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%.
Some highlight below in terms of good & bad decisions for the portfolio in 2021
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.
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
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) 🙂