H1-2017 Wexboy Portfolio Performance

Tags

Alphabet, Applegreen, benchmarking, bull market, Fortress Investment Group, GARP investing, Newmark Security, portfolio performance, Rasmala, Record plc, value investing, Zamano

Benchmark Performance:

Let’s jump right in, here’s the H1-2017 performance for my usual benchmark indices:

Move along, nothing to report here…but that’s exactly what we should focus on! Of course, the financial media’s become more & more hysterical about the markets – de rigueur in an ADHD world – but cooler & more logical heads have also been sounding the alarm bells so often, I’m sure I’ve gone deaf. But sacrilegious as it may sound, a +8.2% YTD gain for the S&P 500 isn’t all that extraordinary… Sure, it’s within spitting distance of the market’s average annual return, but that doesn’t mean much – history confirms annual returns tend to rack up in just a few months, with the market faffing around for the rest of year.

And looking back, I’m hard-pressed to find this outrageous bull market everybody’s yammering about. In reality, the S&P soared a massive 6.6% pa over the last three calendar years (2014-2016). Seriously…that’s it!? [How many readers are reacting with disbelief right now?] Even my blind maiden aunt couldn’t get her knickers in a twist over that kind of return…

Of course, the nay-sayers will argue the S&P’s trajectory is irrelevant – we should really focus on how expensive it is today, in absolute terms. Hmmm…maybe if you cherry-pick the most damning P/E multiple comparison!? But taking a longer-term perspective, the Nifty Fifty actually peaked at 42x in 1972, while TMT stocks peaked at 60x in 2000 (with the S&P hitting 29x). Except isn’t that just a greater fool approach…shouldn’t we be evaluating the market vs. normal P/E multiples? Well, again I fail to understand the alarm: The S&P today actually sports an 18.8 forward P/E, a mere 9% premium to the average 17.2 forward P/E over the last 20 years (which included the dot-com bubble, but also the financial crisis).

And absurdly, the doubters choose to ignore gravity (i.e. interest rates)! Whereas I’m perfectly happy to defer to Buffett here – aside from secular earnings growth itself, interest rates are arguably the equity market’s greatest single driver (& valuation benchmark). This one 10 Year UST chart effectively tells you more than a dozen books could about the US equity market’s trajectory over the last 50+ years:

Applegreen – Just Grab & Go!

Tags

APGN:ID, APGN:LN, Applegreen plc, Bob Etchingham, convenience store, fresh food, gas stations, Irish value investing, Joe Barrett, maintenance free cash flow, owner-operators, petrol forecourt retailing, petrol stations, retail float, retail growth story, Topaz Energy

And yes, with the blog turning six this year & a tsunami of retail apocalypse headlines recently, it’s ironic I’m only now posting my first retail investment thesis ever! But rest assured, this isn’t some soggy chewed-up cigar butt. Nor some story stock priced & pitched for perfection. Though, almost inevitably, the retail sector only seems to come in those two flavours nowadays… Whereas Applegreen plc (APGN:ID, APGN:LN) is that rarest of beasts:

A bona fide long-term retail growth story trading for a value price. 

And since it’s a retailer, first let’s focus on Applegreen’s story – its history, its people, its offering, its prospects – we’ll home in on the numbers later. If you’re a story person, I hope you enjoy the videos along the way. As for the numbers people…I definitely encourage you to circle back & watch ’em later! Let’s begin:

Applegreen is a major Irish petrol forecourt* retailer, with a significant & growing presence in the UK, and an emerging footprint in the US Northeast. [*As the Irish would say, a fillin’ station. To translate: A gas station, gasoline stand, gasbar, petrol station, petrol garage, petrol pump, service station, servo, etc….selling petrol, gas, or gasoline (& diesel)]. Bob Etchingham (CEO) founded the business as (Petrogas) in 1992, after working at Esso for 10 years, and was joined a year later by Joe Barrett (COO) (ex-Tesco & John West Foods). They’ve been described as ‘chalk & cheese’, and it’s obvious they play to their respective strengths & personalities in their roles. Growth was gradual at first, but from the outset management focused on developing its retail proposition & establishing a quality food offering. Which led to the launch of the Applegreen brand in 2005, heralding a distinctive retail-led proposition for customers built on a ‘Low Fuel Prices, Always’ price promise, ‘Better Value Always’ convenience shopping, and high quality own brand/international food & beverage offerings.

Love That Record…Give It A Spin!

Tags

Alpha FX Group plc, alternative asset manager, Brexit, currency manager, forward rate bias, FX hedging, FX market, James Wood-Collins, Neil Record, owner-operators, REC:LN, Record plc, volatility

Record plc (REC:LN) is the world’s largest independent currency manager. Based in Windsor, it was founded in 1983 by Neil Record, winning the world’s first stand-alone currency overlay mandate two years later. Record is still majority-owned by its directors/employees, with no proprietary business of its own – it focuses solely on being a ‘trusted advisor’ to an institutional client base (pension funds & foundations), providing (bespoke) passive & dynamic currency hedging and currency for return strategies, with AUME now at $58.2 billion (£46.6 billion). [Record only manages currency risk, so AUM is notional – i.e. it doesn’t manage underlying client assets – therefore, it uses the term Assets Under Management Equivalents]. This (old) video is still worth your time watching:

But unfortunately, after listing at 160p a share (a £354 million market cap) in Nov-2007, its long-term chart is none too pretty:

Ouch…

By early 2012, investors were so convinced Record’s AUME & business were heading to zero, its shares had collapsed 94% & were trading for net cash. [Which was pretty irrational, as Record’s operating margin was bottoming out at 32% at the same time!] Any investor brave enough to buy it sub-10p has a tasty four-bagger at today’s 43p share price (a £93 million market cap). [As did Jeroen Bos, see the final chapter of his book]. Even buyers six months ago have a near-60% return. But noting an average share price of 31p over the last 5 years, gains have been limited for most investors, while long-term shareholders continue to nurse big losses.

Maybe the financials look better?

So Why Not Google It..?

Tags

$GOOG, $GOOGL, advertising, Alphabet, artificial intelligence, autonomous driving, Buffett, DeepMind, economic moat, Google, Larry Page, machine learning, mobile, network effects, search, Sergey Brin, YouTube

Last month, I posed a serious question:

‘So Why Not Buy Apple..?!’.

Just days later, we got our first hint that Buffett himself was buying Apple! Followed shortly after by that bombshell CNBC interview (here’s the transcript), where he revealed an $18 billion+ Apple investment*, the vast majority bought by him in Jan/recent months (& the rest by Todd/Ted in early-2016). What better confirmation of my assertion that value investors – even the greatest of them all, at 86 years of age – would be wise to pose such a question to themselves!?

[*Pretty sure Apple is Buffett’s largest common stock investment ever (on a cost basis). In fact, I wonder if it’s the largest stock investment ever made by a single investor (again, in terms of cost)? Sure, Todd/Ted/Charlie did provide some inspiration/feedback here, but we can be damn sure Buffett never buys anything ’til he makes his own mind up! So: Your thoughts/feedback?]

Granted, I got lucky…

Was I confident I’d see Buffett talking up an Apple position just weeks later? Um, no… [Don’t forget, Icahn announcing a multi-billion holding some years back was a huge surprise too!] And maybe I chose it specifically as the largest & most obvious/controversial value stock out there. Not to mention, the head fake I pulled: While I did summarise its attractive fundamentals/valuation, my post clearly wasn’t intended to be a detailed thesis. But hey, it was still the right question at the right time, so I’ll take the kudos!? And Buffett’s purchase now serves as great inspiration to present a genuinely compelling investment thesis here. Yeah but, just not Apple – I mean, who even needs a thesis right now when Buffett’s put so much money where his mouth is?! Instead, we’ll focus on a company which is arguably the antithesis of Apple – therefore, I ask:

So Why Not Google It..?

So Why Not Buy Apple..?!

Tags

$AAPL, AAPL:US, Apple, circle of competence, deferred taxes, disruption, economic moat, growth investing, growth vs. value, innovation, Margin of Safety, Philip Fisher, Steve Jobs, technology, value investing, Warren Buffett

We all know the type: Born-again value investors who still have that new car smell. No longer clueless, but the market hasn’t beaten adequate sense (or humility) into them just yet, so they’re still insanely over-confident. Which we tolerate – after all, we were like them once – then they start expounding their new & improved value investing philosophy, and it all goes downhill. I recall one encounter, some years back, where I struggled to get a word in, let alone offer some kind of reality check. Finally, my new guru was forced to pause & finally breathe, so I did the only sensible thing. I lobbed this hand grenade:

So why not buy Apple..?!

All I got was a puzzled look. Repeating the question, I then pummeled him with a veritable laundry list of Apple (AAPL:US) fundamentals & ratios. If he was such a value expert, surely Apple was a screaming value buy?! Needless to say, I never got much of a reply, but it stopped him in his tracks & scared him off…job well done! But the more I thought about it, the more it seemed like a valid question for other investors (& even me…). And a question to be asked in a spirit of honest inquiry. I mean, let’s look at Apple’s numbers today:

• Net sales have reached $216 billion (as of FY-2016).
• Net sales increased 99% & over 1,000% in last 5 & 10 years, respectively.
• Gross margin increased to 39% ($84 billion) in last 10 yrs.
• Op profit margin more than doubled to 28% ($60 billion) in last 10 yrs.
• Net income increased 76% & almost 2,200% in last 5 & 10 yrs.
• EPS compounded by 16% pa & 38% pa in last 5 & 10 yrs.
• Net cash/investments inc’d almost 1,400% to $151 billion in last 10 yrs.

• Current share price (as of cob Feb-7th):  $131.53
• Current market cap:  $690 billion
• Current P/S ratio:  3.2 times
• Ex-net cash/investments P/S ratio:  2.4 times
• Current P/E ratio:  15.7 times
• Ex-net cash/investments P/E ratio:  12.1 times
• Current FCF ratio:  13.2 times
• Ex-net cash/investments FCF ratio:  10.1 times

OK, just take a moment & marvel…even with the share price now approaching all-time highs again, surely Apple’s still a screaming value buy?

So why not buy Apple..?!

Top Trumps For 2017…

Tags

Donegal Investment Group, favourite stock, Fortress Investment Group, Newmark Security, portfolio allocation, Rasmala, Saga Furs, stock picks, stock tips, Tetragon Financial Group, Trump, VinaCapital Vietnam Opportunity Fund, Zamano

So, bet you thought this was about Trump…and/or his Inauguration?

Nope, sorry…just my little bit of fake news! I meant something much better – who remembers this childhood classic: Top Trumps! To know the game is to love it…though if you don’t, it probably seems impossibly quaint in today’s digital world. I still remember the De Tomasa Pantera was the best card by far in my Supercars deck – what are the chances you’ll remember a detail like that about your latest app in the years/decades ahead?! Anyway, it’s still that time of year…and yeah, I’ve cheated a little. Pretty much everybody’s finished with their Top Tips & Picks for the New Year, so now I’ll swoop in & hog your undivided attention! Well, at least ’til your next tweet…

Regular readers will know what to expect from my Top Trumps for 2017 – yep, I’m sticking with my disclosed holdings. I mean, what could be better?! [Well, except some undisclosed holdings..?! No more teasing, I swear: I’m just about finished with the (very) slow accumulation of positions in half a dozen new stocks, soon I’ll line ’em up & start work on some proper investment write-ups]. Though I should remind you, in my last post I deliberately focused on the negative aspects of my 2016 Losers…hopefully, I offer a more balanced perspective here. Or at the v least, highlight how ridiculously cheap some of these stocks have gotten!? So, let’s crack on:

[NB: i) With the near-liquidation of Alternative Asset Opportunities (TLI:LN) this month, it’s no longer a disclosed holding, ii) I highlight my current portfolio allocation (as of CoB Jan-26th) for each holding, but will use my year-end allocations (which are similar) for 2017 performance reporting purposes, and iii) I include relevant corporate/IR websites & Bloomberg tickers, but avoid posting previous write-ups, in an effort to present each holding afresh – but feel free to reference last year’s portfolio commentaries (here & here), plus it’s easy to search/find original investment write-up(s) on the blog also.]

i) Newmark Security (NWT:LN) (2.4% of current portfolio):

Share Price:   GBP 1.45p

Market Cap:   GBP 6.8 Million

A special situation…which actually obscures an underlying growth story. While these trading updates (here & here) have crucified the share price, Newmark’s electronic division still looks like the real problem here. For almost a decade now, revenue’s unchanged, while divisional margins declined relentlessly – from 20-23%, to a £(0.5) million loss today. Poor return on capital was bad enough, but losses kill any argument for keeping the division. And after 4 years as CEO, shareholders presumably have little confidence Marie-Claire Dwek can still deliver a turnaround – and her hands are now full dealing with the larger asset protection division. Noting Chairman Maurice Dwek always ran a tight ship here, the situation appears untenable – something’s gotta give…

2016 – Not Missing You Already…

Tags

absolute return, annual review, benchmarking, Brexit, Newmark Security, NWT:LN, portfolio performance, relative performance, survivorship bias, track record, Trump, US vs Europe, Zamano, ZMNO:ID

Yes, it’s that time of year again…

But I must confess mixed feelings – for me, a year-end review’s just the annual conclusion to the (auditable) tracking of my ongoing portfolio performance. More generally, though, I suspect it can be disheartening for readers – as with much of the internet, the result’s often exciting at first…but ultimately demoralising. Have a tough year & there’s nothing worse than hearing about other investors chalking up block-buster returns left, right & centre.

But that’s the nature of the beast. Gone are the days when your one & only competitor was that insufferable git down the pub each Xmas, who always boasted he’d bet his chips on yet another ten-bagger (so why’s he still in your boozer?!). But today, we have the internet…now you compete with countless investors across the globe, no matter how experienced, gifted, or born lucky they are! And most laugh in the face of home bias – so inevitably, there’s a multitude who just surfed their killer local market & totally crushed your puny performance, esp. if you were running a sensibly diversified portfolio. Not to mention how little performance can actually be tracked, or who has any real skin in the game – don’t we all start out as great traders/investors, making big bets on paper, much like gamblers always start lucky!?

[And yeah, we all know that Twitter guy who spent all year flailing about, then bounces back with a breathless ‘Up +50% again this year…my leveraged Brexit shorts & US Prez Election longs worked perfectly, bro!’. Um, why are you even reading his tweets?!]

This is not to denigrate some great investors out there, who have clearly delivered spectacular results (& who genuinely appear to owe more to skill than luck). The internet is the problem here – namely, its ephemeral & anonymous nature – how many (tens of) millions of blogs, pages, discussions, user names & identities are abandoned over the years? As for investing, there’s a far more insidious self-selection process…we tend to only ever hear about the best investors (& the best returns). I mean, how many investors just get bored, discouraged, make (the same old) mistakes, lose money, blow themselves up? Who knows – in all likelihood, they’re long gone! The blog posts cease, the messages end, the tweets trail off, they move on (or start afresh)…and that’s precisely why the internet keeps beating you: Survivorship bias.

So, take heart, mes braves – if you really must, evaluate yourself vs. the indices & the fund managers who’ve actually built a long-term track record (through thick & thin). As for the internet, exploit it for data & potential stock ideas…not to beat yourself over the head, or get led astray. Let’s not forget, passive can beat active can beat truly active for long periods (hence the more recent performance of ETFs vs. mutual funds vs. hedge funds)…as frustrating as it can be, it’s important to remember there’s little correlation between the work you put into your portfolio & your actual short-term returns. As they say: In the short run, the market’s a bitch, but in the long run, it’s a weighing machine.

2016 – The Great Irish Share Valuation Project (Part IV)

Tags

Botswana Diamonds, Brexit, Connemara Mining Company, Dalata Hotel Group, GAN, Green REIT, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Mincon Group, New Ireland Fund, TGISVP, The Great Irish Share Valuation Project, UDG Healthcare

Continued from here.

Apologies, I abandoned TGISVP for a few months there…dealing with a mild case of PBSD. Yes, I mean Post-Brexit Stress Disorder, which I suspect the entire island’s been experiencing too! Dare I say it, Ireland’s officially the kids in this bloody divorce – did Brexiteers ever stop & consider them when they were voting? Which begs the question:

What did they really think they were voting for..?!

Noting the 51.9% final tally for the Leave vote, we can presume a distinct minority of the population specifically voted for Hard Brexit. And yet, that’s what the UK now seems to be getting. [Again, when the Tories voted for Theresa May, what did they really think they were voting for..?!] But maybe it was inevitable…by default, Remainers now favour a Soft Brexit, which unfortunately seems to have persuaded the entire Leave campaign they believed in Hard Brexit from day one. And that’s what we’re seeing reflected in May’s government, which on occasion appears to have swung even to the right of Enoch Powell, and where Hammond & Carney were even branded traitors for simply highlighting some of the inevitable fiscal/economic consequences of a (Hard) Brexit. And anyway, the Soft Brexit peddled by the Leave campaign was sheer fantasy – no open borders (except the Irish border!?), no nasty EU-type regulations, free trade into the EU, jobs for all, etc. – basically, you can have your cake & eat it too (ooh la la, that’s a bit French!). In the end, it’s hard to know which was worse – the cynicism of the Leave campaign, or the gullibility of millions of Brexit voters who swallowed it hook, line & sinker…

But anyway, despite May’s current stance, we’re really no better informed than we were in the aftermath of the referendum, and it will be a few years down the road (possibly with an additional transition period) before a new Brexit reality’s nailed down properly. [And never under-estimate the possibility of another referendum!] Which means it’s still nigh on impossible to evaluate the potential future impact on Irish companies & the economy – overall, my (generally positive) perspective on Brexit hasn’t changed much since July, with the EUR/GBP rate still presenting the primary medium-term challenge. [Fortunately, the rate’s back within a percent of July levels, after hitting 0.9100+ in October]. But as I’ve highlighted before, Irish companies have actually proven themselves time & again over decades of Irish-UK exchange rate volatility. And looking at a longer term chart, today’s rate isn’t all that extraordinary anyway:

November-9th…What An Historic Day!?

Tags

absolute return, benchmarking, Brexit, diversification, Donald Trump, portfolio allocation, portfolio performance, relative performance, track record, value investing, Zamano, ZMNO

Trump.

Trump..?

Donald Trump..?!?!

No, just no, it can’t be…

How did he…how could they?

This isn’t what anybody expected…

Who does he think he is trying to steal a place in history from…

ME?!?

Because Nov-9th was destined to be MY day…which, I’m assuming, faithful readers already knew? ‘Cos five years ago, to the day, I first clicked the Publish button & launched the Wexboy blog into the wild blue yonder of the internet! And at the time, who in their right mind would ever have imagined the Donald being announced as President-elect to celebrate the 5-year anniversary of this blog?!

Though I’m sure he’d approve of my first post – a real estate investment write-up on Nov-9th, 2011: Sirius Real Estate (SRE:LN). More recent readers will marvel this post was a trifling 1,300 words long (note the last para of the post!?). Not to mention my insane pace initially – I clocked an astonishing seventeen more posts for the rest of that month – I guess I was finally learning, like many writers, to channel the rage in a more creative & productive manner…

If you’d asked me to look five years ahead to this day, I’d have laughed. And if I’d actually envisioned publishing hundreds of thousands of words since, maybe I’d have mapped out a killer-trilogy of bondage, vampires & bad metaphors, and lived off the royalties instead! [Though I suspect I’d have then started a blog to document my investments…so perhaps this was my destiny all along!] Ask me last year, and I’d probably have promised a rash of posts – some serious, some frivolous – to mark such an anniversary. But now we’re here, the urge to celebrate seems to have dissipated – I have to wonder if the Brexit referendum vote, followed by a Trump election victory, has something to do with that? In their wake, the blog certainly feels more like an unfinished story…

But looking back, I have to admit I’m amazed at this body of work to date. The investing advice I’ve offered along the way still (pretty much) makes sense to me – in fact, there’s little I’d change at this point, let alone go back on. As for the macro perspectives & investment themes I’ve elaborated on over the years, I’ve always tried to focus on the longer-term horizon & filter out the current market noise – the fact that much some of it still appears to offer a useful macro framework, plus a road-map for some interesting secular investment opportunities, would hopefully suggest I’ve achieved that.

It’s Time For A High-Low Game…

Tags

Alternative Asset Opportunities, baby boomers, consumer spending, cost advantage, discount shopping, economic moats, high-end, low-end, luxury goods, middle class, Millennials, pricing power, Yuppies

Following on from my last post, I’ve been keeping quiet, but busy… My short term objective of raising cash was achieved, in spades – while I continued to trim a couple of minor/legacy positions, I was pleasantly surprised by two corporate events in quick succession:

i) Alternative Asset Opportunities (TLI:LN) announced a sale of its portfolio (see here & here). Granted, the board announced preliminary discussions in June, but after the drip feed of bad news & near-incompetence in the last few years, I had little faith they’d manage a sale…let alone a good sale! [Despite TLI’s NAV discounting a constant cycle of LE re-evaluations & a 12% IRR]. But in the end, they actually sold the policies at an average 6% NAV premium.

With most of the consideration now in escrow & a successful EGM approval, the company will shortly propose a wind-up to yield an estimated GBP 54.4p per share capital return (reflecting a 1.2191 GBP/USD rate) for shareholders. Counting 4p of distributions, that’s actually a 50%+ return vs. my original write-up almost 4 years ago…not too shabby an outcome, notwithstanding the upside I initially anticipated (& well ahead of the naysayers’ dire predictions!). Since the shares still trade at a discount, I’m in no rush to sell here, and I’m unconcerned about further FX volatility as I already consider TLI part of my dollar ‘bucket’.

ii) A takeover offer was also announced for another of my holdings. In fact, it had actually evolved into my largest position (yes, ahead of Zamano..!), as a result of continued/incremental purchases & sustained price appreciation – it was my best-performing stock YTD – in the end, the offer was just icing on the cake! Unfortunately, I could never quite catch up with it, in terms of nailing down an investment write-up – yep, apologies, it was an undisclosed holding – and it contributes nada to my portfolio performance here on the blog.

But hey, who’s complaining..?! 😉

On assessing the specific circumstances of the deal, I subsequently sold out of my entire position (actually at a premium to the offer).

Totting up all of the above, my total cash allocation (inc. TLI as quasi-cash) recently maxed out at approx. 25% of my entire portfolio – since then, I couldn’t resist pulling the trigger on a new starter position. [How often do you encounter a company consistently growing revenue at a 21% CAGR for a decade & a half, trading on a sub-15 P/E, and sporting zero ifs & buts?!] Which is probably a good start…as the second part of my near term game plan, i.e. Sep/Oct market volatility, is showing little sign of playing out here (um, never say never!?). In the end, Yellen genuflected to the White House & the September Fed meeting passed without incident, the November meeting’s an obvious non-event, and Trump may finally have pressed the self-destruct button once too often.