H1-2019 Wexboy Portfolio Performance

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#GenerationWar, #WallofWorry, Alphabet, benchmarking, bubbles, crypto, Donegal Investment Group, floating world, KR1 plc, negative yields, portfolio performance, quantitative easing, Saga Furs

And once more…into battle!

Before the month is out, it’s time I look back & share a H1 portfolio update. Of course, in the wake of last year’s Q4 carnage, it wasn’t all that surprising to see markets chalking up a near-perfect YTD performance across the board. Equally unsurprising was the US market’s continued leadership…which seems like an inevitability these days, to the chagrin of long-suffering European & value investors. [Um, aren’t they synonymous?!] So here’s the scoreboard – as usual, my H1-2019 Benchmark Return is a simple average of the four main indices which represent the majority of my portfolio:

On average, a 13.4% benchmark gain…led by the S&P with a 17.3% gain (bested by the Nasdaq, which boasted a 20.7% gain). More surprising was the robust performance of the FTSE 100…despite a tsunami of Brexit nonsense, it still managed to deliver a 10.4% gain. [Not an index-related fluke – the more domestic FTSE 250 & the AIM All-Share (despite a glut of profit warnings) clocked up (on average) similar gains of 11.2% & 7.1%, respectively]. As for the ISEQ & Bloomberg Euro 500, they did themselves proud too, recording respective gains of 12.3% & 13.6%.

Overall, this is a reversal of the 13.5% benchmark loss I reported last year. Which, noting the S&P’s consistent out-performance, is an unwelcome reminder European markets are still actually lower/no better off than end-2017 levels! And really, I’m just cherry-picking here – my European benchmarks have pretty much gone nowhere for the last four years. And again, that’s another flattering perspective…believe it or not, Euro indices have mostly traded sideways for close to two decades now! [Read ’em & weep: FTSE 100, ISEQ, STOXX Europe 600]*. Sure, you still earned a dividend yield…but this savages the comforting notion that equities will always make you decent money/are the superior asset class in the medium & long-term. Though maybe, just maybe, there’s a silver lining to that bag you’re holding:

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The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?) (Part II)

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blue chips, bubbles, bullish, China, don't fight the Fed, Europe, floating world, Greece, Japan, Nifty Fifty, quantitative easing, US

OK, I posted Part I a month ago (and here’s its prequel, Welcome to the Floating World…), so you may want to skim those posts again. [Especially as the world’s changed so much since then…what with the bond markets going crazy, Greece staying crazy, etc. 😉 ] To briefly summarise:

The central banks ‘control the price of money, and everything else is a function of the price of money‘, and post-crisis they embarked upon the greatest price-fixing experiment ever – an echo/amplification of the entire era leading up to the late ’60s/early ’70s. Consequently, sustained near-zero rates has meant there’s a wall of money that’s slowly but surely being forced into the equity market. And just like the early ’70s, investors have & will continue to exhibit a distinct preference for Nifty Fifty stocks, i.e. large cap/blue chip companies which guarantee (or at least offer the illusion of) predictable quality & growth in an uncertain economic & fiscal environment. Small & mid cap stocks may be neglected accordingly, but will probably end up getting dragged higher regardless.

As for liquidity, central banks will basically find it impossible to reverse the explosion in their respective balance sheets…Pandora’s Box is now open. And GDP growth may prove irrelevant – since positive/accelerating growth is likely to underpin/encourage market sentiment & valuations, whereas weak/negative growth will simply elicit fresh expectations of central bank stimulus. Most of all, regardless of potential rate increases (or bond market volatility), the absolute level of yields means stocks will arguably remain cheap at any price…

But I really don’t have to make the argument: If/when this bull market keeps marching higher, I have no doubt we’ll be spoon-fed all the erudite & compelling arguments we need to justify it, ’til investors can no longer help themselves & inevitably turn the market into a self-reinforcing bubble. I’m not saying this is necessarily a logical process (what bubble is?!) – but I am saying it could easily happen, plus I’m also saying it could well turn out to be unprecedented…

 [Again, it’s worth remembering two recent & very relevant quotes:

Buffett – ‘Everything is a function of interest rates. Interest rates are like gravity.’

Tepper – ‘Don’t fight four Feds!’]

So, what are the implications for my portfolio?

The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?)

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blue chips, bubbles, bullish, diversification, floating world, growth vs. value, negative yields, Nifty Fifty, price of money, quantitative easing

My last post (‘Welcome to the Floating World…’) talked about some of my habitual concerns regarding the markets & my portfolio…and consequently, I couldn’t help but highlight an inherent contradiction of my portfolio:

If I worry so much, how come my entire portfolio’s invested in stocks..?!

The answer’s simple: I have been & continue to be resoundingly bullish on the markets. Except it’s really not that simple…because this immediately highlights another obvious contradiction of my portfolio:

If I’m so bullish, how come my portfolio’s invested so defensively..?!

To illustrate, let’s revisit my Top Tips for 2015 post – which actually listed my Top 10 portfolio holdings (as of year-end 2014). Here they are:

I’d classify eight of these holdings into three (overlapping) categories: Deep value, special situations & (mostly) uncorrelated stocks (vs. the economy, or even the market). Which leaves just two holdings that can be described as growth (or high beta) stocks/funds: Fortress Investment Group (FIG:US) & VinaCapital Vietnam Opportunity Fund (VOF:LN). Granted, a defensive portfolio mix helps me sleep at night, as I’ve boasted before – but in light of my bullish market view, I have to ask if this is really an unnecessary luxury…or maybe even a bloody hindrance?

And in reality, my market view shouldn’t necessarily be that relevant anyway – return to my recent Stock Picking…Art, or Science?! series (esp. Part IV), and we’re reminded that consistent portfolio diversification isn’t just about geographical & asset allocation. Take another look at my Top 10 holdings table – again we see an inherent contradiction of my portfolio:

If I’m so concerned about diversification, how come my portfolio’s so lacking in large cap/growth stocks..?!

[Interestingly, the two growth stocks/funds I identified are actually my largest market cap holdings. My other holdings’ average market cap is just $84 million.]

Welcome to the Floating World…

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bubbles, bullish, cash allocation, coin clipping, fear and greed, floating world, inflation, negative yields, QE, quantitative easing, stock valuation

I regularly write about fear & greed here. And I often worry about the tentative & fragile recovery we’re hoping for/seeing in the developed economies (led obviously by the US), and whether it’s built on a foundation of sand…or, more correctly, of printed money. I also worry about markets’ headline valuation ratios, which keep marching higher, and question if they’re priced to reflect a growth renaissance, or simply fool’s gold. And sometimes I talk just as much about preserving wealth, as I do about increasing wealth. Most of all, I incessantly interrogate the diversity & robustness of my portfolio, and cling to the comfort its deep value & special situation stocks offer – I demand they help me sleep soundly each night…

Lots of investors deal with this kind of free-floating market anxiety by keeping a healthy slug of cash in their portfolios – but my current cash allocation is actually minimal (& this isn’t a new phenomenon). Which starkly highlights an inherent contradiction of my portfolio:

If I worry so much, how come my entire portfolio’s invested in stocks..?!

Now, I could offer a prior argument – as I usually don’t consider cash a necessary component of a portfolio, with (low risk) event-driven investments generally serving as an acceptable & more attractive substitute. But that would just be a red herring, as I haven’t actually maintained a big allocation to such a cash alternative either. In reality, the answer’s much simpler…as I’ve often said (about management):

Watch what they do, not what they say!

Which is obviously an exhortation that can just as usefully be applied self-critically… OK yeah, I worry, so I obviously rationalise & anaesthetise these anxieties accordingly – but in reality, my fully-invested portfolio is a resounding confirmation of my past, present & continuing bullish stance on the markets. Hopefully, this doesn’t come as a surprise to you – despite the concerns I express regularly, I believe this bullishness has been a predominant & underlying theme of the blog all along.

[This Jul-2014 post is perhaps the best & most recent expression of my underlying bullishness – it just might be worth a read in its entirety].

Wexboy Portfolio – H1-2014 Performance

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alternative assets, benchmarking, Bloomberg Euro 500, correlation, diversification, FTSE 100, FTSE AIM All-Share, Irish shares, ISEQ, portfolio allocation, portfolio performance, quantitative easing, S&P 500, stock ideas

OK, that’s enough TGISVP (though rubbing resource muppets’ noses in it is lots of fun) – time for the rubber to hit the road: So how did the Wexboy Portfolio make out in H1-2014?! Well, first you may want to reference my FY-2013 performance – now, let’s turn our attention to my benchmark indices:

[NB: I’ve dropped the FTSE Eurotop 100 – I can find it elsewhere, but I’m used to seeing it on Bloomberg.com & I can’t find it as a ticker any longer. I could use the EURO STOXX 50 (SX5E:IND), but that’s a ridiculously small universe of stocks, so I’ll opt for the Bloomberg Euro 500 (BE500:IND) instead – not as well known, but functionally it gets the job done.] [btw Bloomberg’s fantastic, but they have some annoying habits – on the one hand, they abruptly discard useful features, while they also add awesome new features which they barely ever highlight!? Check this out:  Bloomberg Industry Leaderboard].

A +3.4% benchmark gain isn’t too inspiring – quelle surprise, the S&P’s the only index which really makes the grade! And the individual indices don’t bode well for my own portfolio, since it’s particularly focused on the UK. In my case, that’s more about UK-listed stocks (& funds), rather than UK-exposed stocks – but in my experience, a poor FTSE performance usually weighs on both. As for the US, I suffer from the inverse – I have a decent allocation to US-exposed assets, but little exposure to US-listed assets! I also opted for the UK & Ireland as an attractive substitute for a European portfolio weighting – again, that focus may hurt me (though the ISEQ’s performance was only marginally worse). This is a fairly typical stock-picker problem:

Why make it so bloody complicated…when the simple & most obvious strategy is so often the winner?!

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..?

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!]

Hitting The Century (VII – Natural Resources)

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agri-business, BP, bubbles, correlation, garbage stocks, gold, Howard Marks, idiots, inflation, junior resource stocks, miners, natural resource stocks, oil, Petroneft Resources, QE, quantitative easing, Richland Resources, silver, Statoil, Total

In my recent Inflation post, I elaborated on my conclusion that, contrary to widespread (and my prior) opinion, inflation was likely to prove a fairly distant threat. Despite the smoke rising from the bloody printing presses… And despite the Fed since confirming their long-expected QE III – or should I say: QE Forever, QE Infinity, QE God Fucking Save Us… Take your pick! You know, the mind boggles – how/why on earth does the Fed confidently expect Agency MBS purchases to smoothly flow through into improved labour conditions?!

No real need to revisit my post, just read Howard Marks’ latest instead, which came out a few days later. In his memo, he covers much of the same ground – probably in a far better & more relentless manner… [And apologies if I ramble on: Remember, with this series, my intention isn’t to necessarily write about specific stocks here, old or new. Rather it’s to give you some deeper insight into the thoughts, logic and pros & cons underlying each of my allocations].

So, Where’s The Bloody Inflation..?!

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baby boomers, banks, Bernanke, budget deficit, capital ratios, de-leveraging, debt monetization, Debt/GDP Ratio, ECB, Europe, European sovereign debt crisis, Fed, financial crisis, fiscal deficits, Flub-Med, GDP growth, Hunt brothers, income/dividend bubble, inflation, Japan, multiplier effect, Occupy Wall Street, politicians, quantitative easing, real assets, risk aversion, savings rate, stagflation, US, Volcker

I was beginning a new post in my recent Hitting the Century series (and here), and realized my next 3 investment allocations were to real assets – Natural Resources, Agri & Property. This v quickly got me thinking about inflation, enough to devote myself to this post instead:

Along the way, dear reader, you may have noticed my pronounced distaste for fiscal & monetary policy in the developed world. Particularly in the US... That’s not intended to be a US slap-down…and certainly not praise for Europe either! It’s simply a pretty inescapable conclusion if you compare the US & (the hard-core of) Europe over the past 4 decades. Jesus, I struggle to think of somebody with any real power in the US who truly gives a flying f**k about their accelerating debt burden, debt monetization, or the long-term external value of the dollar. In contrast, the ECB & certain Eurozone countries still actually exhibit a painful reluctance to take that road to monetary & fiscal oblivion – even in the face of a European sovereign debt crisis!

Hitting The Century: It’s Pretty Panties Time..! (II)

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absolute return, alternative assets, closed-end funds, currency allocation, distressed assets, emerging markets, frontier markets, FX rates, home bias investing, NAV discount, portfolio allocation, quantitative easing, real assets, special situations, value investing

Continued from here – we examined the true underlying currency allocation in my portfolio (incorporating other financial/investment assets & liabilities). I encourage you to perform a similar exercise (on an ongoing basis). Some will discover unexpected allocations, but more will discover how concentrated they are in a single currency! Of course, I’ve written about home bias before, but that was in relation to equities: I beg your indulgence as I take another brief look from a currency perspective.

If you suffer from single currency concentration (ouch…I think about the EUR/Eurozone so much it bloody hurts! ;-)), presumably it’s in your home currency? Think about the fact your job, your house, (much of) your wealth, the level of your taxes, even your (assumed) social order is already inextricably linked to that currency & country. How much do you want to keep adding to that bet? But the majority of readers live in developed markets, and may ask: ‘How seriously could my home currency decline?‘. Well, say you live in Japan: The USD/JPY‘s 80.53 right now – how outlandish is it to picture it at 120+, or even 150+, in 5-7 years?!