Sunday, August 31, 2014

Russia, Finland and stocks

Russia has been in news lately a lot due to the situation in Ukraine. Tensions are rising also in the north as Russia has repeatedly violated Finnish airspace over a short period of time. On friday, Finnish Air Force moved F-18 fighters to locations closer to Gulf of Finland where violations have taken place. Testing, teasing or just plain ignorance from Russian pilots. How knows. Some talk about echos of Cold War.

We in Finland share 1300 kilometers (800 miles) of border and a long history with Russia. They are one of our our most important trade partners, and therefore, the current crisis and sactions placed by EU and Russia to each other are bad news for already stagnant Finnish economy. Overall, the relationship between Finland and Russia is good. However, Finland as member of EU clearly has chosen its side in the crisis.

Many Finnish companies listed in Helsinki stock exchange generate considerable revenue from Russian operations:
  • Oriola-KD 38%
  • Nokian Renkaat (Nokian Tyres) 35%*
  • Aspo 32%*
  • Tikkurila 31%
  • YIT 27%
  • Honkarakenne 27%
  • Nurminen Logistics 20%
  • Raute 20%*
  • Fortum 19%
  • Stockmann 17%
*) Reporting includes also other countries than Russia from Commonwealth of Independent States (CIS)

Source: Arvopaperi magazine August 2014

The crisis has already impacted valuations of many of these companies. Maybe good opportunity to buy - maybe not. We don't have stake in the above mentioned companies other than in Fortum.

Russian stock market itself seems dirt cheap:
  • P/E 5
  • dividend yield around 5%. 
 Source: Arvopaperi magazine August 2014 (Factset, Economist)

We don't have much of a exposure to Russia at this point and I intend to keep it that way for time being. It's currently hard to see how things can get "normal" between West and Russia for some time.

Monday, June 30, 2014

How nuts is our allocation

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors." - Warren Buffett

The asset allocation suggested by Warren Buffett in his 2013 letter to shareholders of Berkshire Hathaway is quite similar to "Aggressive Investor" profile in AAII Asset Allocation Models. The biggest difference is that in AAII models and many others, it is recommended to dial down risk with the remaining investment horizon.

Vanguard offers historical Risk/Return (1926–2013) for each of their portfolio allocation models.

100% bonds

Average annual return: 5.5%
Best year (1982): 32.6%
Worst year (1969): –8.1%
Years with a loss: 14 of 88

100% stocks

Average annual return: 10.2%
Best year (1933): 54.2%
Worst year (1931): –43.1%
Years with a loss: 25 of 88

That's historical perspective to risk vs. return.

One particular rule I have come across says that allocation to stocks should be 100 minus your age. I guess it depends on whether you are going to ultimately sell stocks to cover expenses or not. Because if you are not, then why move money from stocks to bonds - especially from the dividend paying kind?

I like Warren's advice for three reasons: For its stock vs. bond allocation, its simplicity and for the use of low cost index fund. In fact, I should probably benchmark myself to his advice in addition to my selected benchmark index.

Our own allocation is close to 100% stocks allocation so it is near the extreme end of asset allocation models discussed here. I feel good about it, but we also have very high risk tolerance with the money invested. I personally think people who take sure loss after inflation are nuts (i.e. people who park money to bank accounts or low yielding bonds).

Wednesday, May 7, 2014

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.

Currently the results of my personalized screen look like this:
Our positions are marked with prefix ">".

Rank Company (Score)
#1 CapMan (3,1)
#2 Orava Asuntorahasto (2,9)
#3 Siili Solutions (2,8)
#4 eQ (2,6)
>#5 Fortum (2,6)
#6 Nokian Renkaat (2,5)
>#7 TeliaSonera (2,4)
#8 Soprano (2,4)
#9 Technopolis (2,3)
>#10 Orion (2,3)
#11 Revenio Group (2,3)
#12 Taaleritehdas (2,2)
>#13 Citycon (2,2)
#14 Sponda (2,1)
#15 Norvestia (2,1)
#16 Sampo (2,0)
#17 Ponsse (1,9)
#18 Suominen (1,9)
#19 Aspo (1,8)
#20 Elisa (1,8)


>#35 UPM (1,5)
>#73 Nokia (0,9)
>#82 Metso (0,8)
>#95 Valmet (0,5)

Average Score of all companies in the research database: 1,4
Average Score of our positions: 1,65

Median Score 1,3
Worst Score 0,0 (#99 Incap)

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 emphasise 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 this (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.

However, this screen is one of the many ways I monitor our portfolio and seek for new ideas in Helsinki Stock Exchange.

Friday, April 25, 2014


PICK. That's a New York Stock Exchange ticker symbol for iShares Exchange Traded Fund (ETF) "MSCI Global Metals & Mining Producers". It's also our latest position.

Our exposure to "Mining & Exploration" sector - one of the sectors we focus on - has been very low for quite some time (very low as in 1,4% in last portfolio update). I have been looking at various corporations for direct investment, but decided instead to go with an ETF.

After some research of various options, I homed in on the PICK. The fund invests in all the big names in mining space like BHP Billiton, RIO Tinto, Glencore Xtrata, Anglo American, "Freeport-McMoran Copper and Gold" and VALE. All in all, there seems to be 246 holdings as of today. The index followed by the fund is "MSCI ACWI Select Metals & Mining Producers Ex Gold & Silver Investable Market Index" (means it does not invest in companies that are mainly Gold and Silver producers).

158 million USD in net assets is a decent amount of money and allows the funds to have reasonable 0,39% net expence ratio. The trailing 12 month yield is 3,52%. iShares gives also P/E figure of 21,07 and P/B of 1,72 for this fund. For some reason Yahoo Finance puts TTM P/E at 12. on the other hand, shows very reasonable forward P/E figures for companies that are among the top holdings and listed in NYSE:
  • VALE (VALE) 7,6
  • RIO Tinto (RIO) 9,6
  • Freeport-McMoran Copper and Gold (FCX) 11,0
  • BHP Billiton (BHP) 12,7

Saturday, March 15, 2014

Tripled position on Fred Olsen Energy

We have been holding Fred Olsen Energy (Oslo Stock exchange, Norway: FOE) for many years now. See my previous articles if not familiar with the Company:
I recently decided to triple our position in the company, because the stock came under 200 NOK making expected dividend yield for 2014 over 10%. I had cash to deploy and looking at our overall portfolio this sector and this company seemed like the logical place to put cash in at this point of time.

They have paid steady stream of base 10 NOK dividend for years. On top of that there has been an extraordinary dividend in most years between 2007 and 2013.

2007  NOK 10 per share
2008  NOK 25 per share
2009  NOK 25 per share
2010  NOK 10 per share 
2011  NOK 20 per share
2012  NOK 20 per share 
2013  NOK 20 per share

According to 4Q 2013 presentation: "The Board of Directors will propose to the AGM in May 2014 to distribute NOK 10 as ordinary dividend and NOK 10 as extraordinary dividend".

My logic here is quite simple:
  • I believe there is significant margin of safety long term (as in 5-10 years) when buying the company below 200 NOK.
  • Yield is very attractive for 2014 (and I believe beyond)
  • Future upside potential via new builds to the ultra deep water segment
    • Bolette Dolphin: delivery date Feb 2014 (new build ultra deepwater drillship). It has four-year contract with Anadarko for international operations.
    • Bollsta Dolphin: Delivery 3Q 2015 (new build ultra deepwater semi-submersible). It has five-year contract with Chevron for operations West of Shetland in the UK sector.
Source of information:

Author is long Fred Olsen Energy at the time of writing.