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…

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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 Saga Continues…

Tags

auction house, China, emerging markets, fur trade, luxury goods, Russia, Saga Furs, SAGCV

‘Bout time I revisited Saga Furs (SAGCV:FH). Loyal readers will hopefully recall my original investment write-up, two years ago now:

‘Quite A Saga…’

And boy, that’s what it’s proved to be ever since… Wisely, I wrapped up my last post with a potential health warning for readers (& included a scary looking chart). At first, it seemed unnecessary, as Saga managed to rally 20%+ in the following two months (hitting almost EUR 50.00 a share, which was gratifying). I must admit, I certainly didn’t expect what came next…

Now, I should encourage you, please go back & read my original post – it provides useful background on the fur industry & Saga Furs, which I don’t plan on revisiting here. [And I’m ignoring an anti-fur movement that’s become increasingly irrelevant…but I should clearly highlight Saga isn’t a stock for everyone, though obviously it’s not a fur producer itself]. Let’s recap my positive investment thesis at the time:

• Triple Threat:  Saga Furs offers attractive exposure to three of my favourite things: Emerging Markets, Luxury Goods & Auction Houses.
• Supply:  European/N American fur production is highly regulated (& superior to Chinese fur), with supply constrained despite generally increasing prices.
• Demand:  High-growth/secular fur market trend in the past decade or so, driven by Western fashion/luxury revival & new emerging market demand.
• Resilience:  Despite a 39% post-crisis collapse in sales, Saga’s P&L stayed close to break-even. [Aided by inversely-correlated commission rates, which increase as sales decline]. Auction sales rebounded 78% the following year.
• Investment:  Significant percentage of Saga’s annual turnover is ploughed into expanding capacity, European/global fur lobbying, and the promotion of Saga Furs as a luxury brand.
• Market Share/Network Effect:  Now permanent agreement with American Legend & Fur Harvesters Auction to sell via Saga auction, thereby creating some of the largest fur auctions in the world & significantly improving Saga’s effective market share.
• Valuation:  Stock cheap in absolute terms, vs. long term earnings growth & an average adjusted operating FCF margin of 28.0%. Also cheap in relative terms, vs. auction house & luxury goods sectors.

Unfortunately, the perfect storm was ready to hit: Dec-2013 auction sales collapsed 76%, as prices & the number of pelts sold dropped precipitously. Despite the about-face, initially this seemed like a bit of a buyers’ strike really…brought on by a mild winter, sticker shock (after pelt prices doubled in 3 years), higher retail inventories, and signs of slowing Russian & Chinese growth. Looking back, we know better now. It did prove to be a temporary buyers’ strike (as I’ll highlight below), but clearly the December auction heralded a more serious & sustained market disruption – the Chinese crackdown on luxury gifts was just gathering momentum at the time, and Putin was on the verge of sending the Russian economy (& ruble) over a cliff by backing military intervention in Ukraine.

Wexboy Portfolio – FY-2014 Performance

Tags

Alternative Asset Opportunities, Argo Group, Bloomberg Euro 500, emerging markets, FTSE 100, FTSE AIM All-Share, ISEQ, NTR plc, portfolio allocation, portfolio performance, S&P 500, Saga Furs, value investing, VinaCapital Vietnam Opportunity Fund, Zamano

Crikey, the days are flying by already, eh?! Here we are, January’s nearly over & a FY-2014 performance review would look a bit silly in February… So let’s bang this one out: So, how did the Wexboy Portfolio perform for FY-2014? [For reference, here’s my mid-year review]. First, let’s take a peek at my usual benchmark:

Maybe this is hindsight talking, but looking at these index returns, they (nearly all) make perfect sense to me now! But duh, isn’t that true most of the time!? That is, assuming you accept momentum generally trumps value in the market…

The Irish market enjoyed the highest return, as it continues to accelerate slowly but surely out of an unprecedented recession. Of course, the recession was inevitable, but was unfortunately compounded by the foolishness of the banks & then the government itself. However, the scale & trajectory of the burgeoning recovery (now & to come) is well-deserved. Ireland may have waved goodbye to currency flexibility, but it’s one of the very few countries that still proved willing & able to take the public & private pain of radical fiscal & competitiveness adjustment, and now it’s starting to pay off in spades… [Right now, Beardy Krugman must be wishing Ireland was wiped off the map!]

The US market wasn’t far behind, though for entirely different reasons. Being the epicentre of a global financial crisis proved an excellent strategy…ideally, you end up being rewarded as the first country to subsequently escape recession! But it seems blindingly obvious the US recovery (& accompanying market rally) wouldn’t exist without the GUBU fiscal & monetary debasement we’ve witnessed. Which presents a dilemma for investors: Do you abstain, on the basis it promises an even more catastrophic disaster to come (as we’ve regularly seen since the late ’90s, as a direct consequence of the Fed’s actions & inaction)? Or do you believe the Krugmanesque fairy tale of a free lunch – government stimulus & QE really can deliver sustainable economic recovery at no perceived cost? [Hmmm, maybe a dine & dash strategy does offer a free lunch…well, ’til you’re caught!] The answer, I suppose, is the usual one:

Don’t fight the Fed!

2013 – A Game of Two Halves

Tags

AIM stocks, Alternative Asset Opportunities, Asta Funding, benchmarking, correlation, fear and greed, hedge funds, home bias investing, KWG Kommunale Wohnen, Petroneft Resources, portfolio allocation, portfolio performance, Richland Resources, Saga Furs, Tetragon Financial Group, Titanium Asset Management, US Oil & Gas

Yup, it’s that time of year again… [For reference, here’s my mid-year 2013 performance report, plus my FY-2012 report]. Right off the bat, I have to admit assessing annual performance isn’t my most favourite of activities (as I’ll explain). It also reminds me how easily our (personal) fear & greed equation can magically transform itself as we finish an old year & head into a new one. While most traders tend to start a new year cautiously, investors often set out brimming with over-confidence – which can prove pretty hazardous…

The UK’s AIM market, for example, has enjoyed significantly positive returns in 14 of its last 18 Januaries. This annual love-fest is even more remarkable when you realize the AIM index has declined 17% since its 1995 inception. [Growth and value investors, take note!] My favourite muppets provide a more ludicrous example: Shareholders of US Oil & Gas (USOP:G4) (I’m presuming no new suckers are buying at this point) hailed the new year by immediately buying/running up the price 60% from its yr-end close! Sure, hope springs eternal…but with most USOP investors having lost 95%+ of their investment to date, this kind of new year exuberance is wildly irrational.

Thinking about & tracking your stocks (& portfolio) on some kind of calendar basis is yet another fixated version of tracking individual stock gains/losses. And that’s how fear & greed grabs hold & encourages you to play the ‘if…‘ game. I’ve already recommended you Forget Your Purchase Price – now I recommend forgetting your Year-to-Date Gains. Free yourself of those deadly anchors, and you’ll be forced instead to look afresh at your holdings every single day. For each stock, that’s an exercise in assessing upside potential (i.e. current share price vs. your latest estimate of intrinsic value), and then weighing that reward against the level & range of risk(s) involved. Which boils down to one simple question for each of your portfolio holdings:  Should I buy, sell or hold this stock today? And your cumulative or calendar gains/losses on a stock are irrelevant to that question – no matter how small, large or goddamn painful they might be…

Quite A Saga…

Tags

auction house, auctioneer, China, emerging markets, fur farming, fur trade, Kopenhagen Furs, luxury goods, network effect, Origin Assured, Russia, Saga Furs, SAGCV, Sotheby's

It’s my 200th post – I’ve been saving up! These are a few of my favourite things…

i) Emerging Markets:   No surprise there, I recently posted a detailed write-up of my emerging (& frontier) markets investment thesis. They enjoy some key advantages – younger/faster growing populations (with far lower entitlements), labour costs that are a fraction of developed market costs, control of a major portion of the world’s natural resources, low/stable debt ratios, a 50% share of world GDP, and GDP growth expected to be twice that of developed markets. And all this is offered at a discount!?

However, all investors see is a slowdown in emerging market growth (a legacy of the financial crisis) vs. developed markets which are bouncing back (fueled on the crack of QE) – emerging markets have been punished accordingly. But you can’t escape the fact these markets will probably generate far superior GDP growth for years to come… As an investor, that kind of growth (& value) is exactly where you want to be. Unfortunately, emerging market stock-picking can be a daunting task! A short-cut is to seek out Western listed/managed companies with a majority of their revenues & profits in emerging markets – presuming they’re on sale at the right price, that is…

ii) Luxury Goods:   I’ve an enduring faith in human vanity & insecurity – luxury goods companies have long existed to satisfy those traits. By selling dreams, status, taste, style, heritage, exclusivity…basically wants, not needs. But needs can usually be satisfied at a fair price, while wants are often infinite & indifferent to price. Of course, this creates a v desirable opportunity for companies – high-margin annuity revenue streams.