaming started. We nerds played games like Warcraft, Starcraft, Quake and Counter-Strike. Then around the time when Playstation 2 had gained some traction, something in our society started to change – gaming started to be cool and the gaming industry grew enormously. With the entrance of smartphones the world was ready for the next level of gaming – suddenly even our mom’s became gamers, playing Candy Crush in the subway on their way to work. I think we all can agree that games in our daily lives through PC, Consoles and Phones are here to stay and most of us are willing to spend a few dollars now and then for this entertainment.
Throughout the years I have always been impressed with Blizzards game making, in the same way as Nintendo they built a whole world of characters that they re-use in all kind of games. It has become so big that they are just launching a Warcraft movie (I’m watching it tomorrow). In my opinion they also deliver products with immense quality. Blizzard was bought by Activision and one way to gain exposure to their games would be to just invest in Activision Blizzard, but I think I have found a perhaps riskier but better way to play the investment and that is through NetEase. Let’s see what type of company this is.
