H1-2018 Wexboy Portfolio Performance

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Applegreen, benchmarking, blockchain, Brexit, crypto, cryptocurrencies, Donegal Investment Group, investing, KR1 plc, MAGA, portfolio performance, reality TV star, relative performance, tariffs, Trump, Zamano

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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Love That Record…Give It A Spin!

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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?

2016 – Not Missing You Already…

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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)

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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!?

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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.

H1-2016 Wexboy Portfolio Performance

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Alternative Asset Opportunities, Argo Group, benchmarking, Brexit, Donegal Investment Group, Fortress Investment Group, JPMorgan Russian Securities, KWG Kommunale Wohnen, Newmark Security, portfolio performance, Rasmala, Saga Furs, Tetragon Financial Group, value investing, VinaCapital Vietnam Opportunity Fund, Zamano

Benchmark Performance:

Yeah, it’s that time of year again…and hopefully a chance to step back from some of this recent Brexit insanity. Let’s jump right in – here’s the H1-2016 performance of my usual benchmark indices:

Of course, what jumps out immediately is the UK. Brexit schmexit…the FTSE’s performance is actually bang in line with long-term averages! Which reflects its predominantly international exposure, but the much-cited FTSE 250 certainly wasn’t much of a disaster at (6.6)%, while the AIM All-Share managed to limit its decline to (4.2)%. [Sterling took the real walloping, trading down 10-12% vs. the dollar & euro]. Unfortunately, this is a sad reminder the real risk of home bias for investors may not be portfolio return. It’s the fact they wake up to a shrinking portfolio…and suddenly realise their currency’s dumped, their housing market’s locked up (& their house value’s probably dumped too), not to mention their employment & economic prospects may also have dimmed substantially. [At least Brexiteers won’t notice the currency impact, since they seem to think only in terms of Mighty Blighty & The Pahhhnd In Your Pocket]. Only a fool would question (or ignore) the benefits of greater/global diversification in the face of such potentially existential risks – particularly as there’s no obvious long-term cost(s) to such a strategy.

At first glance, Europe has borne more of the Brexit brunt, with the Bloomberg Euro 500 significantly trailing the UK indices – down over 10% (which must delight the Brexiteers!). However, it’s worth noting escalating NPL/capital issues in the Italian banking system (& a mounting EU-Italy war of words) have been overlooked by the media recently (hat tip to The Economist though)…I suspect this is responsible for a significant portion of the index decline. Despite efforts to date, this crisis will require an expensive & long-drawn out resolution, and will probably continue to exert a significant drag on sentiment. Fortunately, it shouldn’t pose any kind of existential threat to the European banking system ultimately, at least for stronger banks & countries…Draghi & the ECB will presumably continue to do ‘whatever it takes’. But the ongoing compression in European banking valuations is puzzling – who the hell wants to bet & sweat over sub-0.5 P/B banks, when the cream of the crop remains on sale at 1.0 times book (or less)?! [And the US banking situation isn’t much different].

Perhaps the real Brexit victim here is Ireland, with the ISEQ suffering a 17% decline. Then again, with the market clocking an impressive multi-year string of gains (& a late-2015 double top), a correction was overdue…regardless of Brexit. [Hmph, so why didn’t I dump my Irish shares?!] Of course, now we have to figure out the medium/long-term consequences for the Irish economy & market – a challenge which I think nobody, no matter how authoritative, is qualified to tackle at this point. But anyway, let me throw my (initial) ten cents into the ring: