“Everything” is a bubble

What does a bitcoin speculator, a Rolex collector, a Magic the gathering cards collector, a wine collector and a tech growth stock investor have in common? Not that much they might think, but in my view something happened in 2019 that got all of these people exposed to the same something.

My previous post headline claimed that my watch outperformed my stock portfolio in 2021. I thought we should dig a bit deeper into that. I think most people by now are aware that low interest rates and stimulus pumped up asset prices all over the world. Equities and bonds are at record valuations at the same time, is something we heard for quite some time now. Of course it doesn’t stop there, crypto has created tons of newly rich people. House prices have soared in most places of the world, everyone who own anything seems to have done very well for themselves. A question that at least skeptics like me keep asking is: If the world did not get much better in terms of inventions or production of goods, how is possible we all got so much wealthier? So what? Its good times and the economy is running hot, what’s new? Well not everything has run equally hot, some asset price increases have been just off the charts the past few years. That’s what I want to dig deeper into. Also in in my stock portfolio some holdings have taken off like rockets whereas others have actually decreased in value or been flattish. So we know FEDs balance sheet has shot up like crazy in the past years and we know about the super low interest rates – but what distinguishes these certain sets of assets that just sky rocket?

To cut to the chase, the short version in my view is that we created a bubble. A new kind of, everything is a bubble bubble, which is pretty unique for how bubbles goes in an historical context. Usually bubbles are concentrated in something, like tulips, tech stocks or so. I don’t literally mean that everything is in a bubble, there are plenty of things out there at reasonable valuations. I just mean its a really freaking wide-spread bubble this time cutting across assets classes and countries. Let’s go back to my watch, which outperformed my stock portfolio in 2021 (and probably in 2020 too). I thought a lot about this, not really from the context of watch prices per see, but how risky assets re-priced in the past years. I have tried to look for patterns and would like to share some of the bread crumb clues I looked at. My conclusion is that what has sky rocketed in value the past two years, they all play to the tune of the same factor. In the past they didn’t necessarily really have that much to do with each other, but in the past two years, suddenly they did.

Finding the common bubble factor

What does a bitcoin speculator, a Rolex collector, a Magic the gathering cards collector, a wine collector and a tech growth stock investor have in common? Not that much they might think, but in my view something happened in 2019 that got all of these people exposed to the same something. “Something” was driving the action in their respective holdings the past 2 years. I call in the everything is a bubble factor. Let’s take a look at how price action looked like in the past years:

So I got onto this topic when my portfolio had outperformed the market quite significantly. I noticed that there were particular holdings that had extremely strong short term performance on very little actual fundamental company change. Back then most people only talked about how value investing is long dead and so on. But it was only when I plotted this graph in mid-2020 that I understood that growth stocks had just gone into hyperdrive mode. Around the same time some twitter names started to boast extremely good portfolio performances, they had portfolios fully exposed to this factor and were now bragging about their returns. As the ever contrarian I am, I got worried I was also just surfing on this factor – and not really created any actual alpha. With hindsight I shouldn’t have worried but rather piled into this more deeply myself, because this spread just kept delivering and delivering until about three weeks ago.

Just to be clear what we are looking at above, because I find this – sick, hilarious and just bonkers all at the same time. Above is the Vanguard ETFs which replicates the CRSP US Large Cap Growth & Value Indices. Buying the Growth Index and Shorting the Value index gave you a nice 20% outperformance between 2017-2019, a very strong out-performance on index level in the same market. That was probably justified as companies like Apple, Microsoft etc did improve fundamentals quicker than for example JP Morgan, Berkshire and Pfizer (companies found in the value index). But then in 2019 all of a sudden in 2 years time the growth companies went up 100% more than the value companies. How is that possible to be even close to reasonable? In my book its not, markets ran way way ahead of themselves. Let’s look at some of the other “assets” to see if we can see a pattern between this Growth-Value spread and the rise of other assets:


With a bit of lag to the Growth-Value spread grey market prices of watches seems to take off in a very similar pattern. Look at the AP Royal oak which basically doubles in value in about 1 years time. These watches are now selling for multiples of what they cost in the store (if you are lucky enough to be allocated one). So should we be buying stocks or just hold physical portfolios full of Audemars Piguet watches? Historically these watches have been good store of value, basically rising with inflation, Rolex is famous for this over long periods of time and much of its special status is probably due to this good second hand value. But now we are talking about watch prices doubling in the span of 1-2 years, trading over 2x the retail price. Rolex produces roughly 800 000 watches per year, which are sold at retail (in some few cases the retailer might do some shenanigan’s to extract some of that grey market premium but most often not). These watches have supply constantly coming into the market but still the demand is so much larger than supply that these watches can catch such premiums. To me this is again just bonkers and typical bubble sign. So how about my watch? I did not in fact buy either a Rolex or a AP but my watch has had a similar trend as these. For the avid twitter stalker and watch enthusiast you can figure out what I got 🙂

Wines and Champagne

Again we see the second hand prices of rare wines just taking off (after flat lining for many years). It’s clear people suddenly got so much more disposable income and everything went into scarcity as people bid up prices rapidly. Although the scale here is not like other assets a double or triple just a “meek” 30% increase, its still pretty significant for somethings so large as the average prices of the whole worlds stock of fine wines.

Magic the gathering cards

One of my person favorites, collector cards from MTG. I still have my collection in my parents home, just like the price of the most famous card in the picture here, the Black Lotus, my collection has roughly tripled in value over the past 2 years. My parents who are very frugal do not really have anything expensive in their home. Somehow my mom anyway got a bit irritated when I messaged her and said that box of cards tucked in away in one of the wardrobes is probably the most valuable item they have in their home. Just wanted to give a small FYI reminder to be careful with them but that was apparently insensitive saying they didn’t have anything of higher value than my Magic cards – sorry mom!


And finally “everyone’s” favorite asset class over the past years, for extra clarity I merged the graph with my Growth – Value spread:

The trend is so clear so no further arguments are really needed, this spread and bitcoin trade on the same factor – the bubble factor.

Why bubble?

So why do I say bubble factor? It’s because its impossible that things so very different like Rolexes, Magic cards, fine wines and bitcoin all have something so fundamentally in common that they should all reprice to multiples of what they traded on before at the same time. There must be an underlying frenzy/inflation or similar driving these gains. And although we have seen inflation it has not been anything near these levels of gains. Many of these assets like Rolex, Magic cards and fine wines, have 20+ years of price history showing very stable pricing, how is it possible that they all should reprice at the same time? It’s very clear to me that the combination of stimulus money and sitting at home locked down through Covid measures created this momentum frenzy into all kinds of assets. This fed on itself and prices on pure momentum/FOMO continued to move higher. As all bubbles unfortunately they always come to an end..

This is the Growth – Value spread over the past 3 months, I wonder how second hand watches will perform the coming year? 🙂

My watch outperformed my portfolio in 2021

Happy New Year!

There is no beating around the bush on this one, 2021 unfortunately was a lost year for the GSP portfolio. I bought a watch in mid 2021, it has already appreciated with roughly 10%, easily beating my 2021 performance of 3% return. That a watch can out-perform my portfolio is a pretty humbling experience but also nicely summarizes how upside down the world has been in later parts of 2020 and 2021. I have very mixed feelings about my 3% return for the year. I’m proud of how I covered stocks nobody else looked at, for example Modern Dental which is up +286% this year and I took profits when it was up 600% on the year. It’s pretty head-scratching then to have achieved such home runs and only be up 3% overall. The explanation is of course that broad parts of my (China/Hong Kong related) portfolio has just been hammered. So I will spend at least a bit of time harping about how incredible the spread is between Hong Kong and USA listed stocks in 2021. As you can see in the graph below, MSCI World excluding USA is on a total different trajectory. Since I barely invest in US listed companies I look like a terrible investor not because of stock picking, but because I have not been allocating to US stocks – rough! I do have exposure to other countries like Sweden/Finland/Poland, but even they failed me this year except one bright spot – Irisity. There I can’t blame having bad Beta exposure, I just didn’t pick the right stocks.


Given the low correlation (43%) to MSCI World is it still fair to use this as my benchmark? For 2020 that correlation was 87%.

Portfolio changes

Some highlight below in terms of good & bad decisions for the portfolio in 2021

The mistakes

AK Medical

I had initially bought the stock at 4.7 HKD in 2019 and quickly sold out around the 9 HKD level as the stock surged. The company continued to post great results and with multiple expansion on top of that it peaked at 26 HKD. The stock after that started a major down move due to fears of the changes in Chinas central purchasing of medical equipment and devices. I tried to look into the topic and as I understood it it would mostly be the distributors taking the hit and not AK Medical. I still believed in the long term story of aging population with higher disposable income, there will be a huge need for knee and hip operations in the coming 10 years in China. On top of that China is getting more nationalistic, surely they want the market leading local player to have a pole position here? I started the year by taking a position again in AK Medical at 14,7 HKD and a few months later doubled my position at 9.7 HKD. How the central purchasing actually pans out is still unknown, but for now it seems the market has agreed upon that it will be brutal. The stock ended the year at 6.6 HKD, -46% from my average purchase price. I’m slightly shell shocked by this move down, the market is basically saying that nobody will make serious money on hip and knee replacements in China, although China is one of the worlds largest markets. I can’t really believe that will be the case but the market doesn’t really agree with me. In my view AK Medical has good enough products to even shift focus to selling their devices abroad, which they already do in smaller scale. I will stubbornly keep this holding for now but not add until I see some proof of where this is heading. Market has already priced in a disaster, so I will only sell on proof of disaster.


It was a pretty lucky stroke to research vaccine producers in 2019, 3 months before Covid started. Given that I did so, one might say I should have bought Moderna, which I never did. I am very happy though that I did buy Valneva and what a ride it was. I first purchased the stock at the very end of 2019 at 2.57 EUR, I then sold in Feb 2020 at 3.4 EUR (this was all still non-covid related). In May 2020 they announced their partnership with Pfizer for Lyme diseases, I also had a small hope that they could somehow get involved in Covid vaccine production. So I took a position again, unfortunately smaller than my original position at 3.98 EUR. I rode this and sold this at an average of some 14 EUR in February 2021. Given how Covid has developed, this was like the other vaccine makers something to hold on to, its now trading at 19 EUR per share (very volatile in the past days). It felt good when I sold but it would have been a good portfolio hedge to keep.


Another disaster decision was trying to buy the dip in Alibaba. I mean its not really even my style to invest in large caps, I have concluded many times I have no edge in these large cap stocks. So I feel double the fool when I dip my toe into one of these mega-caps and manage to catch the largest wealth destructor ever in a single year. I bought shares in May at 214 USD and increased my position in late September at 147 USD. Stock ended the year at 119 USD.

The right moves

Modern Dental Group

My shining star investment in 2021 which I already mentioned, was ironically on the Hong Kong exchange. In this weak market find a winner makes it so much more extreme. I sold most of my Modern Dental in the bottom of the Covid crash 2020 at 1.14 HKD. The reason was because I realized that dental clinics would be shut down and indeed they were. I kept a small position because I still believed in the company long term. As soon as the positive profit alert came showing that the business had rebounded I re-entered with all shares that I sold at 1.84 HKD. That turned out to be fantastic timing as the stock just sky-rocketed basically from that day onwards. I took some profits at 5.2 HKD as the stock grew into one of my largest positions and then cut again at 9.4 HKD as it again grew to one of my largest positions. Around these levels I felt the stock had gotten ahead of itself just momentum speculators pushing it past fair value. Today it’s trading at 5.54 HKD and business seems to continue to perform very well. I do think I found a potential gem to hold in the portfolio for the long term here. The stock is just barely up from its IPO price in 2015, revenues have doubled and profits more than tripled since then. It is still not an expensive stock and just today I actually added a little bit.

Essex Biotech

This was a serious laggard in the market early this year and I wrote a blog post in February 2021: Essex Biotech – Why I am bullish. I increased my position at 3.95 HKD. The stock then went on to almost double from there on back of good results and a strong Hong Kong stock market. For portfolio balancing reasons I took a small profit in July at 7 HKD. This turned out to be fantastic timing as the stock has been pulled down heavily by the weak Hong Kong sentiment, ending the year at 4.95 HKD. Fundamentally the company still seems to be on the right track and I’m looking forward to if the company can finally get a breakthrough with the wet-AMD (eye disease) trials they are funding through listed company Henlius.


What a mess this stock has been, its almost painful to write about. Baidu wanted to buy JOYYs Mainland business, a short report was released that targeted the mainland business. Left was a fairly attractive international Videochat business called Bigo Live. Baidu seemed happy to go through the with the deal, shooting down the short case for the stock. I believed them and added to my position since the cash from Baidu + other cash was as much as the market cap of the company. This was at 119 USD per share, my previous shares were bought at 64 USD. I capitulated when the deal finally seemed to be falling through when stock was at 55 USD, its now trading at 45 USD. So short term it was the right decision to sell but to be honest it still feels bad to have sold at these levels. Finally why I actually did sell was because I did track the Bigo Live app a lot myself (meaning I used it) and I could see that the popularity with the app was dying, basically negative momentum when they should have had positive momentum. Since I sold and it continued down I put this in good decisions (for now).

Other worthy mentions

Pax Global

This didn’t really feel like a mistake on my side, but a very very freaky event. In the middle of the Hong Kong stock market weakness, when PAX was one of few holdings to still trade close to all time highs, the nightmare news were released. FBI was raiding PAX warehouse in the USA on alleged security concerns with their payment terminals. The customer which alerted FBI had also decided to stop using PAX devices, stock was down some -45% in one day and this was before the drop my largest position – what a nightmare. Now the dust hasn’t fully settled on this but some of PAXs largest purchasers have come out and defended PAX saying they don’t see anything wrong with the devices. One could argue that is in their interest since they probably don’t want to recall millions of payment devices. Adding to this PAX still operates in USA, FBI or any other agency has not banned them from the US market, so it does not seem they so far has found anything. Lastly PAX has hired a large famous US security firm to independently check their devices (Unit 42 by Palo Alto Networks). The results from this was: “Unit 42 reported that the network traffic reviewed was consistent with the intended features of the associated services of PAX terminals. Unit 42 also concluded that there were no unexplained network traffic in the course of its comprehensive and thorough inspection.“. I don’t think PAX actually can do much more, some confidence in the company has been lost for sure both from investors but more importantly the distributors and purchasers of their devices. How much will these large buyers in Brazil/India and elsewhere shift to other brands to avoid PAX due to this? Well that’s basically what the market has taken a view on here. The market is basically pricing zero to very low growth, meaning that a major shift to competitors will happen over the coming years, I think that is exaggerated and there must be good reasons why they choose PAX in the first place (pricing vs competition, Android capabilities, PAX app store etc). I’m betting that this will slightly affect growth but PAX will still be growing at +10% or more per year. I slightly added to my position today.


Another big loser for 2021, but here it’s in my view actually warranted. Given how China continues to be closed down and the funding risk of completing the Naga3 construction it’s pretty fair Nagacorp has traded down as it has. Given this view, this is where I found some of my funds (except the small cash buffer I had) to fund my purchases in Modern Dental and PAX. I haven’t sold all of my Nagacorp, but I reduced this to a smaller position today. I think the company could bounce back majorly in 2023 but Asia is still far behind on moving on from Covid.


That’s a wrap for my 2021 review. In my next post I will dive a little bit deeper into why my watch outperformed my stock portfolio in 2021. Because it has really been a year where all assets went up (except my stock portfolio and a few poor other bag holders who invested in Hong Kong) 🙂


GPW – Warsaw Stock Exchange Group


+ Exchange business are attractive both for their moat and resilience in an inflationary environment.

+ GPW is trading a highly attractive valuation where even a bear case gives upside in share price.

+ Attractive dividend yield north of 5%.

+ Polish stock markets have not seen the rally developed markets have, perhaps the best is yet to come?

– Poland is politically moving in a worrying direction and GPW is majority own by the state.

– Although revenue has increased nicely in the past 10 years, net income has not expanded as much.

First, thank you all for the warm words in the comment section, it’s good to be back! The inflation debate is still raging, transitory or not, at least temporarily it is a reality. Some companies are really hurt by inflation, struggling to pass on the cost, others do better. I put quite a lot of thought into what companies except banks do well in a high(er) inflation environment? I came to the conclusion that stock exchanges with reasonable current valuations (not priced for too much growth) could be a sweet spot. The hunt started and I quickly honed in on the Polish exchange – GPW. A lot of listed exchanges has re-rated in the past 5 years, many driven by the strong local equity markets, buyouts etc. Others, like Hong Kong Exchange have benefited from the US/China conflicts with Chinese companies opting to list in Hong Kong. But Poland has not seen a proper equity bull market for a very long time, valuations are still very reasonable in general and the country and its savings/pension mechanism are in early days. So the days in the sun for the Polish exchange seems to still lie in the future. Let’s dig into what the company is about and if it’s something for our portfolios.


The Warsaw stock exchange held its first trading session on April 16, 1991 with five listed companies, all of which were formerly State-owned companies that had been privatized. In 1999, Poland reformed its pension system, which contributed to an increase in domestic institutional investment, and in 2004 it joined the EU. With a record high growth in EU over the past 20 years, all these developments helped to boost trading volume on the exchange. In 2010 Giełda Papierów Wartościowych w Warszawie (GPW) listed on its own exchange.

Through my other Polish holdings I have written about how Poland is one of Europe’s strongest growing markets. On the back of such growth naturally a large population like Poland is creating national champions. Two worthy mentions would be CD Projekt (18bn PLN) and Allegro (71bn PLN) which recently listed. Overall the Polish equity market is very strong in gaming companies with many smaller players listed. GPW has also successfully developed a commodities exchange over the past 10 years. Today the commodities segment revenue is as large as the Equity/Fixed Income trading segment. To summarize on the back of Poland’s growth, so has also the exchange grown. That said, GPW is still tiny compared to developed markets with a market cap of 430m USD. Being in such an early stage of development I see plenty of long term growth opportunities for Poland and the exchange.

Company Overview

To get a better grasp of the company the below picture gives a good overview of how revenue is generated (press to read more):

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When things go wrong

Back in May-June after my last blog post my life and portfolio was in bloom, I had my best outperformance since the blog started and I was back good physical shape. That did unfortunately not last and things went quite wrong from there on. I had struggled with my health for the past year and early this summer it got worse than ever when a injured myself quite badly. I’m much better now but going through something like this really drain you. Currently going through the slow process of trying to build up strength again. Due to these unfortunate health issues I haven’t had the mental capacity to post anything or research as much as I used to. But now after exactly 4 months of inactivity I’m back blogging. I got a bit of a writers block starting off this post, I try to just come as you are. Nevermind my health issues, let’s put focus back on what happened this summer and especially China.

Having a strongly China tilted portfolio has really been bad beta exposure these past months, the spread between developed markets and Hong Kong is really remarkable. Just like health issues which sooner or later emerge, I knew the day would come when China would have to clean up its imbalances and go through a readjustment/bust. I read plenty of books on the topic and spent considerable time trying to understand the dynamics of for example the Chinese housing market. Being somewhat mentally prepared and thinking through the downside helps, but it still hurts when it happens. My portfolio has taken it on the chin lately, but perhaps not as bad as one would expect. I had such a tremendous run in some of my holdings previously, that gave me plenty of cushion. Also I have had minimal exposure to all the sectors that have been worst hit. As of last Friday my portfolio is now in-line with MSCI World (20% vs 18%) and massively ahead of Hang Seng (-8%) YTD.

Portfolio changes/comments

Modern Dental Group

Although I haven’t posted I have stayed somewhat active in the market. I had to, for example Modern Dental continued to double yet again from where I started to reduce my position. I was very happy to unload another portion of shares at 9.4 HKD, keeping half of my initial position for the long term. This stock alone saved a lot of my bacon in terms of performance this year.

Greatview Aseptic / Vinda

I have been gradually increasing my position size in Greatview Aseptic, which I think is underappreciated and undervalued here. Yes the semi-annual was a bit weak in terms of revenue falling down to the bottom line, but revenue grew nicely YoY. Given the increased raw materials prices and the extremely stretched transportation market it was no surprise to me that profit wise it would be a somewhat softer half year. This is still a growth company (growing revenue some 9% YoY in the past 4 years) with a 8-9% dividend yield, priced as a zero growth company. Doesn’t make any sense, so I will continue to back up the truck and load up more. I added shares at 3.74 and 3.45 HKD, which apparently was too early as its now trading below 3 HKD.

In the same manner Vinda has come down in valuation, I added some shares at 23 HKD, again not the best timing but quite happy to add shares at this level. Both of these companies have similar characteristics: totally unsexy business, factories producing daily necessities, founder led and both taking market share in a market with a tailwind. This means the can post high single digit growth rates, which is nothing to scoff at in the long run.

Pax Global / Essex Biotech

Did some profit taking in both to fund the additions in above mentioned stocks, here I sold at good levels, 9.76 and 7 HKD per share. The selling has not really anything to do with not believing in these companies (they are even after selling my largest positions), just that I want to balance the portfolio and re-allocate to for example Greatview which I see as having better return potential from this point.

Dream International

When I added this company to my portfolio I wrote this post, with the question mark a dream Investment? I wouldn’t say it turned into a nightmare, but not far from it. I bought at 4.11 HKD and sold out 3 years later at 2.88 HKD, throw in a couple of dividends of some total 40 cents or so and its still a handsome loss, during a period my portfolio almost doubled. Incredibly enough most of the loss comes from the EV/EBITDA multiple contracting from 5 to 4, cheap got even cheaper. It’s ridiculous to sell but also ridiculous to allocate capital to something where shareholder value never seems to unlock. It would be painful to see the company announcing a special div or something like that now and the stock doubles, which would be reasonable. Such is life in value investing land, some stocks are just to deep value traps and this one I throw in the towel on. I could write tons more about this company, but choose to cut it short since its no longer in the portfolio.


I have been flip flopping a bit in Irisity. I reduced my position in July thinking the odds for a continued rally seemed weak. Then they announced a merger with an Israeli company in the same sector, basically removing a one of the largest competitors (not that any of these players are large) and maybe more importantly gained a decent sales force. I think building some scale into this company is really needed and I saw this move as worthwhile to put on a position again, which I did a few SEK higher than where I sold 58 vs 61 SEK per share.


Oh boy this has become a tricky one. The share price has taken a proper tumble dropping more than 50% from ATH. The market seems to focus more on the short term pain of Covid and Casino closure than the possible long term gains. Here you can see the sentiment difference between for example the US cruise liners like Royal Caribbean which has fully recovered from its Covid drop, although cruise sales worldwide has not fully returned. In this cases the market was quick to take the long term view but in Nagacorp’s case the market is either short sighted or changed its view significantly on future income potential. My interpretation of what the market thinks, its a bit of both. Short term scared that it could still take years for Cambodia and Asian markets to resume travel, combined with what has been happening in China with new rules for Casino Junkets, which makes it likely VIP business will not come back as before. This double uncertainty has just killed the stock. On top of that there is also some overhang fears of how the funding of Naga3.

I decided to add to Nagacorp (again too early) in July at 6.98 HKD per share. My reasoning being that Cambodia is a friend of China, which can be seen by high vaccination rates they got compared to the rest of south east Asia. My guess is that Cambodia will be one of the first countries which will open some type of travel towards China. But say I’m wrong and travel does not resume say in another 2 years, then the situation is tricky. Naga3 will be delayed and probably cost more to finalize, the down period will then be so long that I think share dilution etc will be a fact. Nagacorp will turn into a disaster investment with permanent loss vs current limbo situation. In my view all of South East Asia can not afford to be closed for another 2 years, yes it would crush Naga as an investment case but it would crush the economies of these countries more. Still I’m humble to the possibility of being wrong and I don’t want to size my bet too big, I’m not going to add further (7% position) until I see signs of actual improvement. In regards to VIP business, yet to see where this lands, I have a small hope that junkets will be more controlled in Macau but will find ways to continue to operate in Cambodia, but my base case is that VIP does only come back to 60-70% of previous levels, which is still good. In other words in my view risk reward looks good, but outcomes could be extreme both on up and downside.

New holding – GPW SA

A third Polish holding enters the Portfolio, the Warsaw stock exchange itself, a separate post will come soon!


A few words on China specifically as well, given all the things that happened perhaps I should dedicate a separate post to it. Since I started this blog I always had mixed feelings about my tilt towards HK listed companies and China exposure. First time I got bearish on the blog was 2017: Rotate away from China. Already back then I spelled out my worries of China property and sold out of my holding Ping An. Ping An has lately been one of the largest indirect losers of this Evergrande mess. Trade War feels like a really old topic by now, but its very much alive and kicking. The whole de-globalisation feels like a long term new theme one could do investment after

It’s clear to my by now that China has decided to decrease the wealth gap created in the past 20 years. There has been some obvious losers, like education companies but a lot of companies have been hammered for various reasons. In my view even the Evergrande mess is part of this same theme (at least partly). What is less talked about is that there are also some winners in equalization. Just like in the US with stimulus checks which created a huge buying freenzy. If the poor in China got less poor thanks to wealth redistribution, perhaps the customer base of Vinda’s Tempo tissues grows from a few hundred million to half a billion? If a dedicate another posts to thoughts on China I would like to explore this are more. As always happy to hear you input, who do you think are the winners if China wealth gets more equally distributed?


It’s very good to be back posting, hope you got the tribute hints, man 30 years already!

Part 1 – Catching the Value Rocket

A study of small caps listed on the Hong Kong exchange

Over the last couple of years much of my portfolio performance can be attributed to a few holdings which have 2-5x in a short period of time. The latest one being Modern Dental Group where the price recently just took off. 

If you want to read my Modern Dental Group analysis just click here.

Discussing with other small cap value investors, investing in HK small caps can be a bit like tapping on the Heinz ketchup bottle. Stocks do nothing for years and then all return comes at once. I hadn’t really experienced it like that in the past but lately this resonates a lot with me. As you can see the price graph of Modern Dental above is was a grueling holding which went from 3 HKD down to just above 1 HKD. Consider that this happened in an environment where stock markets where extremely bullish. Then suddenly the stock just pops fantastic when it happens. I want to explore what drives these sudden burst of returns. How to catch them, how to act when they break out and also try to identify if and when its time to either reduce or sell your position. This is Part 1 which focuses mainly on how to catch these type of holdings.

Catching the Rocket

The very first step of enjoying the returns of a small cap that significantly re-rates is to actually be there when it happens. I have a number of stocks that I held and sold, just to see them sky-rocket later. Or stock that I held for a long time when they started to move upwards I was quick to sell and afterwards looking like a fool when the stock continued to double from my selling price. First step is to actually be there when the stock takes off. As we will see from a few examples of stock price graphs, its easier said than done.

Miserable failure

Modern Dental was a success example, let’s look at some failures as there is probably more to learn from those. For the ones of you that have been reading the blog from the very beginning, you might remember this:

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Essex Biotech – Why I am bullish

Recently some of you readers have contacted me either through the blog or on twitter to discuss Essex Biotechnology. Since I also recently increased this to a high conviction position, I thought I would share my thoughts on why I did so and some very recent development.

This post will not make sense if you are not familiar with the company, so please check out my full write-up from last April: Essex Biotechnology (1061 HK) – Core products fund investment portfolio.

Terrible investment

To start with I want to say so far Essex has been a terrible investment, I allocated significant capital to Essex on 5th of April, very close to the market bottom. And the stock is trading flat since then, whereas my portfolio is up 54%, a pretty remarkable underperformance. Why am I then adding to this holding which obviously the market doesn’t really see any value in? Well the (maybe obvious) answer is that I believe that the market is wrong and that there is significant upside in Essex to hopefully be unlocked. The most exiting trigger is that Essex today posted what I have been waiting for for some time now.

The Board is pleased to announce that, as informed by Mitotech, the topline data of VISTA-2 will be released and presented on 24 February 2021 after trading hours, and an announcement will be made by the Company accordingly

This post won’t be very structured but I would just comment on different aspects of the company. Let’s jump in

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VIGO Systems – Polish detector champion

+ Hidden Champion in a niche of IR detector market.

+ The future use cases of detectors is very large and is growing (for example self driving cars)

+ Very high margin sales speaks of the quality of Vigo’s products, also a nice track record of growth.

+ Founder led with high ownership from current and previous employees.

+/- Mass market products could lift Vigo into another level, but also high uncertainty who of Vigo’s customers will come up with a good enough use case to scale sales.

– Valuation already fairly stretched (in my view) but on a peer comparison level still not expensive.

– EU has decided to ban metals like Mercury which is essential for Vigo’s currently sold detectors, a 7 year exemption is likely.

– Very hard to fully understand this company and its product offering, the competitive landscape and what use cases have high potential for Vigo.


In the 1980s, a team lead by Joseph Piotrowski, at the Military Technical Academy, developed a unique technology for the production of infrared detectors working without cryogenic cooling. This invention led to the establishing of what now is VIGO System S.A. VIGO is located to the west of Warsaw, Poland, and with over 130 employees they have a global market reach providing customers with world leading uncooled infrared photon detectors.

The Company’s unique position and quality of products is confirmed by the usage of its products and the high margins the company enjoys in its small niche. The company is a true “hidden champion” with an estimated market share of over 50% of the market. VIGO is also in the pursuit to keep pushing the boundaries of its products quality as well as lower price products. Its recent investments in production capacity is ramping up production capacity from 10,000 detectors per year up to 100,000 detectors. The investment thesis is that the world will find more and more use cases for VIGO’s products. With YoY growth of some 25% in the past years and given the wide usage of its products already, its a compelling case.

VIGO’s mid-IR detectors are complicated to understand and his has taken me considerable time to wrap my head around how they are produced and more importantly where they are used. This write-up will therefore spend quite a lot of keystrokes on the products and their use cases. Let’s jump into it

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Portfolio changes over the past months

With ~5 years of announcing every buy/sell transaction on the blog, I have now for a while shifted to only post changes under “Trade History”. Sacrificing some transparency but with the aim to focus blog posts on more interesting things than every trade done. I imagine this will be my new format, where I look back on the past months and comment on what I feel is most relevant to mention. This is the batch of trades I will discuss.

Let’s start from the bottom

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Let winners run or invest with margin of safety?

As you long term readers know by now this blog has two main themes, stock picks and evaluating my investment style. This is another one of those posts where I explore one aspect of portfolio management – should one hold on to winners as their valuation gets more stretched?

In the past year markets have both become easier and harder to invest in, depending on your style of investing. I try to keep an open mind, be adaptive but at the same time invest in a way that works long term. I do believe some very basic fundamentals of investing rules will always stay true. Valuation does matter for me, but so does other things as knowing your holdings well. My portfolio returns have been especially good in the past year (on both absolute and relative terms). This has been driven by a handful of my holdings which have re-rated substantially. As an investor thinking in terms of margin of safety, this margin has in many cases reduced significantly as the stocks have gone up. Fundamentals improved warranting an increase of 20-30%, but the stock has gone up 60%, in other words reducing margin of safety (multiple has expanded). What is the prudent thing to do in such a case? Keep the position and let your winner run, or immediately re-allocate your capital to something which you perceive to have a higher margin of safety? These are for me very difficult questions to answer as manager of my portfolio. Below I want to contrast two different approaches to investing to highlight the issue.

The Coffee Can portfolio

The Coffee Can portfolio concept harkens back to the Old West, when people put their valuable possessions in a coffee can and kept it under-the mattress. The story that explains the concept the best goes like this:

I had worked with the client for about ten years, when her husband suddenly died. She inherited his estate and called us to say that she would be adding his securities to the portfolio under our management. When we received the list of assets, I was amused to find that he had secretly been piggybacking our recommendations for his wife‘s portfolio. Then, when I looked at the total value of the estate, I was also shocked. The husband had applied a small twist of his own to our advice: He paid no attention whatsoever to the sale recommendations. He simply put about $5,000 in every purchase recommendation. Then he would toss the certificate in his safe-deposit box and forget it. Needless to say, he had an odd-looking portfolio. He owned a number of small holdings with values of less than $2,000. He had several large holdings with values in excess of $100,000. There was one jumbo holding worth over $800,000 that exceeded the total value of his wife’s portfolio and came from a small commitment in a company called Haloid; this later turned out to be a zillion shares of Xerox.

Full text can be found here: Coffe Can portfolio

So at its extreme it is not never sell anything you bought, but perhaps a slightly less extreme version is to never sell your winners. Would this be a reasonable investment strategy and something I could really commit to?

Every day is a blank sheet of paper

Another extreme way to see your portfolio was something I learned a long time ago talking to some seasoned portfolio managers. Every day is a blank sheet of paper, they pretended their whole portfolios was in cash. Basically they went through the exercise of pretending they did not own any stocks and they needed to deploy all of their funds in the market every day. If their current portfolio looked different than how they would deploy their money if they started from scratch they rebalanced their portfolio to look like the weights they actually wanted to have. In reality I don’t think they thought of their portfolio like this on a daily basis, but for sure some did this on a monthly basis or so. If one holding in the portfolio for example doubled in a months time and went from 2% weight to 4% weight, they would scale it back to what they then thought was appropriate. Perhaps after such a run-up it was only 1% position or something the sold entirely.

At its extreme this type of portfolio managed will constantly sell winners if the stock price increase was not based on fundamentals that would warrant to hold a larger position. If the stock price just increased its multiple with no new information that should move the stock, this type of investor would quickly sell down that holding and re-allocate the money into other holdings. A true mean-reverting strategy which would work very well if the stock that increased in price came back down again.

Middle road – Thesis Investing

A middle road to this would be to care less about current valuation and just focus on if your long term thesis for the company holds. As long as the thesis holds you never sell. This would mean you could hold a company that is short term grossly overvalued (but still within some limits of reasonableness). I think the investors who have been most successful in the past few years have fully allocated their portfolios into this type of holdings. Leaning on the powerful laws of compounding, for something growing 20-30% YoY valuation matters little if they keep this up for the coming 10 years. Obviously the hardest part is to figure out if they really will keep it up for the coming 10 years – which then means coming back to that the thesis for the investment still holds. The nice thing with thesis investing is that you filter out a lot of noisy and just focus on where the company is going long term – this in its simplicity is appealing to me.

Tesla as a use case

If I just play out the thought process of investing with a Coffee Can approach owning Tesla. Tesla could have been an investment in my portfolio since I looked at the company when it was still trading around 30 USD per share. I was early on the EV theme (as you long term readers know) and of course also looked at the Tesla stock. I even read the book about Elon Musk and how he created Tesla and SpaceX. I was very impressed with him after reading the book and especially impressed with SpaceX (and still am). With benefit of hindsight its obviously a big regret not buying the stock around 30 USD back when I started this blog. Let’s just play with the thought that I did. How would I then reacted when the stock suddenly popped from 35 USD up to 80-90 USD? Back then there were a lot of naysayers, this company is going bankrupt soon, huge pile of debt etc. – risks seemed high and the valuation was already “stretched”. I’m very sure I would have sold close to the 80 USD level and been very happy with such a quick big return, breaking both the Coffee Can and Thesis Investing rule. .

So what kind of investment mindset does one need to have to hold on to a winner like Tesla from 30 USD all the way to 800 USD? Is the Coffee Can strategy of letting your winners run and never sell, the approach one should take to investing? If I used Thesis investing it would have come down a lot to what my thesis is. With the successes Tesla had over the past few years probably the initial thesis would need to updated. An initial thesis back in 2013-2014 could probably have been that Tesla would be one of many future EV car makers (but no market leader). Few people back then believed Tesla would get even that far. I think this is not really a reasonable thesis anymore if one is long Tesla. That would be some type of bear case that Tesla would only be one of many EV makers. Todays valuation is pricing in more than that initial thesis, so it would have been time to sell some time ago, but perhaps one would have held on to the stock up towards 2-300 USD per share using thesis investing.

Talking about updating the thesis, I realize that is the big issue I have with Coffee Can approach. It basically assumes to take one decision at one point in time and then never update your thesis. Obviously there are many factors to consider if Tesla is a buy or sell at current levels. But let’s just take the argument around competition.

What drives Tesla valuation today?

Barring very special circumstances, competition will always eat away at successful companies. If the cake is too big and juicy, the market will never let just one or two companies enjoy the spoils for all eternity. Perhaps the entry barriers to get a seat at the table are high, perhaps the market leaders are extremely good at what they do. In the end people will keep trying to get a piece of that cake. This dynamic means that there is long term tendency for something to mean-revert. A new industry flares up, profits increase rapidly for early entrants and things looks great. More entrants enter the market offering products at lower margins and margins are eventually reduced. Sometimes there are special circumstances where this margin compression does not occur – for example by branding. It doesn’t matter how many watch companies enter the market, they will not be the same as Rolex, not until they built the brand value. So to every rule there are always exception. I try to follow basic principles like competition (and many others) to not get carried away with my investments and dream up blue sky scenarios which are highly unlikely to materialize. These type of arguments are closely linked to valuation. In my view a key point for someone that takes either a long or short position in Tesla is competition and brand value. I think most of us can agree that Tesla’s brand value is extremely strong, basically across all age groups and quite broadly in society. Two very relevant questions to ask is then, will it keep or even increase its brand value over time? And more importantly how much extra are people willing to pay to drive a Tesla instead of say a Mercedes, BMW, Volkswagen or even a Porsche?

These type of thoughts around a holding is in my view essential for investing, otherwise I might just throw darts at a board and put them in my Coffee Can. Just like the original article hints, I think the Coffee Can approach is more of an alternative to index investing and nothing I’m interesting in entertaining.


In the case of Tesla it would have been fantastic to hold it since I considered the stock until today but thinking through this hypothetical investment, makes it clear to me that my investment style if very far away from holding a stock like Tesla from 30 USD to 800+. Have I missed out on some big gains by selling out of some of my stocks? I few years back I evaluated how all holdings I exited performed after I sold them. The strong conclusion that came out of that was that I escaped more failing stocks than missed out on stocks that soared after I sold. Read the whole post here: Look in the rearview mirror.

Everyone wants to find and hold the next Tesla, but the likelihood that it ends up in your portfolio is very low to begin with. After that to hold it through all ups and down needs a very special investment approach which is close to Coffee Can investing or at least Thesis Investing where the thesis is updated to more and more bullish future scenarios as the company delivers and fundamentally gets stronger. I would have benefitted the past years to invest more based on thesis and less on fundamentals. But I believe we are going through a very extreme stock market cycle currently and valuations will come back as a stronger factor for investing. So currently I land somewhere between Blank Sheet of Paper investing and Thesis Investing. I try to give my holdings a little bit of room to be overvalued for shorter periods, but as soon as that overvaluation gets a little bit too stretched I mercilessly sell my holdings although I still think the company is doing great things. To become more long term, perhaps I should move a bit closer to Thesis Investing and a bit further away from the Blank Sheet of Paper approach. I would appreciate my readers input on the topic, always happy to hear your thoughts!

With these thought as a backdrop I will follow-up with a post on how I reason about some of my latest portfolio changes. If you take a peak at my Trade History page you can get a preview of what those decisions were.




Summary of 2020


Much can be said about this year, I choose to focus on how extreme the dispersion been this year. A very small subset of the markets has been doing tremendously well in 2020. Bitcoin has tripled and Tesla and other ESG trendy “hot stocks” soared hundreds of percent on back of the massive stimulus we seen. 2020 has been a treacherous year for us long term more value oriented investors. With the exception of 1999, it has probably never been harder to stay true to your investment philosophy. The liquidity flywheel has been turning extremely quick in a smaller segment of the total market at the same time we all know how poorly the real economy is doing. I’m pretty active Twitter user and never have I seen such euphoria among investors that had a portfolio of loss making, high growth tech stocks with as many SaaS etc in the company description as possible. I was still very young in 1999 and history never repeat itself, but I’m pretty sure it rhymes. And the rhymes I have been hearing lately are not positive for the returns for the coming years.

2020 has also been a terrible year from the perspective of have and have nots. And I’m sitting as a clear winner here from that perspective, with a stable high paid job and and assets that just keep appreciating at a high speed. At the same time a lot of the people who don’t have the luxury of big savings even lost their jobs this year.

The crisis months

What defined most investment returns in 2020 was how one navigated the period of February to April this year. Given that I live in Asia I had a front row seat to what was happening in Wuhan. In my post from Feb 9th I wrote the following:

I would like to start of by saying, that I think we are facing an extremely serious virus spread. It’s the sneaky feature of the virus that it can spread before people feel sick, which really makes this so very dangerous. Thanks to very powerful actions taken in China and elsewhere, we might just dodge a major major global health crisis.

When I started to write on this post a few days ago I felt my fellow investors in the US and Europe had not understood what is going on in China. But just over the past few days I think investors are getting input from company management and decent news reporting on what is actually going on. I felt all worked up, how could equity markets continue up when 1.4 billion people had decided to sit at home, not work and basically tend to basic needs!?

We humans are pretty easy to scare and what influences most of all, is the behavior of the people around us. People can be calm and rational about the likelihood of catching the virus, but change mindset very quickly when put with a new group of people that act more panicked about the virus spread. It’s very quick back to basics in situations like this, Maslow’s pyramid comes to mind. Nobody is any longer thinking about which Hermes bag or new car to buy, when you are fighting at the local supermarket for the last rolls of toilet paper. Maybe it sounds like a joke, but this has been the actual situation in Singapore and Hong Kong over the last few days. 

I think I was fairly spot on in my analysis in early February and really early to voice my views/concerns as well. After that point of being correct early I got a lot of things wrong. First of all I was very bearish and thought this bull market had in general ran its course. I thought we where staring at a crisis that would trigger a more long term economical decline. This meant I did not think of upside potential and buying potential winners from the crisis. I focused all my energy on downside protection and rotating out of anything with high leverage and/or severely affected by the virus. When all the stimulus packages started to kick in, again I was more thinking downside protection, that the USD would be devalued long term, so I took some positions in gold. The right move of course, now that we now the results would have been going in heavy on what was a Covid winner. For example I wrote my analysis on Valneva late 2019 so I was well aware of Moderna, go back to my post and you will see I compare Valneva to Moderna. A company probably nobody heard about in late 2019. In general the strength of the stock market boom from the lows really surprised me and still does.

The year of Poland

2020 was also the year that the Polish stocks in a more significant way entered my portfolio. It’s always a bit scary when one starts to trade a new market, where a lot of information is not available in English. My earlier investing years was very Europe and US focused and later when I moved to Asia I focused much of my investments on mastering investing on the Hong Kong exchange. I know feel I have a good grip of the western markets + HK/China. The become a truly global stock picker, I have over the past 2-3 years tried to widen my scope to other more undiscovered markets. I firstly focused on Italy but struggled to find real gems to invest in there (the market is still clearly on my radar). I then shifted my focus to Poland, a more emerging market than what I previously invested in. The companies have very tiny market caps and one has to accept poor liquidity to buy anything except the 5-10 larger companies on the list. The one big market I have left to look at would be Japan. I know there are tons of interesting companies there and I have from time to time been close to pull the trigger, but so far not.

Exceptional return in an exceptional year

I’m both extremely pleased and somewhat surprised over my return in 2020. With twice the return of MSCI World and at a lower standard deviation (measured on weekly data), it’s my best year since the blog started from an outperformance perspective. When I say that I’m surprised it’s because how strong the US tech segment been, which has a large weight in MSCI World. I have had very little to no such exposure (perhaps you can count LiveChat and JOYY in that segment). If you look at the below table of where most of that performance was created, it’s almost all from holdings that I added during 2020 (holding period less than 1 year). Many of my 2020 losers are my long term holdings such as Nagacorp and Dairy Farm, so activity has definitely paid off this year.

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