Soooo, 2020…What A Crazy Year!?

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‘It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.’

A Happy (& Safe) New Year to my readers & fellow investors!

This time last year – or even last April – we had little/no idea of the #COVID challenge still ahead, but we’ve made it this far…and doubtless, after surviving 2020, we can surely look forward (America willing) to a far better 2021! If not, perhaps, in terms of superlative returns…but hey, that’s a hedge I think we can all accept.

Let’s try skip the #pandemic itself – I leave that to countless articles (The Plague Year) & a library of books to come – but obviously its consequences will reverberate here (& for us all). I must say though: I’ve been awed & inspired by the incredible effort & sacrifice humanity’s made to save lives, help those directly & indirectly impacted by COVID & come up with multiple vaccines at such an accelerated pace. But equally saddened – by comparison – to reflect on the fraction of preparation, effort, ingenuity & most of all expense that was perhaps required to prevent the worst ravages of COVID, let alone reduce or even eliminate some of the major health & social issues we endure (or scarcely even notice) today. Above all, great investors will focus on the character of management…it’s time we realize we need to assess the character of countries & their leaders too. And in both cases:

‘Luck is what happens when preparation meets opportunity.’

Or not…

So let’s dive in – as a reminder, here’s a mid-year snapshot of my benchmark:

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KR1 plc…The #Crypto #Alpha Bet

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My main 2020 investment thesis is the assumption this #pandemic does not herald new & permanent societal change. But it will reinforce & accelerate existing trends, with #cryptocurrency/#blockchain innovation, development & adoption poised to benefit hugely. It’s just three years since my first & last crypto post (& Bitcoin‘s only twelve years old!), but its progress since has been astonishing…

We kicked off with a spectacular crypto-bubble in late-2017, with the launch of Bitcoin futures triggering the devastating early-2018 collapse…which fortunately played out in less than a year. Fidelity, Coinbase & Bakkt launched institutional-grade digital custody platforms & even the OCC confirmed US banks can now offer digital custody services. Crypto exchanges like Binance, BitMex, Coinbase, Huobi & Kraken now boast hundreds of millions/billions of dollars in daily crypto volume. Libra was announced by Facebook. More & more hedge funds are getting involved – Mike Novogratz launched Galaxy Digital, with Paul Tudor Jones & even Stan Druckenmiller buying into Bitcoin as a digital asset/inflation hedge – not to mention, family office/college endowments (are pension funds & sovereign wealth funds next?). Square & PayPal now accept crypto & more payment companies will follow. Proof of stake has emerged as a green alternative to crypto-mining. Grayscale‘s listed crypto funds now boast a $14 billion+ aggregate market cap (alas, most of the US fund industry still awaits SEC crypto approval), while Total Value Locked Up in #DecentralizedFinance is also at a $14B+ all-time high (& doubling every month/two since June!). Stablecoins are also emerging as stable-value/high-volume bridges to the fiat world. We’ve even seen listed companies like MicroStrategy & Square buy Bitcoin as a corporate treasury asset. And Bitcoin’s now only 6% off its all-time high…

The volte-face in attitudes has also been impressive, with the crypto sector recognizing that embracing (& promoting change in) existing financial/regulatory regimes offers a slice of an infinitely larger pie. While regulators are also more open too – though US regulators may remain as schizophrenic & over-reaching as ever – with central banks (like the PBoC, Fed & BoE) now floating (& trialing) digital currency proposals, to co-operate/compete with crypto. As for investors, the Bitcoin survival debate’s dead…it’s been anointed digital gold & nobody could disagree it’s not a contender. While the mantle of blockchain innovation passed to Ethereum (& the imminent Ethereum 2.0), plus the smart-contract projects & infrastructure being built atop it (3,750 DApps & counting, mostly on Ethereum). And #DeFi is shaping up as a killer app for blockchain…to join forces with #fintech & eventually #BigTech to challenge the legacy financial services/payments industry. [Maybe even value investors get this…look at bank valuations!?] Its IPO may be on ice, but Ant Group‘s still a prescient reminder (for the West) of how easily bank-customer relationships & economics can be cannibalized by disruptive technology & business models.

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H1-2020 Wexboy Portfolio Performance

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So yeah…quite the bloody year, eh?!

I hope you & yours have kept safe & well during this #COVIDcrisis – even if you’re not exactly sheltering-in-place anymore, I presume you’re still a conscientious mask-wearer (as needed) in public? All else being equal, it’s disappointing the weather (apparently) isn’t a sure-fire virus-killer – remember when we all assumed, at worst, the summer would offer a welcome & effective respite? You know, meeting people, I used to joke investing was simply the ‘job’ I invented to keep me off the mean streets…I never imagined it would literally turn out like this!?

Anyway, let’s survey the carnage…

As usual, my H1-2020 Benchmark Return is a simple average of the four main indices which best represent the majority of my portfolio:

A (13.2)% benchmark loss is grim…though apologies to my puzzled American readers, who are wondering what carnage? [Apparently 100% of US investors now practice 0% global diversification!?]. If you didn’t know better – i.e. had avoided the media’s water-boarding over the last six months – you’d surely think a (4.0)% loss in the S&P was nothing more than some random market oscillation. Nothing to see here…

But in reality, lots of (US) investors now lean into technology stocks…and the Nasdaq didn’t disappoint, delivering a spectacular COVID-driven +12.1% gain! [C’mon, I tweeted ‘Nasdaq 10,000’ enough in the last year!] Of course, there’s a flip-side, with travel & hospitality being the most obvious sectors to experience devastating (& sustained) share price declines. We see a far more realistic ex-technology US performance in the Russell 2000, which recorded a (13.6)% loss in H1.

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FY-2019…Hella Surprise Of A Year!?

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It’s still January…so by now, I’m sweating to wrap this up by month-end (at the very latest!), while you’re probably feeling besieged (& bamboozled) by the media’s parade of talking heads who seamlessly re-write their broken #2019 narratives & still pitch their #2020 market prognostications with undaunted confidence. Which is a tad discouraging when I’m busy trying to come up with my own unique version & perspective…albeit, in the wake of a fantastic year (talk about looking a gift horse in the mouth!).

Seriously…name a market/asset class that actually declined!?

But rewind a year & check the gamut of their 2019 predictions, and (once again) you’ll remember/realise they’re full of highly paid shit! So before I even start – let alone, God forbid, pontificate – I’ll share the only piece of market wisdom you really need to know, above all else:

‘Nobody knows anything…’

And that quote’s about the movie business! Granted, for anyone who cares, Hollywood probably seems like the most impressive Rube Goldberg contraption in the world…but frankly, figuring it out is a total cake-walk compared to grappling with & predicting what might actually happen next in the markets & the global economy! But unfortunately, that’s how we all step up & play the game:

Like useless office work expanding to fill all available time…useless market forecasts expand to fill all available airtime & news holes!

Probably my greatest investing achievement in the last year was switching off the financial media – and yeah, I stopped paying attention to brokers years ago – is it any wonder I reported such negligible portfolio activity? [It’s a real travesty seeing #buyandhold investors re-classified as chumps over the years (& decades)]. And in reality, markets are primarily focused on trying to discount a 12-18 month time-horizon, which means a diet of narrative manufactured to simply explain yesterday & today’s market/stock zig-zags is just irrelevant & misleading anyway. And so, I recommend you do the same: Go on, just switch off that guy on the box, you know the one…he just happened to attend some ‘school in Boston’, and is now an instant expert on epidemiology and up & to the right #coronavirus charts! Again:

‘Nobody knows anything…’

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Cpl Resources…A Most Talented Company!

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Cpl Resources plc (CPL:ID) (CPS:LN, sterling quote) (DQ5, its actual ISE/Euronext ticker) is Ireland’s leading recruitment firm – founded 30 years ago by CEO Anne Heraty, it’s been listed since its 1999 IPO. It provides talent & workforce solutions, via 13,000+ recruiters/contractors/temporary staff in 47 offices across 9 countries, focused primarily on Ireland, the UK, and Central & Eastern Europe. It operates via distinct specialist brands in sectors including technology, healthcare, pharmaceutical & life sciences, engineering, light industrial, finance & accounting,  human resources & office administration, and sales. It boasts a broad range of clients from global multinationals to startups to local SMEs, and operates across the full talent spectrum from permanent, contract & temporary recruitment to the provision of managed workforce solutions & strategic talent advisory services.

In its FY-2019 annual report (NB: FY ended Jun-2019), Cpl reported record results & the launch of Covalen, its new managed solutions brand. Revenue increased 8% year-on-year to €565 million, with gross profit (i.e. net fee income) up 16% to €96 million, delivering 30% growth in adjusted operating profit (to €26 million) & exceptional 37% growth in diluted EPS to 77.2 cents a share. This is reflected in an annual dividend up 41% & a balance sheet boasting over €40 million in net cash. Cpl Resources now trades at €7.05 a share…a €193 million market cap, an enterprise value of €153 million & a 9.1 P/E multiple!

Wow…soooo, what’s the catch?!

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H1-2019 Wexboy Portfolio Performance

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And once more…into battle!

Before the month is out, it’s time I look back & share a H1 portfolio update. Of course, in the wake of last year’s Q4 carnage, it wasn’t all that surprising to see markets chalking up a near-perfect YTD performance across the board. Equally unsurprising was the US market’s continued leadership…which seems like an inevitability these days, to the chagrin of long-suffering European & value investors. [Um, aren’t they synonymous?!] So here’s the scoreboard – as usual, my H1-2019 Benchmark Return is a simple average of the four main indices which represent the majority of my portfolio:

On average, a 13.4% benchmark gain…led by the S&P with a 17.3% gain (bested by the Nasdaq, which boasted a 20.7% gain). More surprising was the robust performance of the FTSE 100…despite a tsunami of Brexit nonsense, it still managed to deliver a 10.4% gain. [Not an index-related fluke – the more domestic FTSE 250 & the AIM All-Share (despite a glut of profit warnings) clocked up (on average) similar gains of 11.2% & 7.1%, respectively]. As for the ISEQ & Bloomberg Euro 500, they did themselves proud too, recording respective gains of 12.3% & 13.6%.

Overall, this is a reversal of the 13.5% benchmark loss I reported last year. Which, noting the S&P’s consistent out-performance, is an unwelcome reminder European markets are still actually lower/no better off than end-2017 levels! And really, I’m just cherry-picking here – my European benchmarks have pretty much gone nowhere for the last four years. And again, that’s another flattering perspective…believe it or not, Euro indices have mostly traded sideways for close to two decades now! [Read ’em & weep: FTSE 100, ISEQ, STOXX Europe 600]*. Sure, you still earned a dividend yield…but this savages the comforting notion that equities will always make you decent money/are the superior asset class in the medium & long-term. Though maybe, just maybe, there’s a silver lining to that bag you’re holding:

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FY-2018: What The Market Gods Giveth, They Also Taketh Away…

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Back in much happier days (last July!), faced with indices that were (on average) broadly flat, I sagely accepted that:

‘Looking back, the first half this year seems kind of inevitable now…’

Of course, this now haunts me as absurd understatement. And an unfortunate reminder the hardest time to sell is…inevitably, when you should sell! But after a crackerjack 2017, I did see 2018 as more of a market time-out, than anything else – as reflected here, consciously or not, in the lack of blog posts & commentary. My bad…but sometimes it’s better to take stock & just enjoy how wonderful real life can be!

The same is true of my disclosed portfolio – my only reported activity was to: i) top up my Record (REC:LN) holding (which I still prefer to call bad timing, vs. an actual bad decision), and ii) re-establish my Donegal Investment Group (DQ7A:ID) portfolio allocation, after management redeemed over 50% of its outstanding shares. Elsewhere, after enjoying rapid/substantial price run-ups on certain undisclosed holdings (the main reason they never quite made it onto the blog), I focused on positioning myself for a rough October. Pals will back me up on that…but obviously it wasn’t visible here, it’s never enough when you’re right (cheap buys won’t offset damage in the rest of your portfolio), the market proved far worse than I expected, and only fools believe in all or nothing market timing anyway.

[Forget the guy who pissed you off the other day – you know the one, that dude boasting only an idiot wasn’t all in cash & set for the crash – because he’s also the guy forgets how many other times he (wrongly) went to cash, plus all the gains he’s missed out on over the years].

So let’s just go ahead & survey the actual market carnage – here’s my FY-2018 Benchmark Return – as usual, it’s a simple average of the four main indices covering most of my portfolio (& my readers’ too, I expect):

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H1-2018 Wexboy Portfolio Performance

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Looking back, the first half this year seems kind of inevitable now…

In the wake of last year’s momentum – possibly even euphoria (see my FY-2017 performance review) – H1-2018 was an unwelcome cold shower for investors. But such is how the market gods operate… And in reality, momentum was limited mostly to US investors (in particular, FAANG fans), who enjoyed 19-25%+ returns last year. Spare a thought for (unhedged) European investors: A weak dollar (down 14% vs. the euro) diluted away most of their US stock returns, while locally they earned a fairly pedestrian sub-8% return. So it’s clearly galling for European investors to now see their local markets down year-to-date (vs. a small US gain)…particularly when most of the ‘blame’ (if there is such a thing) for recent market wobbles arguably belongs to America.

But surveying other markets, we’ve seen more savage reversals of fortune elsewhere this year. Emerging & frontier markets investors enjoyed 32%+ returns last year, but were blindsided this year as markets plunged across the board, with negative returns exacerbated by local currency weakness (high current account deficits being targeted in particular). In fact, quite a few individual markets entered bear market territory. And yes, I mean actual 20%+ declines…not the feeble 5-10% ‘bear markets’ the financial media breathlessly reports these days!

Of course, the real disaster bear apocalypse happened in the crypto market – remember this table?

Take a moment & marvel once more…seems like an awful long time ago now, eh?! While Bitcoin peaked mid-December (rather unfortunate for all those kids who persuaded their folks to buy in over Xmas!), Ethereum & the rest of the market’s incredible momentum carried right into the first/second week of January. Since that peak, the entire crypto market has collapsed almost 70%, with its end-June market cap now barely exceeding $250 billion. Clearly, my #CryptoFOMO theory hit a brick wall: Despite noting a possible crypto-wobble (as I published this post mid-Jan), I argued that new money might not be ready to dive into crypto, but last year’s crypto gains would surely inflame & elevate investors’ risk appetite in the equity markets. Obviously, at the time, I didn’t quite envision such a horrific crypto collapse…or the subsequent schadenfreude.

However, I’d still argue there’s a significant asymmetry here, in terms of potential risk/reward: Crypto euphoria could well re-emerge & spill over into equities…but on the other hand (hopefully, I’m not being too blasé here!) the popping of an asset class/bubble that can be measured in the mere hundreds of billions isn’t all that relevant or serious in the global scheme of things.

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Wexboy Portfolio Prospects – Part II

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Ugh, collywobbles!

Sure, we can all breathe easier now, but still feels a little bumpy out there, eh? Though maybe you should ignore the incipient nausea…just relax & embrace the ride! ‘Cos I’m perversely encouraged by these fresh mini-bouts of panic we’ve been seeing this year. They’re a useful reminder investors still have a real wall of worry to climb here. Which is probably the most important & necessary pre-condition underwriting the durability of today’s bull market. [And yes, it’s only a bull market…when investors (esp. the man in the street) go from hoping they’ll make money, to knowing they’ll make money, that’s when we enter bubble territory]. However, we still need to see whether my macro investment thesis eventually plays out here – a thesis I express via a question:

Globally, we’re still conducting a truly unprecedented monetary (& fiscal) experiment…could we end up ultimately inflating the most incredible bubble ever?

If you think that’s ridiculous, we really don’t need to debate it here. Or rehash a complete litany of facts & figures which prove history must repeat itself – the ever-flattening US yield curve being the latest bogeyman. But I have to ask, what’s so bloody alarming about entirely average market P/E ratios…when interest rates are still anything but average?! And despite their trajectory, we’ll obviously continue to enjoy ultra-low long & short-term rates in absolute terms, while central banks (in aggregate) also continue to print money:

Yep, there’s the real boiler-room of this market – in every sense of the word – as this chart nicely demonstrates:

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Wexboy Portfolio Prospects – Part I

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With the dust hopefully having settled here, it finally seemed like the right time to give this post one last polish & get it out! Maybe now, readers are  in the mood again to actually contemplate a potential new buy or two? As for me, almost inevitably, my top holdings tend to be my favourite buys…

Okay, maybe that’s not strictly true – each & every day, I’m still distracted by siren stocks I pine to own! But buying a new stock is equally about selling an existing holding*, one you (should) already know far more intimately. [*Unless you’re hoarding piles of cash…which would be pretty silly, right?!] And that’s an important & valuable hurdle for any investor. Because anything that might help reduce portfolio turnover is invariably a good thing! Which is no damn excuse for hanging on to losers…but it is a compelling incentive for really understanding the stocks/businesses you currently own. In particular, because learning how not to sell potential multi-bagger growth stocks is ultimately the biggest challenge most (experienced) investors will have to face, as I lamented in my last post.

So let’s crack on: For each of my disclosed holdings, I’ll comment briefly on its 2017 performance, then focus on its current prospects & valuation. NB: All share prices & market caps are cob Feb-27th, but individual stock allocations are listed as of year-end 2017 (essential to my 2018 portfolio performance tracking). Of course, any questions/comments you may have about these holdings are always welcome here (& by email):

i) Zamano (ZMNO:ID) (or ZMNO:LN) (1.8% of year-end portfolio):

Share Price:   EUR 0.04

Market Cap:   EUR 4.0 Million

2017 Portfolio Gain:   (25)%

Yeah, unfortunately they can’t all be potential multi-bagger growth stocks…

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