FY-2017 Wexboy Portfolio Performance…Crackin’ The Code

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annual review, benchmarking, blockchain, bubbles, bull market, cryptocurrencies, Fortress Investment Group, GARP investing, Kryptonite 1 plc, Newmark Security, portfolio performance, relative performance, Zamano

Hello. Why yes, it’s me…

Happy New Year!

Admit it: You thought I’d bloody well scarpered, to become the Wild Eyed Crypto-Boy from Freecloud – didn’t you?!

Well, not quite…

Though I did a mini-grand tour of Xmas dinners & meetings, and was bemused how often the conversation ended up in crypto-territory. Ha, so it’s not just me!? And even though I enjoyed some lighthearted crypto debate (best to avoid people who get too emotional about investing), I’m also left wondering how high #CryptoFOMO levels are running out there right now?! My new portfolio mantra may be dead on target:

Doesn’t everybody deserve a little crypto pixie dust?!

But anyway: I was actually 100% committed to an incredibly brutal training regime – preparing for my first naked solo New Year’s Day Iron Man Triathlon. Yeah, I know, just about anything to get out of the house…

Haha…again, not quite.

In reality, life simply got in the way, as it has a habit of doing…albeit, sometimes in great ways! But after all, isn’t that precisely what my life’s designed for & supposed to accommodate? Next time you fear dying chained to your office desk, keep your eyes on the prize & remember money isn’t really about buying things – which is just another form of indenture – what it really buys you is freedom!

And more recently, I’ve taken advantage of that freedom to meditate on doing…absolutely nothing! To explain: Over the last couple of years, I’ve executed a sloowww but steady transformation of my entire portfolio: Far less value, far more GARP. [The nay-sayers will insist this is simply an excuse to pay up]. And in 2017, I finally felt like this huge effort had come together beautifully…

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H1-2017 Wexboy Portfolio Performance

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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:

Top Trumps For 2017…

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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…

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:

Wexboy – Top 14 Tips for 2016!

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Alternative Asset Opportunities, Argo Group, Donegal Investment Group, favourite stock, Fortress Investment Group, KWG Kommunale Wohnen, luxury goods, Newmark Security, portfolio allocation, Saga Furs, smartphone revolution, stock tips, Tetragon Financial Group, VinaCapital Vietnam Opportunity Fund, Zamano

This ain’t no party, this ain’t no disco, this ain’t no fooling around…

Yeah, it’s January, the most miserable time of the year. And already half of us regret we made no New Year’s resolutions…while the other half regrets they did. The market’s no help either, with many investors ending a frustrating 2015 in the red, and greeted in 2016 by another global dump. [Let’s discard the odd notion the Chinese market’s global impact is simply due to its hyper-volatility. It’s not…the market’s only the tip of the spear for the entire Chinese economy, which has obviously evolved into the key marginal driver now of the global economy. So for 2016, a great resolution is to pay far less attention to the US & far more attention to China!]. But still, there’s a whole bunch of new tips out there to inspire us… 🙂

Trouble is, I don’t necessarily have much faith in them, ‘less I know the tipster’s got his money where his mouth is. Which offers no guarantees, but it means I’ll tackle the 2016 tips season just like I did last year – inevitably, my top holdings are also my top tips! [And judging by my traffic, people definitely want tips first & performance later…so I bow to the vox populi, my FY-2015 performance post will have to wait a little longer!] And so, without further ado, here’s my Top Holdings as of Year-End 2015:

Hang on a minute, isn’t this s’posed to be a Top 14 Tips? You’re bloody well short-changing us here, mate!? Well, sort of, I’ll explain later… 😉 Now, let’s start pulling together a few different elements here… First, you might want to check out this July post, which includes my last (brief) updates on most of these stocks (& hopefully offers a taste of my upcoming performance post!):

‘Smokin’ the S&P…H1-2015 Wexboy Portfolio Performance!’

The Obligatory Top Tips For 2015!

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Alternative Asset Opportunities, Argo Group, Donegal Investment Group, European Islamic Investment Bank, favourite stock, Fortress Investment Group, KWG Kommunale Wohnen, NTR plc, portfolio allocation, stock tips, Universe Group, value investing, VinaCapital Vietnam Opportunity Fund, Zamano

I get asked for stock tips…a lot! So much so, occasionally I’ll pinch myself & check I’m (also) the author of an investment blog – one with dozens of investment write-ups & hundreds of posts at this point, all lovingly hand-typed & all for free. You really have to smile & wonder if they’ve ever actually read an entire post?!

But this is human nature, people always want that little something special, that easy shortcut: Go on, just this once, just for me… I mean, why wade through dozens of posts & tens of thousands of words, when all they crave is a single sure-fire winner of a stock! [Yeah, don’t we all, mate… 😦 ] It’s like ringing an online dating firm’s customer service, to politely explain you don’t want to swipe left or right, let alone trawl through hundreds of profiles – ‘cos all you really want is your soul-mate, just the one, preferably right now & for free. C’mon, surely that’s not so much to ask?!

Unfortunately, there’s pretty much zero upside to doling out tips here & there. If you’re the ‘designated’ stock picker in your family, on your street, in your office, you know exactly what I mean… Your winning tips are quickly & seamlessly appropriated as worthy examples of the tippee’s own natural genius – whereas losers rebound & somehow become your personal responsibility, of which you will be bitterly reminded for months & even years to come. And the only thing worse than this burden of blame is the sometimes inevitable bout of self-flagellation over your appalling dereliction of duty! But rest assured, you’re not at fault – those occasional feelings of guilt simply mean you’re too good for this world… 😉

However, there’s plenty of hacks out there who can’t even spell ‘guilty conscience’, let alone experience such a thing! And this time of year the financial media loves to wheel out its prognosticators & talking heads to opine on the macros, the markets & the best stocks for the coming year. I could describe it as an exercise in arrogance, but just as often it’s a shameless pandering to the cupidity & gullibility of a great many investors.

Fortress – On the Ramparts

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% of AUM, alternative assets, asset managers, Blackstone, FIG, Fortress Investment Group, Gagfah, hedge funds, KKR, Logan Circle Partners, Newcastle Investment Corp, private equity funds, Springleaf Holdings

When I posted my first writeup on Fortress Investment Group (FIG:US), it was May-2012 & the share price was only $3.11. Buying the shares (& writing about them), I felt like I was in the thick of battle – trying to defend a breached portcullis in a last-ditch & perhaps doomed effort! [In hindsight, the more revulsion I hear about a post/company, the more promising the investment opportunity might actually be…] But the situation certainly looked much safer by December (with the share price at $4.38), when I posted a follow-up piece: Another Assault on Fortress. And now here we are, standing proud & tall on the ramparts, masters of all before us – the share price is $8.17, and even traded up to $9.00+ recently!

But ramparts aren’t about the view, they’re designed for spotting danger. My last fair value price target was $8.84 per share – we need to do a fresh survey. How much upside potential is now on offer? And more importantly, has our margin of safety been eroded to unacceptable levels?

OK, let’s do a quick wrap-up of 2012, and then take a closer look at progress YTD-2013. I plan to stick with roughly the same valuation methodology, so I definitely recommend you revisit my last two posts (linked above). However, it would be handy to reproduce this table here:

Mid-Year 2013 – Performance Update

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Alternative Asset Opportunities, Avangardco, checklists, CLOs, correlation, European Islamic Investment Bank, FBD Holdings, Fortress Investment Group, German property, home bias investing, KWG Kommunale Wohnen, Petroneft Resources, portfolio allocation, portfolio performance, quantitative easing, Richland Resources, risk aversion, Sirius Real Estate, Tetragon Financial Group

I remain (somewhat) uncomfortable with performance reviews. Inevitably, they produce a pretty meaningless snapshot…but we just can’t help ourselves, eh? 😉 [I covered this whole topic in greater depth here, in my 2012 Performance Review, so that may be worth another look]. OK, once more unto the breach, dear friends, once more…

Let’s first check how the indices performed in H1-2013:

The performance of Ireland & the UK nicely supports my theory that the northern periphery (inc. Scandinavia – lots of interesting stocks there right now) offers some of the best (& lower-risk) plays on Europe. Then we have the US, which continues to demonstrate how much further along it is (vs. Europe) in the cycle – as Bernanke reminded the market recently, to its (feigned?) consternation! [And to the genuine consternation of the ECB & BoE – oh boy, there’s going to be plenty of playing chicken, on all sides, in the months & year to come]. I’m profoundly suspicious of the US market now – it’s not that rising bond yields can cause much damage, they’ll obviously remain low in absolute terms for a v long time. But the market’s a discounting machine – when buying stocks gets easy & the economic outlook starts to look rosy for the average investor, that’s when things turn dangerous: Because how much of that’s already been priced in? Too many times, this scenario leaves you at break-even for a couple of years (if you’re lucky), or much worse…

And if you think this time is different – well, I actually agree, but not in a good way! There’s no free lunch – you can’t just print your way to prosperity & expect to escape scot-free, there are always (unpredictable) consequences. So, has that been priced in also..?

Hitting The Century (XI – Distressed)

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alternative assets, Argo Group, asset managers, bankruptcy, BDCs, business development companies, Colony Financial, de-leveraging, distressed assets, distressed consumers, distressed investing, Fortress Investment Group, income/dividend bubble, JZ Capital Partners, litigation funding, private equity funds

In my last post, I briefly highlighted some difficulties a private investor might face with classic distressed debt investing. Recognizing these limitations, I usually prefer to stick with distressed debt asset managers & investment vehicles. However, there’s many other firms in orbit around this opportunity. Even better, my definition of distressed investing stretches to include what I call the distressed consumer. Consider it exploitation of the poor, if you wish – but the real bonanza is actually much more equal opportunity. To be blunt, it’s really about the exploitation of the (financially) stupid… And stupidity’s an enduring human frailty to bet on, despite the frequent & pointless efforts of politicians to legislate it away.

Let’s begin with the business end of things:

Picture you’re an ailing company whose business & finances are beginning to seize up. You’ve executed on most of the usual cost-control & cashflow measures already, but you still need more juice… Your book of receivables might yield some quick cash – Intrum Justitia (IJ:SS) can help. PRGX Global (PRGX:US) may unearth new and unexpected savings, waste & fraud for you. [PRGX is now expanding into US healthcare. Considering the unconscionable levels of fraud, waste & over-billing in that industry, this could offer them a huge new growth opportunity]. You might have been pinning your hopes on launching/winning a crucial lawsuit, but now you can’t afford the legal expense & uncertainty – Burford Capital (BUR:LN), Juridica Investments (JIL:LN) & IMF Australia (IMF:AU) can lower your risk & provide the necessary funding. Maybe you should also start selling anything that isn’t nailed down – call Ritchie Bros Auctioneers (RBA:CN).

Hitting The Century (X – Distressed)

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asset allocation, Asta Funding, ATM fees, Colony Financial, corporate-media-retail complex, correlation, credit card debt, debt collectors, distressed assets, distressed consumers, distressed investing, Fortress Investment Group, hire purchase, pawn stores, payday loans, pre-paid debit cards, Rent-A-Center, rent-to-own, Sex and the City, student loans, stupidity, Tetragon Financial Group, unbanked, vice stocks

Continued from here.

Remember this series? Yep, I’m spending an unconscionable amount of time getting through it. FFS, I started last June, promising a closer look at my portfolio construction, allocation & metrics. [‘Hitting The Century‘ as it was my 100th post. And ‘Pretty Panties‘ because I was so bemused by the prior response to the phrase]. Instead, you get a bloody epic – like The Hobbit. Oh well, blog rules…how ’bout I try finish by next June?! 🙂

Honestly, I expected it to turn out like this. But I’m delighted at the great reader response – I guess I’ve been trying (ad nauseam) to pound the message home that portfolio construction/asset allocation is just as important as stock-picking. [Studies suggesting asset allocation accounts for 90% of returns have been debunked, but more recent studies certainly confirm an average/minimum 50% of returns are derived from this source]. Unfortunately, this is forgotten/ignored by a lot of investors, even great stock-pickers… Admittedly, they may (occasionally) practice some kind of ex-post allocation – better than nothing, but an ex-ante approach is vital if you really want to end up with a safer, more diversified & higher return portfolio.

OK, let’s trot on – here’s a familiar pie-chart as a quick reminder (sure, it’s a little out of date – but have you noticed my portfolio turnover?!):