Wexboy Portfolio Prospects – Part II

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Alphabet, Applegreen, bubble thesis, Donegal Investment Group, GARP investing, Google, growth investing, KR1 plc, Kryptonite 1, portfolio allocation, portfolio performance, QEInfinity, Record plc, stock picks, stock tips, value investing

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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growth investing, portfolio allocation, portfolio performance, Rasmala, Saga Furs, stock picks, stock tips, Tetragon Financial Group, value investing, VinaCapital Vietnam Opportunity Fund, Zamano

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…

So Why Not Buy Apple..?!

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$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..?!

How About Some Market Perspective..?

Tags

bear market, business media, compounders, de-leveraging, fear and greed, growth investing, hindsight, investment checklists, over-confidence, value investing

Go on, admit it…at this very moment, you’re glancing at a business anchor who’s busy losing their mind on your telly. Yes, left, right & centre – lots of markets are correcting. Or should I say collapsing, tanking, plummeting, nose-diving, slumping, free-falling, or simply never ever recovering ever..! And if you can look past the hyperbole, some are unfortunately entering actual bear market territory. Kinda gets the blood pumping, eh? You really should switch off the TV, and just go meditate (or run a marathon) instead! It definitely could save you a few quid & a few stupid decisions. But we’re all too human – and now we’re addicted to this 24/7 diet of escalated corporate & market drama, so it’s become easier than ever for the media to stoke fear (and greed) in our hearts.

Traditionally, a 10% market reversal was defined as a correction, while a bear market was at least a 20% decline. But now the business media’s upped the ante, unilaterally adopting something like 3% & 10% as the new thresholds (respectively). [And I suspect politicians & central banks aren’t far behind]. Look at them now – glued to their desks, fuelled on Red Bull, and kitted out with adult diapers (think about it…live TV, energy drinks & too much excitement?!), they can barely contain their glee at this renewed market turmoil. Which is, of course, sheer madness…

But here we are, lapping it up – feeling so very serious about the market yet again. Because a reversal invariably hits us out of the blue, with the reasons why only trailing after, in its wake… [How many talking heads highlighted a global growth slow-down two months ago?! But now it’s the glib explanation you’re hearing on every business channel]. I mean, we began September with so much promise?! Personally (& somewhat counter-intuitively), I was fairly bullish myself – and I still think I read the charts correctly as being quite promising (though I definitely wasn’t keen on a 2,000+ S&P). Unfortunately, the price action & the charts never quite followed through, and now September & October are living up to their more usual grim reputation.

So, what am I going to tell you here..?

Mea Culpa…

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alternative assets, blogging, developed markets, diversification, emerging markets, frontier markets, growth investing, portfolio allocation, technical analysis, value investing

Surely about time I address this post to readers – the majority of these mea culpas are genuine apologies, the rest are probably just a little cranky:

i) ‘Sorry I didn’t get to your email/comment sooner…’

I like to think I’m fairly good at keeping up with your emails & comments – well, most of the time! As I’m sure you know, if you neglect to answer an email immediately, it’s all too easy to lose track of it. There’s also a daily mountain of spam I have to traverse – at this rate, I should be ditching the investing lark, ‘cos apparently I could be making an easy million squid a day instead… [I must applaud the sheer persistence & inventiveness of the Nigerian people – so definitely an economy worth considering! Guaranty Trust Bank (GRTB:LI), anyone?] But hopefully I get to (almost) every email in the end, even if it takes a week or three – if I don’t respond in a timely manner, just ping me again.

Unfortunately, I tend to suffer from a ridiculously compulsive version of ‘If you don’t do it well, why bother doing it at all?!’ So emails invariably seem to demand a specific & in-depth reply – um, which I often have to get ’round to completing… Might be a good idea to keep track of some of my recurring reader dialogue(s), and summarize/respond to them more systematically here instead – we’ll see, perhaps it might offer up a couple of interesting insights for readers.

But please, keep ’em coming, they’re much appreciated. Investing’s ultimately a pretty solitary activity, so ‘work’ socializing tends to be a more deliberate affair – emails/comments are a great opportunity each day to just hang out at the ‘water-cooler’ & shoot the breeze with fellow investors!

ii) ‘Sorry, yeah…actually, I did see that headline’

There’s obviously blogs out there providing excellent daily/weekly updates of the latest & most relevant news, weekly reading links, company & valuation updates, plus other interesting snippets & topics. Clearly, this blog isn’t one of them…

I’m definitely grateful for & awed by their industrious contribution, but personally I’m more than happy to rely on the fact you’re all reading & analyzing the same headlines as me! 😉 And from my perspective, individual headlines usually only add very incrementally to the mosaic of knowledge I already have about the markets, sectors & stocks I’m interested in. And in my defence, I also fall back on my Twitter account – I’ve somehow managed to accumulate an horrific 8,000+ tweets at this point, so surely there’s some interesting & contemporary tweets among them!?

iii) ‘Sorry I poured cold water on your favourite stock’

Cheap & Interesting!

Tags

blind stock valuation, cheap and interesting, fear and greed, growth investing, growth vs. value, investment writeup, reading, stock ideas, value investing, worship the spreadsheet

There’s one category of email I receive ’bout every second day. A typical example will thank me for the blog (yes, always good to hear!), stress they’re a regular reader, often cite a share we own in common, but then we reach the real meat – usually a somewhat impassioned plea:

Please tell me…where & how exactly do you come up with your ideas?!

All appear to be from genuine readers & investors – I certainly don’t think anybody expects some kind of get-rich-quick answer. [Though it gives a taste of how such a desire is so regularly exploited by the unethical & downright criminal]. I suspect this plea reflects a pretty common frustration for investors – where & how do I find new ideas…and how do I know if they’re actually bloody good ideas? Of course, I’ve no magic short-cut to offer here. My definitive answer’s still:

Read, read, read & then read some more…

I covered this ground in ‘Why I Read…’ (Parts I, II, & III – probably my most popular blog series ever). [‘Why I Write…’ may be a useful companion piece]. Looking back, I think these lines (from my final post) nicely sum up the challenge & benefits of reading:

‘I’m talking about territory where the greatest opportunities, and the greatest investors & traders, reside….For them, you can probably chalk it up to pure innate talent. For the rest of us, I think huge swathes of reading is the inevitable toll you pay to get there – however you go about it:

But reading annual reports will give you the figures. Reading non-fiction gives you the facts (& the right context). And most importantly, reading fiction allows you to recognize the fear & greed in yourself (& others), and enables you to see & imagine the world very differently.‘

So, Growth…or Value?

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Benjamin Graham, buy and hold, catalyst, growth investing, growth vs. value, investment theme, Joel Greenblatt, multi-bagger, Philip Fisher, reading, survivorship bias, value investing, Warren Buffett

Ah yes, the great investing debate & divide…

At one extreme, we have the wild-eyed growth investor foaming at the mouth over a great story. A silky-tongued CEO’s painted unicorns & castles in the air, and our reckless plunger’s itching to dance the magic rainbow. No price is too high, no management too sleazy, no risk too great, to deter him from the boundless opportunity he now sees stretched out in front of him… His investing idol’s Philip Fisher, of ‘Common Stocks & Uncommon Profits’ – which I had the misfortune of re-reading recently. How this book was ever nominated a bloody investment classic, I don’t know!? OK, let’s grant some credit. Yes, I’m sure Fisher was a gifted investor, but he was also in the right place at the right time – in California, at the dawn of the electronic (& venture capital) ages.

So, who’s ever sat down & really studied his book, and actually figured out how to bloody implement his 15 Points? Who among us has the time, the means, the resources, or the determination to practice 95% of what Fisher preaches? And where in the book is the real secret exposed – the foresight to pick a 100 or even a 1000–bagger? That’s the problem people forget with growth investing – survivorship bias. Consider a buy & hold investor seeding his portfolio with a selection of promising growth stocks – some die off quickly, most turn out so-so, but maybe one (or two) actually grow & grow to dominate his entire portfolio. Of course, the losers are long forgotten, and he’ll nod wisely & tell you he always knew the real winners! Or how about the chancer who bought a single long-shot stock…and ended up making a friggin’ fortune?! Well yes, he’s obviously a media darling now. But where are the stories about his fellow slobs who bet the ranch & lost everything? Well, like I said, the losers are long forgotten…

Not to mention the fact share prices of even the biggest winners usually suffer some pretty sickening plunges along the way. Of course, every growth investor’s confident he won’t be the sucker shaken out of his wonder-stock’s long-term parabolic trajectory by a mere trading blip. Learn from Black Monday ’87, he savvily reminds you – it’s a mere blip on the charts now! Yeah, but the average investor wasn’t calling it a blip then – he was too bloody busy selling…

The Activist Investor

Tags

activist investors, catalyst, Charlie Munger, growth investing, Howard Marks, intrinsic value, latticework of mental models, mosaic theory, recapitalization, second-level thinking, shareholder activism, value investing, Warren Buffett

I’m obviously not averse to some growth – well, if I can buy it bloody cheap, or free – but I don’t think anybody would dream of calling me a growth investor!? But you may be surprised to hear I don’t consider myself a classic value investor either. Ideally (at least in relation to some investments), I like to think of myself as an activist investor.

In this instance, let me hasten to re-define activist in the v broadest sense: Activist investing isn’t necessarily about public engagement with a company’s management – far from it, in many cases. I believe the essence of activist investing actually lies in the investment analysis & the investment itself – not the investor (as many would presume). An activist looks at a company and, on that rare occasion, sees a v different enterprise vs. the company (most) other investors currently see…

– Perhaps he sees a company that’s genuinely worth more dead than alive. Or one that would be far more valuable in the arms of a larger rival. Or a company that has a jewel in the crown that’s obscured by other/inferior divisions, central costs, etc.

– Maybe it’s a company that has under-utilized assets that can be sold to reduce/eliminate excessive debt. Or a company that could execute a recapitalization, and transform its financial metrics & shareholder value.

– Perhaps it’s simply misunderstood – investors may simply not grasp a company’s management/business/strategy have changed in a major way, or they under/over-estimate the potential impact (for example) of some litigation or regulatory action.