German Residential Property (Part III)

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absolute return, Austria, dividend yield, financial crisis, financial derivatives, German bunds, German property, Germany, home ownership, income/dividend bubble, intrinsic value, land grab, Leverage, Margin of Safety, Mr. Market, NAV discount, Net LTV, Price/Book, REIT/MLP sector, relative value, rental yield, residential property, safe-havens, special situations

Continued from here.

OK, now we’ve looked at German residential property fundamentals. The current supply/demand & home ownership rate, rental yields, safe-haven status, and particularly the low valuations, certainly appear to offer a persuasive investment case. So, how do we exploit it?!

As I’ve said, I’m perplexed by the general investor obsession over direct property investment. What a hassle! And let’s correct a key misconception: People say they prefer direct investment as they can leverage it up – something you can’t, or shouldn’t, do with an equity investment! Yeah, sounds logical…but it’s complete rubbish! That coveted (?!) leverage is already embedded in listed companies (and far more efficiently/cheaply than you could obtain).

Let’s say you’ve a spare 300 K knockin’ around. You could buy a 1 mio property, with the help of a 70% mortgage (and years/decades of property/tenant headaches to come!). Or you could invest in the equity of a listed property company that owns 1 mio of property (with the same 70% leverage). All at the click of a button & an occasional read of their financial reports. What an easy choice… OK, but who knows where the hell the share price might trade?!

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German Residential Property (Part II)

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arbitrage, Berlin, commercial property, correlation, Debt/GDP Ratio, Deutsche Mark, Eurobonds, Europe, European sovereign debt crisis, Eurozone, GDP growth, German bunds, German property, Germany, Highway to Hell, Leverage, Manhattan, Margin of Safety, Net LTV, quantitative easing, rental yield, residential property, safe-havens, unemployment rate

Continued from here.

Economy:

Germany’s by far the largest & strongest (major) economy in Europe, with an average real GDP growth rate in excess of +3.3% in 2010 & 2011. Growth remains positive in 2012, while 2013 GDP growth’s forecast to be +1.7%. Far better than most EU growth rates in the same period…

It’s one of the few countries with a primary budget surplus. Actually bested by Italy, what a surprise! Germany’s Debt/GDP ratio at 81.6% isn’t much better (also surprising) than the EU average of 88.2%. But the majority of citizens (& investors) remain supremely confident in Germany’s ability to manage its own finances – and rightly so, I believe. [An important point to make: Now, really, an 88% Debt/GDP ratio? What crisis..!? I think not. I’d venture we can trace the current market hysteria squarely back to the bumbling & foot-dragging of Europe’s politicians. A clear message for US politicians as they merrily race down their own fiscal/debt Highway to Hell. An inability to learn from history’s unfortunate, but perhaps forgivable – an inability to learn from today’s headlines, however, just makes you a complete f**king idiot,sir!]

German Residential Property (Part I)

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commercial property, developed markets, Europe, Eurozone, German bunds, German property, home ownership, Margin of Safety, real estate agents, residential property, safe-havens, stock tips

German residential property’s been described (particularly recently) as:

‘Perhaps one of the safest & most attractive asset classes in Europe, or even the world‘.

OK, seems like typical talking-head hyperbole! But in this instance, I’d really have to agree… In fact, I’ve agreed with that thesis for the last couple of years now, and v profitably too! Whenever somebody I meet tugs my sleeve for an investment tip, that’s exactly what I offer up (in all good conscience): German residential property is a safe & compelling long term investment. Hmm…it’s amusing, and extraordinary, how rapidly most people lose interest in such a dull recommendation! Which just goes to show:

i) I guess most people are truly just looking for a tip…in the v worst sense of the word. Perplexing..!? Do they have some bizarre faith I can conjure up, at will, a stock that’s sure to double for them within a week!? Is this really how some people think investing works? In the end, it illustrates how few people walk the talk – they just don’t apply themselves & follow through consistently with their investing. Often, when they actually decide to invest, it seems like their decision may just boil down to the persuasiveness of the ‘tipper’, rather than the merits of the actual stock thesis!

How About Another Catalyst? (Part X)

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Adrian Williams, Alphameric, alternative assets, Argo Group, asset managers, Avangardco, Bear Stearns, binary outcomes, capital expenditure, catalyst, delisting risk, DM plc, Dresden, emerging markets, Expected Value, Fair Value, Fortress Investment Group, Gagfah, government regulation, intrinsic value, IRR, Joe Lewis, litigation, major sale, Net LTV, P/E ratio, P/S Ratio, risk aversion, risk management, share buyback, share repurchase, takeover offers, Timeweave

Continued from here, & here’s the first post in the series.

vi) Litigation/Regulation is the final catalyst on my list. It’s also, without a doubt, the most difficult to exploit & to write about (note I’ve tackled this series in reverse order)! In fact, if it doesn’t (immediately) appeal to you, I might perhaps discourage you from ever bothering with this catalyst? To some extent it suffers from the same issues/perceptions I highlighted with v) the Major Sale catalyst.

First, most litigation/regulation risk/events are simply part & parcel of normal corporate operating activity. For example, certain sectors are almost permanently marked down due to their increased risk level (perhaps something politicians like to mouth off about?!). These risks usually aren’t of any fresh/major significance to a company’s business model or valuation, and/or they’re routinely priced in anyway – they are not catalysts.

But occasionally a real game changer comes along… A lawsuit, or a regulatory change/threat/action/approval, that could prompt a major change in a company’s future intrinsic value. It may also cause a rapid/significant adjustment in the company’s current market cap. So how exactly do we separate out & identify such a catalyst vs. the merely hum-drum? A similar approach, like v), seems sensible – something like:

Agriculture ETFs – Can You Smell ‘Em?

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agri-business, annual reports, Archer Daniels, bank debt, BRF-Brasil Foods, contango, correlation, Deere & Co, emerging markets, ETFs, ETNs, ETPs, farmland, fertilizer stocks, food wastage, frauds, frontier markets, Gain on Biological Assets, inflation, JP Morgan, livestock, Market Vectors Agribusiness ETF, Monsanto, MOO, picks & shovels, plantations, soft commodities, Syngenta, United States Oil Fund, Wilmar, Yara

I don’t believe there’s any need to rush into Agri stocks as an inflation play right now. First, I suspect inflation will take far longer (than many currently seem to expect) to overcome the current wave of de-leveraging. And second, the primary real asset conduit for inflation, via the banks, is always Property – which eventually spills over into Natural Resources, and finally into Agri stocks (inc. soft commodities). Regardless, I still think Agri’s always an attractive asset class, and I’d be perfectly happy to increase my exposure if the right opportunities come along. Let’s recap the attractions of Agri:

– Steadily increasing demand due to global population growth (but isn’t everything..?!)

– Higher demand also (via increased consumption & waste*) due to rising global per capita incomes – basically this is an emerging/frontier markets growth story

– Rising incomes also prompt people to trade up to, and increase demand for, protein (specifically, meat), which requires far greater agricultural resources to produce

– It’s pretty insensitive to the economy: Food’s a high priority in emerging/frontier markets, and developed market food spending (as a % of income) has declined dramatically in the past 30 years. And remember, people avoid reducing calorie intake in downturns, they just make substitutions

– Obviously it requires capex & operating expense investment, but biological growth provides a wonderful (& uncorrelated) investing wind at one’s back

– Finally, of course, it offers a great (later stage) inflation play

TGISVP – Hot? Not?!

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Alpha Portfolio, Barron's, Beta Portfolio, binary outcomes, Fastnet Oil & Gas, FBD Holdings, garbage stocks, intrinsic value, junior resource stocks, Leverage, Margin of Safety, Petroneft Resources, portfolio allocation, portfolio performance, risk management, Smart Alpha Portfolio, Smart Beta Portfolio, stock screener, TGISVP, Total Produce, Trinity Biotech, US Oil & Gas, value investing

In my last post, I was delighted to see the TGISVP Alpha & Beta Portfolios continue to expand their level of out-performance vs. their ISEQ benchmark. Particularly pleasing was the sight of my favourite, the Smart Alpha portfolio, far outpacing the others with a 21.1% YTD absolute return. But we’re still only 9 months into the experiment, so clearly we need a far longer horizon to confirm if this performance edge is sustainable.

It also makes me wonder if there’s a lesson to be learned here..? No, not whether value investing out-performs in the long run – I’m fully convinced of that already! [And if you’re not, please please read some of the numerous papers published on the topic]. But whether a mechanical approach is perhaps better?

Ha! No, I’m certainly not planning on becoming a stock screening convert..! But I wonder: Even if you’re a v competent & disciplined value analyst, even if you’ve conquered much of the fear & greed involved in investing, perhaps that demon mind still trips you up at that v last hurdle, or two..? When you’ve a nice stack of portfolio candidates lined up, why do you then take a shine to some & not to others? Why does one special stock really get your heart racing, far out of proportion to its obvious prospects? Why do you end up triple invested in one stock vs. another, when they both lined up pretty much even-stevens in terms of risk/reward?

TGISVP, Q3 ’12 YTD Performance (II)

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alpha, Alpha Portfolio, beta, Beta Portfolio, Fastnet Oil & Gas, intrinsic value, Ireland, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Smart Alpha Portfolio, Smart Beta Portfolio, TGISVP, The Great Irish Share Valuation Project, US Oil & Gas, value investing

Continued from here. Sorry for that tease earlier this week, I promise we’ll actually get to YTD performance of the TGISVP Portfolios in this post..! My H1 post is good background – particularly note the following:

– Q3 2012 YTD performance for each stock is TGISVP specific – i.e., measured from the specific (Q1) date I set a target price for each stock – because this was/is intended to be a real-time exercise in portfolio construction & management

– Two exceptions: Fastnet Oil & Gas (FAST:LN) & US Oil & Gas (USOP) were added in Sep. Based on their significant Downside Potential rankings, both are now included as EUR (3) shorts in the Alpha Portfolios (see here for more detail on overall portfolio construction)

– ISEQ YTD performance is measured from Feb-6th**. I noted: ‘I think the fairest, and most comparable, benchmark to use is the ISEQ’s performance since Feb-6th. The valuation stage of the Project was stretched out over Jan-March, but on that date I reached the half-way point, so this is a good average starting point for a benchmark comparison. It’s not perfect, but I think it’s the simplest and most obvious solution.‘

TGISVP, Q3 2012 YTD Performance (I)

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Aer Lingus, Alpha Portfolio, Beta Portfolio, Cove Energy, CPL Resources, Datalex, Fastnet Oil & Gas, FBD Holdings, garbage stocks, junior resource stocks, performance appraisal, Petroneft Resources, portfolio performance, Prime Active Capital, Providence Resources, Siteserv, TGISVP, US Oil & Gas, Worldspreads

Now Q3 2012 is over, it’s time to revisit The Great Irish Share Valuation Project. Here’s my H1 2012 performance post, for reference.

First, note there’s been 1 de-listing – we already had the heads-up on it last quarter: Cove Energy (COV:LN) was taken out for GBP 240p in cash per share by PTTEP (PTTEP:TB). A marvelous result for most shareholders, except for a few over-enthusiastic latecomers that bid the shares up to GBP 270p+ in the dying days of a Royal Dutch Shell (RDSB:LN) vs. PTTEP tussle. [I’ll continue to include Cove – at its final GBP 240p value – for performance purposes for the rest of the year].

Note: Q3 2012 YTD performance for each stock is TGISVP specific – that is, performance is measured from the specific date (in Q1) I set a target price for each stock. [Apologies if you’d prefer to see actual YTD performance for all stocks – but I suspect there’d be a high degree of overlap in the winners & losers, anyway].

2012 Baker’s Dozen – More Pie!

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Argo Group, Baker's Dozen, binary outcomes, catalyst, Foo Fighters, FTSE 100, FTSE Eurotop 100, Granville, Hamlet, hedge funds, inflation, ISEQ, junior resource stocks, Livermore Investments, performance appraisal, Petroneft Resources, portfolio allocation, portfolio performance, Richland Resources, risk management, S&P 500

Righto, another quarter’s done, time to check in on performance again. First, my Q1 and H1 performance reviews will provide you with some handy background & context. Second, it’s always fun to pose some questions before hitting the stats:

– Of the US/Europe/UK/Ireland, which do you think has had the worst year to date?

– And the best?

– So, did you predict your best stock winner year to date?

– Ever notice how much easier it is to predict your worst stock loser?

– Is there any lesson, or story, attached to your losses?

– Why has the average hedge fund under-performed so badly this year?

Well, hopefully I cover some/all of those questions here..!