Friday, May 1, 2015

Helsinki Top 20

I use a service provided by via Pörssisäätiö to screen stocks listed in NASDAQ OMX Helsinki. I use the screen periodically to check where our holdings stand relative to other companies listed in Helsinki. Naturally I am also continuously screening for new investment ideas.

The results of my personalized screen are disclosed below. I use different criteria and weights than the default "Liisa's list" that is featured in the pages of Pörssisäätiö. Often I check both lists to get two different angles.

Our positions are marked with prefix ">".

Rank Company (Score)
>#1 Fortum (2,8)
#2 Orava Asuntorahasto (2,6)
#3 United Bankers (2,6)
#4 Restamax (2,4)
#5 Technopolis (2,4)
#6 Aspo (2,4)
#7 Tulikivi (2,3)
#8 QPR Software (2,3)
#9 Revenio Group (2,3)
#10 CapMan (2,2)
#11 Ponsse (2,2)
#12 Raute (2,2)
#13 Okmetic (2,2)
#14 Sponda (2,1)
#15 Keskisuomalainen (2,0)
>#16 Orion (1,9)
#17 eQ (1,9)
#18 Nokian Renkaat (1,9)
#19 Ilkka-Yhtymä (1,9)
#20 Siili Solutions (1,9)


>#21 Citycon (1,9)
>#23 TeliaSonera (1,9)
>#39 UPM (1,5)
>#67 Nokia (1,0)
>#74 Metso (0,9)

Average Score of all companies in the research database: 1,3
Average Score of our positions:1,7

Median Score 1,2
Our positions that have higher score than median: 5 out of 7

Worst Score 0,1 (#97 Biotie Therapies)

Parameters used in screen (weight):
 P/B estimate 2014 (13%)
 P/E estimate 2014, 2015 (8%, 10%)
 Dividend yield estimate 2014, 2015 (8%, 8%)
 ROA estimate 2014 (10%)
 ROI estimated 3 year average 2012-2014 (8%)
 ROE estimated 3 year average 2013-2015 (8%)
 Turnover estimated increase 2013-2015 (8%)
 Net Profit estimated increase in 2013-2015 (8%)
 Gross Margin estimate 2014 (8%)
 Profit Margin estimate 2014 (8%)

The used parameters emphasize attractive valuation (31%), profitability in broad sense (26% weight), growth (16%) and dividend yield (16%).

The screen relies on estimates about future. Those combined with volatility of stock prices means that you should not try to chase screens like these (I don't). Ultimately any investment decision should be based on much more than just looking at the current numbers and estimates of future numbers.

Saturday, April 25, 2015

Orion. People like, analyst don't.

Over last year I have read many articles that have summed up analyst opinion (or recommendations) on Finnish stocks. In almost all cases, Orion has been one of the stocks that has gathered most "sell" recommendations.

Still, investors seem to like it because it hasn't behaved as analysts have recommended. Instead of going down, it has gone up.

On friday, it went up 12,50% after positive guidance for 2015.
Analysts were surprised.

It has to be said, that Orion is no longer the cheap looking stock I bought initially in 2011.
It has risen considerably over the years (2011-2014). Simultaneously, it has lost patent protection for its most important profit generators of past.

My original thesis was right. The stock price in 2011 fully discounted (and then some) losing the most imporant patent protections it had. Still today Orion keeps surprising the analysts with regards to how well it has come out of the tough situation.

I have sold some of it this year, but continue to hold it as not only it is still well yielding stock defensive stock. It also may have more positive surprises in store..

Friday, April 3, 2015

Stocks bubble?

Finnish Financial Supervisory Authority (Finanssivalvonta) warned recently that "financial sector participants must refrain from excessive risk taking in their search for yield. We should also be prepared for a bursting of a possible asset price bubble.".

This fueled the ongoing "stocks are in bubble" discussion in the media.

Well, I'm not going to start guessing near term directions of stock market. Instead, I think people too easily use the word "bubble". Many of us participated in the turn-of-the-millenium IT bubble so we know what a bubble looks like.

There are crazy valuations out there, but stock market overall is not in the bubble. US and European stock prices have gone up over last few years considerably.

On the other hand, we are in an environment where there really is no "sure" inflation protection available. Central banks in US and Europe have slashed the interest rates to near zero if not negative (according to some news stories even individuals might get loan with negative interest rate!).

In that kind of environment stocks that yield 3-6% look good and it's only natural money flows to higher yielding asset classes.

According to data that I have available (via Valuatum), the median yield expectation for 2015 for Finnish stocks is 3,5%. This means half yield more than this.

There are stocks where price-per-earnings (P/E) ratios are clearly too high (for me P/E beyond 20 is expensive unless company is growing and that is expected to continue). Median P/E estimate for Finnish stocks in 2015 is 16,5. Meaning half of them are below that.

My conclusion is that many stocks have rallied probably too high, but the market overall is not in a bubble.

Corrections might happen, though, even big ones.
For long term investors like me they only provide opportunities to buy more those stocks that are still reasonable priced.

Sunday, March 8, 2015

Why to avoid costs (and tracking error)

Actively managed stock funds charge yearly fees of 1-3%. Some take management fees north of 4%.

In addition to costs that are typically disclosed to investors (as "total expense ratio" or "management fees" or "entry/exit cost" etc.) there are other costs such as transaction costs that are not typically disclosed to investors.

All costs produce tracking difference.

We assume 0,48% as tracking difference for our "benchmark investment" (which simulates passive ETFs). Total cumulative gain of the benchmark investment (net of taxes) between 2009-2014 was 100,3%.

To illustrate how small differences in tracking difference turn into significant difference over the 6 year period, I recalculated the benchmark investment performance with tracking differences between 0,48% and 4%.

The result is that every 0,5% increase of tracking error makes the cumulative gain roughly 5-6% smaller. The relationship between increase of cost and decrease of cumulative gain isn't linear, but at least with such a short period of time (6 years), it is quite close to linear.

For example, 4% tracking difference drops the cumulative gains to just 60,30% (40% less than with 0,48% tracking difference). Even increasing tracking difference with just 0,52% (i.e. to 1%) drops cumulative gains significantly (to 93,90% - 6,4% less than with benchmark investment).

Many actively managed funds lose to their benchmark index even more than what their management fees etc. take away, which makes the situation even worse.

In long run, it's not the profits alone that matter - also cost of holding matters a great deal!

Thursday, February 12, 2015

5 years blogging

I wrote my first blog post on 12th of February 2010 - exactly 5 years ago.
Since then my blog has got over 60,000 pageviews.

When looking back to what I have written I find some things odd. For example, I have written lots about gold even though that has never been major part of our portfolio. Same goes for mining companies.

Most of my investments to mining sector have proven to be if not mistakes then not as profitable as most of my other investments. That is truly a hard sector - but for some reason - continies to be a fascinating one for me.

Early on, I made quite a lot of changes to portfolio. Later I have slowed down rate of change a lot. I think there are three reasons for this. Five years ago, I had more time to follow the market and this lead to more activity. Secondly, when I had to justify changes in the blog, I started to be more critical towards acting on new ideas and towards change in general. Finally, there are now many excellent companies in the portfolio with good long term prospects and it simply is hard to find better ones. Changes make even less sense to positions that have accumulated significant capital gains.

Opposed to what many other people does. I keep the winners (keep the gains accumulating without taxman eating into those) and ditch the loosers (even at loss).

Over the years, the number of my blog posts per year have decreased. This year, I plan to turn around the trend and write more posts than last year ;-)

I went initially for direct invetment into many companies in developing markets. Most of those came out as problematic positions. Either because of the company selection itself or because of taxation of dividends out of those companies in Finland. The biggest lesson that I learnt from those investments is that for inverstor like me, passive ETFs are the best vehicle to get market exposure outside of markets that are familiar.

Some things have been not changed.

I consider still Warren Buffett's annual letters and other materials as some of the best investment advice one can find. I have not always followed his advice and most of the time this has lead to mistakes.

There has also been one crisis after another over these 5 years
- aftermath of US crisis,
- then Euro debt crisis,
- then Greece,
- then Ukraine
- then again Greece...
- (and likely forgot something in above list)

Still, our porfolio has done very well over the years.

So far, almost pure stocks portfolio has paid off - big time compared to stocks/bonds/cash portfolio alternatives.

Let's see what the future brings.