Wexboy Portfolio Prospects – Part II

Tags

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

Tags

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…

H1-2017 Wexboy Portfolio Performance

Tags

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:

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..?!

November-9th…What An Historic Day!?

Tags

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

Tags

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:

Crushin’ It: FY-2015 Portfolio Performance

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benchmarking, Bloomberg Euro 500, emerging markets, frontier markets, FTSE 100, FTSE AIM All-Share, hedge funds, ISEQ, portfolio allocation, portfolio performance, S&P 500, value investing

OK, Top Tips done – now, it’s performance time!

And already I’m fully aware the designated performance benchmark here is very different for me than everybody else…which is, of course, entirely my own fault! Because I chose to include the ISEQ as 25% of my benchmark, and it’s performed quite spectacularly every single year. Which, you’ll have to admit, is terribly unfair… 😉

Unfair, because it jacks up my benchmark return every year. And because it’s such a painful & galling reminder that if I’d been just a little bit dumber, and simply overdosed on the Irish market, doubtless I’d now be reporting a totally amazing performance. Except…who bets their entire portfolio on a single market? Esp. the Irish market, which is a mere rounding error globally (in terms of market cap)? Intellectually, prudent diversification makes all the sense in the world, but emotionally it’s a lose-lose proposition: ‘Cos markets surge & you loathe being diversified, you just want to concentrated on the winners…then markets collapse, and being diversified is great, except you’re still inescapably miserable because you’re actually losing money! But at this point, the ISEQ’s clearly my personal cross to bear – so let’s just stick with it – here’s my 2015 benchmark:

Obviously, it’s been a game of two halves – with most markets suffering in the second half – so I’ve also added a H1 vs. H2 breakout. But wouldya ever take a gander at that ISEQ performance! Who’d have expected an additional +12.0% rally, after an +18.0% surge in H1? And that’s nothing…if I described a market which had clocked 15%+ annual returns in 2012-2014, would you ever have guessed a +30.0% return for 2015?! Methinks not… But then again, I’ve actually been consistently bullish on the Irish market for the past 4 years now – which I’m v pleased by, except when I agonise over the fact I capitalised far too little on such prescience. Sad, sad, sad…

Wexboy Portfolio Performance – Total Gain & CAGR (since Blog Inception)

Tags

benchmarking, Bloomberg Euro 500, FTSE 100, hedge funds, investment blogs, ISEQ, portfolio allocation, portfolio performance, S&P 500, track record, value investing

Crikey, the blog’s 4 years old soon! So this post’s been on my to-do list for quite some time now…as they say in the hedge fund world, you’re nothing ’til you’ve racked up a 3 year track record! And maybe it’s the perfect time for it, anyway – with an hysterical media insisting the market (& the global economy) are on the verge of collapse again, a reminder of the opportunity & rewards of medium/long term equity investment may offer some welcome relief.

First, I should remind readers of my approach since day one. When I started out here, there were some great investment blogs (some which I read to this day) that served as inspiration. Except many didn’t have any kind of portfolio tracking, or performance, which frustrated me… Now, don’t get me wrong, performance certainly isn’t the be-all & end-all of any blog. Quite obviously, the quality of the investment ideas & analysis is far more important.

Or is it..?

I mean, how on earth do you evaluate an investor’s conviction regarding a specific stock…when you don’t know whether he’s really putting his money where his mouth is (or even if he owns the stock at all)?! I’m not talking dollar/euros & cents here, disclosing the relative size of a position is more than enough. Call me crass & materialistic, but I tend to pay a hell of a lot more attention to someone telling me about their new 10% portfolio holding, rather than some 2% place-holder – how about you?! And then there’s the sad fact that investing isn’t just about investment ideas. As any hedge fund honcho will tell you, a great analyst doesn’t necessarily make a great fund manager…

‘Cos play money ain’t the same thing as real money!

[NB: And nope, I’m not (& have never been) a frustrated hedge fund analyst!]

So, when it comes to investment blogs, it’s natural to want a more holistic view of what an investor really brings to the table. Are they prepared to expose their portfolio to real-time public scrutiny? And if they are, can they actually live with that decision? For example: How do they perform under pressure, and how do they deal with the pernicious impact(s) of fear & greed? Do they insist on defending a failed investment thesis & going down with the ship, or can they bring themselves to admit they’re wrong…even when they secretly believe they’re still right? Or as any good trader might ask:

Do you wanna be right, or do you wanna make money..?!

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

Tags

Alternative Asset Opportunities, Argo Group, Bloomberg Euro 500, Donegal Investment Group, EIIB, FTSE 100, ISEQ, KWG Kommunale Wohnen, Newmark Security, NTR plc, One51, portfolio performance, S&P 500, takeover offers, Universe Group, value investing, Zamano

Oh Lord, where did July go..?! I’d hoped to publish my H1-2015 portfolio performance report a week/ten days ago, but I guess the days kinda slipped away – who can fault a bit of fun in the sun, esp. when my portfolio holdings are slowly but surely marching higher (despite all the China volatility & the fact the US market’s totally sucking wind this year).

Now, if you’re a regular reader, I recently detailed my (still) developing bubble thesis (Parts I to IV), suggesting an increased focus on large cap stocks (a new global Nifty Fifty) might be more profitable. [Though I’m also v conscious of certain small/micro cap successes in the past 12-18 months – a bar-bell strategy, in terms of market cap, may ultimately prove more compelling]. But in terms of immediate portfolio changes, I hastened to add: ‘I don’t believe there’s any great rush here, necessarily’. Well, that being said…let’s first kick off with some (end-June) portfolio changes!

Portfolio Sales:

Alternative Asset Opportunities (TLI:LN):  TLI had a great H2-2014 run – gaining over 22% (inc. a 2p return of capital), making it my top holding at year-end (at 11.1%). Since then, the insured have enjoyed a real stroke of luck, with just one maturity announced. Not surprisingly, the shares are off YTD in sympathy (reducing my holding, in % terms). But I’d focus on TLI’s portfolio instead – adjusting for minor FX unfavourability, and an additional 2p ret. of capital, TLI’s underlying NAV decline was limited to just 3%.

And I see no change in prospects: We’re at the end of a long & painful life expectancy adjustment process (in fact, June NAV inc. a meaningful positive LE impact), and the insured are now 91.5 yrs old on average – maturities will inevitably accelerate (peaking in 2019-20). There’s little financial risk (with an available credit facility, zero debt & cash on hand), and TLI’s focused on regular returns of capital. Sure, we can debate valuations, but shouldn’t lose sight of the big picture – as per the latest results, the portfolio now consists of $132 million in death benefits vs. a current carrying value of $45 million.

But owning such a defensive & uncorrelated investment isn’t as compelling a requirement for me today, and I see equally attractive (albeit, more correlated) opportunities elsewhere. I’ve reduced my shareholding accordingly, from 9.1% to 7.0%. [NB: I normally don’t add to individual holdings beyond a 7.5% limit – TLI remains a substantial position for me].

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!