The third quarter of the year has passed and the bull market is still roaring pretty strong. My guess a few years ago would have been that we should have seen a larger setback by now. On this particular point I feel pretty humbled by being wrong for so long. Performance wise I do not feel as humble. I have done quite a number of things wrong during this year, mainly selling stocks too early. But in general I did more things right than wrong and that’s what counts. Let’s go through the performance and some high- and lowlights.
Year to date the Global Stock Picking portfolio is up +24.5%, that compares favorably to MSCI World (Total Return) which is up +17.4%, but lagging Hang Seng (Total Return) which is up an incredible +29.3%. Looking at risk adjusted returns, I’m not faring that well though. Although I have run a large cash position (which lowers volatility) the volatility YTD is at 10.5%, compared to MSCI World at 5.5% and Hang Seng at 11%. So risk adjusted I come out with the worst Sharpe ratio of 2.33 vs 2.66 for Hang Seng and 3.17 for MSCI World. I guess that also says something about the state of things in the markets when a Global Index portfolio is returning a Sharpe >3.
I probably sound like a broken record soon, but this to me is a very late stage bull market and one should plan accordingly. I did make an attempt to discuss the topic recently (Where to hide – a factor approach).
Compare with Hang Seng?
That I have added Hang Seng as a comparison might be somewhat misleading, since my intention is to run a Global portfolio. The reason why I added Hang Seng was due to my heavy China tilt when I started the blog. I would argue that is not a constant tilt that I will have over time. It was an allocation call I made at the time. It is a call I’m obviously happy about, since it has given me free Beta out-performance against MSCI World, which is my true benchmark.
Lately I worry about the Chinese economy and the valuations has got more stretched also for Chinese stocks. As you know from previous posts I actively rotated away from China. Currently my portfolio has 16.5% of its cash invested in companies with most of its earnings from China (Coslight, XTEP and NetEase). I will keep the Hang Seng comparison for sometime, but I might remove it at some point.
Buying Gilead became a very well timed investment. The market really liked the new product line their are buying themselves into through their acquisition of Kite Pharma. I honestly don’t have the knowledge to know if this will actually be so fruitful as the market seems to think. My impression is that (the market thinks) Gilead has a strong acquisition track record.
Nagacorp which we discussed extensively in the comments and I choose to double up on has come back to something closer to fair value. The company continues to execute well on attracting more VIP players and the Naga2 complex is about to open in full scale. Next Chinese New Year will be very very interesting, I’m optimistic about further share appreciation. As long as the majority holder does not decide to do something stupid (again).
LG Chem which is my long long term holding for the EV-theme (being a leader in battery technology) has performed very well lately (although not as well as the pure-play Samsung SDI). Unfortunately the battery part of LG Chem is still fairly small. I expect it to grow substantially over the coming 5 years.
I made a bet that XTEP, the Chinese shoe company was lagging it’s competitors who have all had great runs in the stock market and would do some catch-up after it’s semi-annual was released. It turned out being the opposite and I doubled up before the stock collapsed. I feel a bit beaten up, picking the only Chinese shoe company that is down performance wise. Still haven’t given up though, although less about my position than before.
In my move to rotate away from China (Time to rotate away from China) I have sold a number of holdings lately. Two which I sold after very strong returns were YY and BYD. It has been a bit hard to see the shares continue to surge another 30-40% after I sold, but such is life. As I wrote at the time for YY, I got scared of the Chinese Gov clampdown on streaming services, but these things often go away and so it did. And the upside I saw very shortly after came true.
Catena Media which I just bought into also had a negative event right after I bought. The CEO was fired with immediate effect. This gives me some worry that something might surface in the Q3 report. I have considering to reduce my initially fairly ballsy position. The only positive keeping me from doing it is the interim CEO which I have very high hopes about.
I bought two bricks and mortar stocks, XXL and Tokmanni, I reversed my decision with a smaller loss for XXL and kept Tokmanni. So far I should have done the opposite, since XXL has rebounded nicely whereas Tokmanni is treading water.
I want to start with a graph of EURUSD, because it has such profound effects on the market when it starts moving.
With the risk of being called something of a Chartist, to me this is a significant move. We are breaking out of a 2 year side-way trend. This could be the beginning of the normalization of major currencies, where we see EURUSD moving back to it’s previous range 1.20-1.50 which lasted for about 10 years. What is a normal range though? It all depends on what time perspective you take. If we look at 30 years of data, we are today already very close to the average exchange rate. The 360 month moving average is at 1.21 and the 500 month moving average is where we are now, at 1.18. If EURUSD moved to for example 1.4 over the coming year, that would definitely have profound effect in the stock markets and on all ours portfolio returns.
Exporters vs domestic
The kind of currency move we see now, leaves its mark on a Global portfolio and it’s returns. The effect is largest for domestic companies. For example if we take my largest holding Skandiabanken, which is a Nordic online retail bank, generating majority of it’s revenue from Norwegian Krona (NOK). Since all it’s costs and revenue is in NOK, its a purely domestic company. So when USDNOK moves, the portfolio experiences the full currency move, whereas the fundamentals for the company stays the same. Since investing in Skandiabanken I have realized an extra 6% return from the NOK strengthening, pure luck!
In comparison my holding in LG Chem, is traded in Korean Won (KRW). But the company exports all over the world meaning a lot of it’s revenue is priced in USD. So if KRW strengthen against USD, the company will earn less in KRW terms and the stock should fall. At the same time the KRW stock price is worth more in USD terms, so the effect negate each other.
This means that companies that mostly sell domestically adds an extra component of FX-risk into the portfolio. To make it even more complicated, the domestic company might have it’s cost in USD and chose to either hedge it or leave the currency risk open. If you as an investor compare yourself to a benchmark, your definition of taking risk in this sense, is if you have another mixture of exporters vs domestic companies, per market, compared to the benchmark. This will make you over and underweight a number of currencies. It all sounds very complex, but since weightings of for example MSCI World is so heavily tilted to the larger markets and large companies, in effect, you mainly have under/over exposures to a few major currencies (USD, EUR and JPY). The tricky part is that you won’t really notice this effect, before one of the major currencies really start moving, like now.
So what’s the point of this analysis? My point is that major benchmarks is made up of large companies with revenues worldwide, so the majority of your portfolio from a Global benchmark will be USD exposure. But if you as a stockpicker, find smaller domestic companies, which have their revenues and costs in a local currency (either naturally domestic or hedged to a domestic currency). You will have an implicit bet on that currency versus the USD.
The reason why I bring it up, is because two of my holdings that have performed the best, is such holding, Skandiabanken and Ramirent. It’s nothing I lie sleepless at night about, just something to keep in the back of your head before you fill your portfolio with such holdings.
A quick look at the portfolio performance and composition shows continued strong performance, both for my holdings and the benchmarks. Especially Hang Seng is on a tear lately, somewhat frustrating when I already have come quite far in rotating away in my Chinese holdings (and the ones I have left have not really moved). For example my two previous large positions in Ping An Insurance and YY has in the month after I sold surged 15% and 33% respectively. Whereas the stocks I bought in Europe have trades more or less sideways (Tokmanni being the exception), I have also been somewhat saved by the weakening USD in these holdings. Cash level is still high, as always I’m spending a lot of timing searching the markets for something investable. And as always lately struggling to find anything worth buying. In my Portfolio page I have made my Watchlist a bit longer (in reality it is much longer than this) but maybe those stocks can give you some investment ideas.
I will take one final slash sometime this year, to further reduce my China exposure (it will not go to zero as long as I find very interesting investment cases there). And according to my previous post about “where to hide”, I will try to move my portfolio one more step defensive (less cyclical) than it currently is.
As we all (older people) know, its scary how fast the years pass by. So here we are, and a year has already passed since I took the leap to launch the blog and my official portfolio. I launched my portfolio in the recovery from the strong sell-off in early 2016. The next six months would be very easy to a be long only investor, with world markets drumming upwards and quickly shaking off the Brexit event. After that it has been more of a mixed bag for world markets, naturally with a lot of focus on Donald Trump.
From the get-go writing this blog I knew it would be a challenge to keep up the pace. I didn’t want this to be something that flared up for six months and then died down. My main goal the whole time has been to keep this page running for one simple reason, to build a credible track-record of my investments. I want to keep building this track-record over a long enough period, to be able to evaluate if I would be suitable to invest money professionally, for myself and perhaps for others. I expect this to be a very long process, perhaps around 10 years.
From time to time it is hard to motivate myself to sit and research companies or just in general read, to come up with ideas or understand something new. It is a fun process, but only when you do not feel stressed by other things. This has been a struggle from time to time, especially during end of last year. It is after all a hobby and I have many other good things in my life, a full time job for example.
The type of content I produce has also shifted somewhat. In the beginning it was more of what I already know and could teach you readers, later it has been focused on what I do not know, which I write to develop myself. I think this makes more sense for me, although I know of many popular blogs that write a ton of material to educate their readers. I could do that, but since my purpose is to build my portfolio track-record as successfully as possible, that will be the focus.
Finally, a clarification. You might wonder why I never post a company analysis where I conclude the company is not worth buying? The reason is that I live and operate in a region where people actually are banned from the industry or sued for making “false” claims which brings down the stock price of companies. I do my research based of public information, the best I can and have time for. But I do not want to have any risk of ending up in this situation. Of course I do analyse a lot of companies that do not end up in my portfolio. Unfortunately you will not see me posting on those (in any great detail at least) in the future either. The other reason for this is that it saves me time, that I do not have to write a long post about a company that I already discarded as an investment. The obvious downside is that I haven’t recorded my thoughts clearly and the stock could be worth revisiting at a later stage.
Mistakes to learn from
We especially learn from our mistakes, I think we all know that. So let’s have a look at what has gone wrong for me during this year.
Looking at the current portfolio there is not much that has gone terrible wrong. The shoe company Xtep International came in with a weak report, mostly related to the Kids shoe business. Here one can say that since I’m not a user of their products and I never visited one of their stores (I tried but they were too far away from Shanghai city center), I obviously don’t know the brand well. I have only looked at company figures and online how popular their products seem to be. Buying consumer brand companies without knowing the products might add unnecessary risky, which is obvious for other. I try to hold on to the companies that does well, so to say “let the winners run and cut losers short”, this leads me to the next topic.
To find my larger mistakes we should instead venture to what I already held but decided to sell.
Before we start talking about specific stocks one can notice that I had fairly significant portfolio turnover. Out of my starting 13 stocks, 8 have been sold (although 1, SAFT, was bought by Total). This is in my opinion too high and something I need to correct, there is no point in such a stable market to be switching the portfolio so quickly. A portfolio turnover around 50% per year, would perhaps be OK, but preferably I would want to come down towards 30-40% in a normal market. One can also notice NetEase as a big positive outlier, which was one of my larger holdings with a tremendous run.
I sell to cut my losses
In general I have a tendency of selling companies to cut my losses. Looking at the 4 stocks I sold at a loss, it seems to have been a bad decision on all occasions. All of them has positive performance afterwards. Here we find my two biggest mistakes, Highpower International and Zhengtong Auto. Highpower I was very well aware that the stock might bounce after I sell. It’s after all a stock with thin liqudity and very volatile stock price. So it’s not so painful, although still bitter to see the stock rally after I sell.
Much worse is the case of Zhengtong Auto. This stock I sold for no other reason than that I concluded it is something I have not understood in the company (since it keeps falling). The stock looked very cheap, but the market kept trading the stock lower and lower. In my real money portfolio this is a stock I held for a number of years before setting up the GlobalStockPicking portfolio. So I have suffered for a long time already with this stock-price decline. I have tremendous respect for the market and sometimes I will be terrible wrong, that’s just the way it is with investing. But I have to confess it became physiological this time. There was not really any very strong signs that my investment thesis was all wrong. Yes the market was pressured for a period with lower than average margins, but even considering that the stock was fairly cheap. I came to a point of fatigue and sorts of gave up on the stock. The picture below illustrates my timing:
Selling winning stocks
In terms of taking profits and selling winners, the result is more mixed, in several cases I have managed to sell a stock at a peak. I have to confess I am somewhat of a chart-follower. I watched charts for so many years I tend to (believe) have some feeling of when a stock is weak or is going to correct soon. It’s not all about charts either, it’s also me believing in mean reversion in more or less everything related to financial markets. Two of the cases where it has been wrong to sell winners, are lower risk companies, SAS Preference and Yuexiu Transport, which both have very high dividend yields and kind of slowly compound upwards.
But my general strategy is to let my winners run. So it what cases do I then sell a company that had a nice run and in what cases do I just ride out for the long run? That is a good question that I’m struggling with myself. I probably need to more clearly define what stocks I no matter what own for the very long term, then I’m at least not allowed to sell the full holding, just because the performance is very good in a short time.
Looking at normal portfolio stats my returns looks impressive. My risk figures are somewhere in-between MSCI World and the Hang Seng index. But my return figures are much better, indicating a fairly significant amount of alpha has been created. Return wise, the correlation indicates that I seem to be closer to Hang Seng than MSCI World, which is maybe a bit strange considering that I call my blog Global Stock Picking. A part of this portfolio tilt I motivate by that I find valuations on stocks with China exposure to be among the lowest I have been able to find. Another reason is that I’m closer to the region and therefor have a tendency of reading more general news that give my ideas for stocks to follow-up on.
With my portfolio being concentrated to around 15 holdings, looking just at standard deviation, might not tell the whole picture of the risks in the portfolio.
As we can see from the weekly return histograms above we can see that MSCI World and Hang Seng has a weekly return profile similar to a normal distribution. We also understand why MSCI World has 9% vol and Hang Seng has 15%. The weekly return distribution for my portfolio looks.. ..different. It’s rather inverted from a normal distribution. During this year I have managed to skew the distribution towards the positive side. In another market environment and making some wrong calls one could imagine that a portfolio with this return characteristic could turn somewhat ugly. But partly this is the price you pay with a concentrated portfolio.
Current Sector exposure
Here I must say I’m quite satisfied, being a single person running a portfolio, it is not easy to have expertise to invest in all sectors. With only around 15 holdings in the portfolio one could not really expect a better spread among sectors. Professional fund managers often minimize sector bets to less than 10-15% active weights, but they usually have much broader portfolios with at least 40-50 holdings for Global Portfolio. I will try to continue to keep my portfolio as sector diversified as now.
Revenue exposure breakdown
As we already have seen in the correlation with Hang Seng, here is the Achilles heel of the portfolio.Way too much of my companies revenue is dependent on China. 25% is pure China exposure and another 26% are companies with large China exposure, but are also selling worldwide (this is mainly my battery companies). Property prices in China are crazy and all Chinese that can afford it are speculating widely with borrowed money. As soon as the market starts to wobble the government steps in, so it might be allowed to continue for many more years, but as some point a reckoning day must come. And that day, even though I found companies with great prospects, short term I will surely suffer greatly return-wise. Here I must find a reasonable balance and right now one might argue that my global stock portfolio is not really balanced.
You don’t get my kind of returns in a year without taking risks (deviating from bench) and being somewhat lucky. How much it was clever risk taking and how much luck, that will always be impossible to judge. The risks I have taken are related to a few sectors and exposure on China. Within these two exposure groups I have managed to pick stocks that outperformed. The main contributors in these two groups are NetEase (Chinese gaming), Coslight Technology (battery producer) and Shanghai Fosun Pharmaceutical (Pharma holding company). On top of that I managed to pick up some Nordic bank exposure (Skandiabanken) just when banks stocks started to rally. I picked one of the strongest performers of all, as well in the country where the currency (NOK) since then has strengthened against USD. I would attribute a higher percentage of skill in identifying NetEase and Coslight and more luck in the case of Shanghai Fosun and Skandiabanken, since my analysis on the two latter was much more shallow.
I will work actively on reducing my China dependency in the portfolio.
I will try to reduce my portfolio turnover, preferably max 6 new stocks in the portfolio over a 12 month period.
I should really think twice before I sell a stock just because the performance has been bad. My hit-rate on these trades is awful.
I should probably keep selling or maybe even better, reducing the size in stocks that had a very strong run, my hit-rate on these trades is very high. But having said that the most important is the long term and I should mark down what stocks I’m not allowed to sell on short term speculation, risking losing out owning the stock for the long term.
Thank you for reading and I’m very happy with your contributions in the comments section!
The year is coming to an end and I think it’s time for some year end cleaning. What I mean is that I perhaps have not spend enough time following my portfolio holdings and more focusing on finding new good investment cases. My current holdings need an evaluation if the company is progressing as planned and still worth to hold. Some investments have developed better than I could ever have hoped and others have not performed well at all. One way of looking at any portfolio would be – start every day with a blank paper and choose how to allocate your cash. If your current portfolio is different, you should change your current portfolio. I do not practice this, as it would be way too time consuming, I rather practice a philosophy of letting my initial judgement play out, although it might take (much) more time than I anticipated. This also kind of ties in with let your winners run etc, although here I’m sometimes (too) quick to take profits. One risk with just holding on to your initial idea is that when you are wrong and time just pulls your stocks deeper and deeper into the red, you reach a point when it is time to admit that you have been wrong in your investment thesis. And you at some point realize that you should have been quicker to adjust/update your view. Admitting to this can be a painful process, at least for me. Below is an attempt to critically judge all my current holdings (prepare for a long post).
My holdings – one by one
Spending a few minutes on each holding, and also taking the opportunity to decide: Add/Reduce,Keep or Sell.
Skandiabanken – Keep
I bought this Norwegian Bank stock after reading some Swedish sell side research and there was a few points I really liked, the company had the most satisfied customers in Norway. They are building their bank on a purely digital platform and they are small and nimble. Digital in combination with high customer satisfaction gave me the confidence that this bank is already where the larger banks want to be and what I believe is the future of banking. Since then the stock has performed tremendously well, basically starting after Altor went in as a new large shareholder. It’s not a screaming buy anymore, but rather valued in line with large Norwegian banks like DNB. But being such a small bank it should be doable for Skandiabanken to steal market share from the large banks and keep up the growth. Therefor I’m still bullish, since it already is my largest position I can’t really do more than Keep.
Coslight Technologies – Keep
This stock has been falling helplessly without any company specific news. I feel fairly confident this is just Mr Market playing with us shareholders and not reflecting any true change in the company. I therefore decided recently to add to my position and bring it up to a high conviction position again. Coslight is one of car producer BAIC’s main battery providers and they have a long co-operation, I have not been able to confirm if it is Coslight’s batteries that goes into BAIC’s EVs but I would not find it too unlikely if that was the case. Recently BAIC’s latest EV EU260 has been selling really well (Ev-Sales Blog) and this could (if they are selling to BAIC EVs) increase sales for Coslight significantly during the second half of 2016 and going forward in 2017. With Coslight moving to more normalized sales margins in lithium ion battery sales I expect this stock trading up about 100% from it’s current level. It is currently the stock I see most potential in of all my holdings, but the risk is high and the liquidity and coverage thin, so there is more room for me to misjudge the situation. For example it is a delicate balance if there will be oversupply in the battery production space. That the next annual report continues to show strong margins/figures is crucial.
Ping An Insurance – Keep
It’s hard to find the right companies to ride the growth from the Chinese consumer. The price pressure (think Taobao) eats away a lot of the bottom line, even if your top-line grows. But an area which the Chinese just have to move into as they get richer is insurance, and the margins are still very healthy here. Ping An is not a pure insurance company since a fair chunk of its earnings comes from Ping An Bank. But they are in a good position as one of the market leaders, they put a lot of money into online and innovative mobile sales etc. The company is trading very cheap and is for me a good way to capture Chinese growth, I don’t expect any crazy returns but stable growth.
Shanghai Fosun Pharmaceutical – Reduce
I timed the purchase in this stock extremely well, it had a good run and has after that been treading water. Again I have my views of China long-term, which definitely entails having Chinese pay more for healthcare, medication etc in the future. As this is a holding company of many types of hospital/health/medicine exposures it’s not all too easy to analyze exactly how well each sub category will perform. Given that I don’t have the full visibility and the under-valuation i previously saw now has corrected somewhat I choose to reduce my holding from 7.5% to 5%. This is after all not a high conviction position for me.
Ramirent – Keep
This company I bought part as a price momentum play and part as being a late cyclical, which is what I believe is where we are in both the Nordic construction and equity cycle. It is very obvious that the stock just wants to go up, even though the company keeps delivering disappointing results time and time again. Hard to hold on to this kind of company when the fundamentals looks “so so”, but I still believe we will see a substantial move upwards, perhaps when the fundamentals finally do turn around.
Rottneros – Keep
I have written a lot about this company quite recently, after my analysis the Q3 EPS came in a bit lower than expected and the stock took a bit of a nose dive, bad timing on my side. But I believe my investment case holds true so far, meaning as long as the SEK is so weak against the USD and Europe NBSK Pulp prices keep steady, this company should be a cash cow. This cash is used to increase production output even further. Obvious risk in this stock if the pulp price starts to fall.
LG Chem – Keep
I can’t really get my head around the valuation of this company. In my view the Chemicals part seems to be doing fine. On the battery side, the Bolt has been launched with raving reviews, this car is going to sell really really well! And other EV producers are lining up to use LG’s batteries. On top of that even Samsung, who have their own listed battery company Samsung SDI (which fucked up the Note 7) now is considering using LG’s batteries instead. But performance wise the stock just keep getting hammered and even though Samsung SDI had such a scandal, stock performance wise LG is under-performing Samsung SDI since the scandal started to unravel – this is just beyond me. A very easy keep for me and I’m biding my time with this one.
CRRC – Reduce
This holding might take a very long time to play out. But it’s a play on the Chinese governments One Belt One Road plans. The stock is fairly priced at the moment in my view, share price increases will come if the sales starts to increase. If new interested investments would come up, I have to admit that this one might leave the portfolio, as I don’t really see any immediate triggers. Currently I just choose to reduce.
BYD – Add
The stock has been trending down for a while now. Looking at the 5 year price chart one can observe that without much fundamentally changing in this company, the market has not been able to price this stock very effectively. The stock price has shown wild swings between HK$20 and HK$60, although with somewhat of a drift upwards. With risk of becoming a chartist one can say that for the trend to hold, the stock need to reverse its downward trend around HK$35 and we are currently at HK$40. But bullocks with concentrating so much on the chart, the case is intact. China is insanely polluted, the government has clearly decided that China is going to be world leading in EV production. BYD is a clear leader in the electric bus space. BYD is the only Chinese company they has the scale to produce batteries totaling more than 8 GWh and thereby qualify to the new subsidy rules the Chinese government has proposed. One question mark that I had since the start is how well they can position themselves in the personal vehicle space. Their SUV Tang did initially very well, but has already started to drop in the rankings, this is my only worry at the moment. I believe the stock has been harshly punished lately and I decide this is a good level to add to the stock.
Ctrip – Keep
A play on Chinese travelling, this holding has not yet shown any returns, just a sideways roller coaster. Top-line has been growing nicely, but the profit margins are a bit wobbly. This one of my holdings I have not done such a deep due diligence on (yet). This is definitely in the cards for 2017, after that it will be easier to take a decision.
Ericsson – Keep
It was psychologically hard to keep buying into this when the stock just kept falling. But the stock found a bottom and I’m now in positive territory. My play that Cisco is coming with a bid obviously not materialized, I’m waiting for that, or that the stock recovers further (around 65 SEK) before I sell.
Sony – Add
I tried to get hold of a VR set for the Playstation as a Christmas gift, that was impossible, such long waiting times. Also I’m impressed with Sony’s digital cameras, which is something of best in class. I think Sony is in a good spot, active in many areas with continued good consumer consumption, given that I sell a number of holdings, I bring this up to a full position.
Microsoft – Reduce
I still believe Microsoft will make a lot of money on cloud computing, that was my main investment case. But now the US stock market has disconnected too far from other markets, stocks in the US is just expensive right now, I decide to reduce just because of that, even though I like Microsoft long term.
Zhengtong Auto – Sell
Here is just have to admit that I have been wrong, this was one of few Value companies in my portfolio, but it’s killing me, disappointment after disapointment. I have been wrong on the investment case and therefor I chose to sell the full holding.
Highpower International – Keep
A very tricky holding, they are super small cap, the stock is not very liquid and information on the company is hard to come by. The best way is basically listening to quarterly result calls and the following Q&A sessions. They seem to hold their own in the battery production market and also have backing from a joint venture. This is a highly speculative holding, but I still decide to keep it, because it is so cheap, I might exit if the stock spikes up, which it does from time to time.
Avanza Bank – Keep
This stock has traded up nicely, but since its trading in SEK, the currency weakness is taking back most of the stock gains. The case is still the same, stealing market share from the big Swedish banks by broadening their offering (perhaps introduce mortgage loans in larger scale). Their deposit base will also become more valuable when/if Sweden comes back to positive interest rates.
Autoliv – Sell
This stock has made a swift move upwards, probably much driven by the weak SEK, I have re-evaluated this company somewhat, I don’t know if they will actually be such a winner on the future “smart car”. There are so many technology companies moving into this field, so it is becoming a much more crowded space. I decided to sell after this nice run-up.
Summit Ascent Holding – Keep
This Russian casino company (it just realized how crazy it sounds to invest in Russian casinos) became a sink bomb in the portfolio. It is anyway Hong Hong listed, run by Chinese and tries to facilitate rich Chinese in the northern region that fly in to play (instead of going to Macau). In the last semi-annual the last few months results hinted at a big increase in turnover and I would normally be willing to double up now after the stock has fallen further. But now we have the problem of China tightening capital controls even further, it might not be that easy to gamble for big amounts in Russia at the moment. I will still keep this as a small speculative holding, it will be very interesting to see the next annual report.
Portfolio Movements Summary
The stats of my portfolio moves are the following:
Shanghai Fosun down from 7.4% to 4%
CRRC down from 5.6% to 4%
BYD up from 5.6% to 7%
Sony up from 4.5% to 7%
Microsoft down from 4.4% to 3%
Zhengtong Auto Sell full holding (4.1%)
Autoliv Sell full holding (3.2%)
The score takes me from 0% cash back to 9.8% cash. Time to find one or two new investments!
In the future I will move to quarterly performance reviews, so this is the last irregular update. The portfolio has done extremely well and I must say this much out-performance does not come without a certain amount of luck. I feel we are reaching the end of this long bull-market and we are probably moving into a more challenging investment climate over the coming years. Even so I still think there is enough dispersion in the market that it gives some comfort in attempting to pick stocks. The strength of the USD is concerning I think. I don’t see how the US stock market can be at it’s peak and the USD keep strengthening as well, at the same time other equity markets are far from peak levels. Something got to give.
The graph above shows The “GSP Portfolio” performance including all trading and dividends since the blog inception (no trading fees deducted).
Previously held stocks
+ Coslight Technologies
After tremendous results in it’s semi-annual report, the stock soared. I have been analyzing all the battery companies that are listed and I have been able to invest in. Out of all of those I placed my bets into two stocks, that were pure-play battery companies. One has with a lot of volatility, mostly gone sideways, but Coslight had the sales turnaround I was expecting, driven by China’s significant insentives for electric vehicles, both buses and cars. Nice to be right for once, after spending tremendous amount of research on the topic over a 1 year period. Now there is talks about a potential over-supply situation among the Chinese battery-makers, I’m somewhat worried about that, but more short-term than long-term. I see signs everywhere that the growth of Plug-in hybrids and all electric cars is just in its infancy. If this company keeps playing their cards right, this stock could go another 100% within the next 2 years. Previous write-up on Coslight.
+ Shanghai Fosun Pharma
This was an example where a lot of things together made me take the investment decision in this holding company. The chart looked like the stock was set for a leg up, I wanted a healthcare stock in my portfolio and the valuation started to look more and more compelling (SinoPharm holding >50% of Fosun Pharmas Market Value). Right after I bought the stock started surging, a quick 25% gained. Lucky yes, but at the same time it was strangely out of sync with SinoPharm. Now the stock is more fairly valued, although still not expensive. Since I have understood from Chinese friends that Shanghai Fosun’s management have a bit of a reputation, I might need to have some margin of safety in this one. I have another “Pharma” holding on my radar, if it looks more compelling I might switch this for something else. Fosun Pharma write-up
This fantastic company is over-delivering for every report they release. But I can’t keep holding the stock at these valuations, so I sold all, at an average gain of over +50%. I’m hoping there will be a rebound, because this is probably still a great stock to hold over the long-term. NetEase full analysis
Well, I thought I got this stock on the cheap, and I still think I did. But it got even cheaper. I’m surprised by how weak retail sales are in Sweden, given how well the economy is doing. This was a play on the Swedish consumer, and although I wasn’t dead wrong, I was not right either. Seems it’s sales through internet channels that are hurting retail all around the world and perhaps also in Sweden? Well I chose to move on since I don’t believe in the Swedish consumption over the coming 5-6 years anymore., even if it pains me to sell something that is still cheap.
– LG Chem
Again I thought I got in on a technically good level, where the graph looked like a move up was in the cards. And it was, but it became very short-lived, a month later the stock peaked and then took a serious turn downwards, now sitting -10% from my purchase price. But the stock falling doesn’t generally bother me much, I’m in for the long-run for their battery production (although it’s not a pure-play). But there was a reason for the stock falling, which was plans from LG to merge LG Chem with LG Life Science. I don’t know anything about LG Life Science, but what I do know is that I bought this for it’s future in battery making, not to own a conglomerate with a small part in battery-making (like Panasonic) – frustrating! So, right now it is wait and see, I’m not ready sell, especially when the stock is trading fairly cheap. On a more positive note the Chevy Bolt is coming out with great positive reviews from everywhere, just like the Tesla model S before the Tesla share surged with 300%. The Bolt is very much a LG product, with battery produced by Chem and the electronics inside is produced by LG Electronics. Looking at competitors it’s clear that LG is one step ahead of its competitors in battery technology (price per kWh). Short LG write-up
Yes, it’s time to deeplet these high cash levels, I have suffered some serious performance drag having 15% cash in an uptrending market. First it was LG Chem announced the other day. As of today’s close I’m allocating a 6% position in my first Pharmaceutical company – and no, it’s not Valeant (although it seems to have bottomed out by now).
Shanghai Fosun Pharmaceutical (2196 HK)
Yet again I dig into the Chinese market, this time through the fairly famous Fosun Group, which I previously been a shareholder in. Shanghai Fosun Pharmaceutical (from now on Fosun Pharma) is a H-share listed in Hong Kong, meaning it’s also listed in mainland China (as is some of my other holdings – BYD, Ping An)
Provide Healthcare services, they have been fairly aggressively buying up hospitals.
In Co-operation with it’s big shareholding and partner Sinopharm they co-operate in drug distribution in China.
Produce Medical Devices.
I’m taking this position for a number of reasons:
In general I think the Pharmaceutical companies need a re-visit, after being the market darling stocks, they have taken a beating lately and I have been looking for a good candidate to invest in.
Fosun Pharma listed in HK is fairly cheap, trading at trailing P/E 15 and looking like 2016 figures will come out around P/E 13-14.
The stock looks oversold and the China listed stock has started to move upwards lately, the spread between China and HK listed stock is as stretched valuations as they historically ever been. See picture below for spread in orange.
Fosun Pharma is a big shareholder (11%) in the pharmacy distributions company SinoPharm, this stock has been soaring lately. This holding accounts for over 50% of the price for Fosun Pharma’s stock price, meaning you get the rest of it’s business very cheap.
I need a Pharma holding in my Portfolio.
This is the first time the China listed stock has been moving so significantly, without any spike in either the stock or the Chinese stock market.
I also include a Portfolio update (not including Fosun Pharma yet).
A lot of beats
Skandiabanken came out with fantastic results that beat estimates, after Altor came in as a new big investor, the stock has been soaring. As always when you bet correctly you wish you did not allocate more in an earlier stage, but with this significant gain the current weight in the portfolio has become a high conviction position.
NetEase continues to deliver, awaiting a report in a few days, if the stock keeps soaring I will probably cut the weight in this one short term. It’s a struggle to stay long-term in companies where the gains you were hoping for over the coming 1-2 years materialize in 3-4 months. Definitely the type of luxury problems I would like to keep having.
Microsoft also came with a beat, the market seems to start to value it’s Cloud business (my reason for investing), not sure about the hefty price tag for buying LinkedIn though..
Sony beat estimates with a strong report, I read some comment like “Nintendo should look at Sony, a Japanese game maker that actually makes money”.
One big disappointment was Ramirent’s report and the market struck down the stock -13% over two days. The momentum seems to keep holding though, which was one of the one the reasons I bought this stock (no I’m not a value investor).
Overall in the strong market many holdings has started to recover (Zhengtong, Ctrip, CRRC and MQ). The only company that is strangely weak is Avanza Bank, I might need to re-evaluate this one, as I always listen to what the market is trying to tell me. Stocks going side-ways in a up-trending market will not do well the day the market breaks down. I have also discussed this company with some friends who are knowledgeable about Swedish Banking, they think Avanza will have a tough time finding ways to making money out of their customers. More to follow..
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.
Not a great start to my new blog, not making a single post for 4 weeks, I have been busy with work and a longer trip to Asia. I have realized I need some rules to how I announce trading in my portfolio. Starting now I will write a short post for every time I trade in one of my holdings. This has the upside that I can’t be blamed for back-trading my portfolio. Another added bonus is making the blog a little bit more lively with more frequent updates.
The portfolio will be calculated with a official NAV once per week, results will be presented on the blog with about monthly frequency. Latest results will always be available under the Portfolio page. So let’s review the performance of the portfolios first month live.
Without further ado, here is my starting portfolio which goes live with closing prices as of Friday March 18:
13 stocks and 8% cash position ready for adding 1-2 stocks from my Watchlist, which you will find also in the Portfolio page.
I will spend up-coming posts to introduce the stocks in my portfolio. Also from now on, I will start to update monthly the portfolio performance and changes to the portfolio. You can always find the latest Portfolio and my current Watchlist under the tab in the menu on the top.