Portfolio changes

I made a mistake..

when I bought XXL 1.5 month ago. The Norwegian sporting goods retailer is expensive without continued growth that I knew. But how solid is the ground in their home markets? After both visiting one of their stores and not having the same positive feeling as before (maybe too much Peter Lynch here) and reading an article from one of their competitors about the very tough environment I started to turn more skeptical.A podcast that I followed woke me up to the fact that I have probably overpaid. I realized today I have probably underestimated the risks in the company. Luckily I’m in USD terms able to come out at a very slight loss. So I reversed my decision today and selling the full position as of today’s close.

Something that I did right..

was buying Skandiabanken when I started this blog. Not my fastest, but a very steady and my largest gain (+120%). During this time the stock has gone from trading at a slight discount to the large banks, to today trading at a good premium. Just as it should be in my opinion, with it’s superior growth rate. But this bank is almost entirely reliant on the Norwegian housing market, which has been in a slide for some time now. Nothing major, and probably it is fine but for the first time I see some clouds on the horizon. Judging from how hot the Swedish property market is and I know the Norwegian one is in a similar state, there is some worry. Any kind of further outside shock which creates higher unemployment could trigger something very nasty. Now it’s up to the company to keep executing and stealing market share from the big boys. I think they can do it, but any failure will set the stock price back now. So I will reduce this holding just before their earnings release, take some handsome profit and keep a smaller position as a long term case. I sell 60% of my holding as of today’s close.

A new defensive..

..in my portfolio. Already as a kid studying finance, I found out that I could increase my Sharp ratio by adding Swedish Match to my portfolio. It didn’t have the highest returns, but it had this wonderful characteristic of being negatively correlated to the rest of the market. That did wonders in terms of risk adjusted returns. Swedish Match does not anymore have a negtive Beta, but it is very defensive and very well run company. There is some huge political risk if for example the European Union would manage to ban snus in Sweden, but I see it as highly unlikely. I start with a small position of 4% and I intend to look at more tobacco companies going forward. I would also be very interested to hear your thoughts on the E-cigarette/Vaping industry, if you believe in that, what would be the best way to gain an exposure?

2 thoughts on “Portfolio changes

  1. Generally, I try to lean towards riding on “mega trends”, one being personal health and well-being. In that regards I’m a bit reluctant towards tobacco companies in general. But on the other hand, E-cig/Vaping, Snus etc, while not healthy per se, are healthier than smoke so maybe it might even fit into some sort of “middle-ground” in that trend play, in lack of a better word.

    With that being said, I rather like Swedish Match as a defensive play, they have stood the test of time, continuous share repurchases and a nice dividend. Actually, as tobacco companies across the board got hit badly by that FDA comment about lowering nicotine levels “combustible cigarettes to nonaddictive levels”(https://www.fda.gov/NewsEvents/Speeches/ucm569024.htm), I bought some Swedish Match myself (trading a bit lower right now after the overall decline in the markets). Contrary to the stock behavior, my interpretation of that FDA letter was NOT “bearish” SWMA, rather the opposite, if they can achieve snus as a “less harmful” product with the FDA.

    The legal stuff could really swing both ways, I’m not really worried about an eventual ban of snus in Sweden, I think the odds rather are on SWMAs side with an eventual lift of the ban in EU. But as with all bureaucratic, time moves slowly.

    Other than that, I lack a good overview of E-cig/vaping exposure plays

    1. I watched this documentary about E-cig/Vapin, called “A Billion Lives”. They make a pretty strong case about it being a much healthier alternative to smoking, and also reference for example Snus. And for many many people the only realistic option to actually quit regular smoking. I agree with you on Swedish Match and I also entered at this moment for that reason.

      The big tobacco brands have also realized this potential of e-cigs and are now creating their own products. For example Imperial Tobacco owns the Blu brand, which is one of the largest e-cigs.

      Then we have Philip Morris, which technology is almost more interesting for people that want to smoke (and not just find an alternative to quitting), where you smoke almost a regular cigarette, called IQOS, which I think personally might be a winner in this.

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