Saturday, December 27, 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.

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. For example, Nokia was #24 today in Liisa's list while it is #97 in mine. Often I check both lists to get two different angles. Many companies in top 20 of both are the same.

Our positions are marked with prefix ">".

 Rank Company (Score)
 #1 Orava Asuntorahasto (3,3)
 #2 Fiskars (2,9)
 #3 Technopolis (2,6)
 >#4 Orion (2,5)
 #5 Nokian Renkaat (2,4)
 >#6 Fortum (2,4)
 >#7 Siili Solutions (2,4)
 #8 eQ (2,3)
 #9 Sponda (2,3)
 #10 Revenio Group (2,2)
 #11 Ponsse (2,2)
 >#12 Citycon (2,1)
 >#13 TeliaSonera (2,0)
 #14 Aspo (2,0)
 #15 Keskisuomalainen (2,0)
 #16 Restamax (2,0)
 #17 United Bankers (1,9)
 #18 Norvestia (1,9)
 #19 Sampo (1,9)
 #20 CapMan (1,9)
 >#29 UPM (1,7)
 >#65 Metso (1,0)
 >#97 Nokia (0,3)

Average Score of all companies in the research database: 1,3
Average Score of our positions: 1,8

Median Score 1,1
Worst Score 0,2 (#98 Talvivaara)

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.

Tuesday, November 25, 2014

Notes on taxation of foreign dividends in Finland

Over the years we have held securities from numerous foreign companies. It has become evident that there are huge differencies on how dividends are taxed in Finland. Cumulative taxes paid on dividends can vary from 25,5% to 55,5% (or more!) depending on the case.

For Finnish investor like myself, the following parameters needs to be obverved
  • country (or in worst case countries) where the investor is taxed
  • country (or countries) where the investor has brokerage account(s)
  • country of incorporation (home country of the company)
  • where company is listed
In Finland, tax on capital gains and dividends is 30% up to 40.000 euros (2015: 30.000 euros) after which it's 32% (2015: 33%). However, 15% of dividend is tax free and this applies to foreign as well as to domestic stocks (corporations listed in a stock exchange) as long as the country of incorporation is:
  • an EU country
  • a country with which Finland has a double taxation treaty (like USA)
Typically dividends are double taxed in "source" and "destination" countries. Here is where the double taxation treatys come in play - in most cases. The problems arise from case where more is withheld than assumed under the tax treaty. In those cases, the only way is to apply for a refund from the tax authorities of the country concerned.

The problematic cases I have encountered so far:
  1. France: withhelds more than assumed under tax treaty with Finland.
  2. Hong Kong: does not have tax treaty with Finland. Dividends are treated as regular income, which is progressively taxed in Finland (can go beyond 50%).
  3. British companies listed in USA: you might end up being withheld 15% while tax treaty assumes 0%.
(1) I have read also Germany, Switzerland and Denmark withhelds more than assumed in tax treaty with Finland.
(2) Any "tax haven" falls into same gategory than HK. E.g. Bermuda where many companies are incorporated even if otherwise clearly European or U.S. companies.

While the above is directly applicable only in Finland, I would assume that an investor in any country might encounter these type of cases. Recommend to check these issues upfront. In many cases I didn't and payed price for it.

Wednesday, October 29, 2014

Fred Olsen Energy dives into the deep end of the pool

Fred Olsen Energy (Oslo: FOE), like the whole offshore drilling industry, has been hammered this year. In last couple of days FOE has been diving because of worse than expected quarterly report. To date it has clearly performed worse than most of it's peers listed in Oslo and New York.

In March this year, we tripled our position in this stock. Now it's our worst performing stock. Luckily, rest of the portfolio has performed better than the market, so despite of FOE moving to wrong direction, we might beat the market as much as 10%. However, it's still two months to go and anything can happen.

With regards to FOE, I'm not able to pinpoint any fundamental reason why FOE is performing worse than peers.

Any ideas from readers?

Thursday, October 2, 2014

Siili Solutions in - Valmet out

I have made two changes in our portfolio:
  • Siili Solutions was added
  • Valmet was removed
Valmet came to our portfolio for demerger of Valmet from Metso. As said then, then plan was to allow hidden value of the companies to unlock and then make decisions. The decision was between accumulate or sell and I chose latter.

Apart from some very risky positions that we have, I want rest of the positions to be meaningfully large to make a difference. Also, I want to keep the overall amount of companies at a level that I can manage to follow with some regularity.

Siili Solutions is a small Finnish IT company. They are listed at NASDAQ OMX First North Finland, which is an alternative market, operated by the different exchanges within NASDAQ OMX. It does not have the legal status as an EU-regulated market. Companies at First North are subject to the rules of First North and not the legal requirements for admission to trading on a regulated market. The risk in such an investment may be higher than on the main market.

The company has appeared regularly in my screens at the top, has good profitability and above all - potential to grow. Given most of the companies we hold are defensive and/or very large, it was time to inject a growing company into the portfolio even when it means also increasing risk for losses.

Inderes has made a thorough analysis of the company, but it's available only in Finnish (link). However, people from same company summarized their rationale when selecting the company to their expert porfolio in May 2014 - only a week after releasing the analysis linked above.

The company has been trading recently around 13,6 euros and is around all time highs. Lowest price within 1 year period is around 8 euros and before the above mentioned analysis and recommendations the company was trading at 11 euros. This should be taken into account when reading the above linked analysis.

Liquidity with the company is rather low even for individual non-professional investors like me. Thus, I had to aquire the shares we now hold over multiple days and even then I managed to increase price on several occations.

I believe the company is now fairly valued by market (and we bought with that valuation). We are in for the long run and hoping the company will deliver profitable growth, which is the key thesis to own the company.

The writer owns shares in Siili Solutions.

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.

Sunday, February 16, 2014


Global megatrends should be taken into account in building a stocks portfolio for long term (next 10-20 years). I have already taken many such megatrends into account in my portfolio. These include rise of developing countries (and China in particular), resource scarcity, explosion of data (both in terms of network traffic and stored data), demographic shift, public debt explosion in western countries and climate change.

Megatrends are linked. For example, rise of developing countries combined with urbanization contribute both to coming resource scarcity. I recently finally completed reading an excellent book about this (Winner Take All by Dambisa Moyo).

On top of the ones I already mentioned here are a few more that I see important (check more via each link):
  • Rise of the individual: KPMG: "Advances in global education, health and technology have helped empower individuals like never before, leading to increased demands for transparency and participation in government and public decision- making."
  • Risk for serious instabilities as identified by Business Insider
    • The Crisis-Prone Global Economy
    • The Governance Gap
    • Potential For Increased Conflict
    • Wider Spread Of Regional Instability
If you browse through the links you will see yourself how linked the megatrends indeed are. As an investor with "ultralong" time horizon I certainly hope the projections about instabilities - not to talk about outright war - do not come true. However, as always, it's better to prepare for worst while hoping the best. In portfolio terms, I would say that means stable high quality dividend paying companies in addition to more volatile companies that are exposed resource and technology sectors.

Sunday, January 12, 2014

Portfolio update: Allocations and Top 5 positions

Our portfolio is currently allocated as follows:

Stocks 96,8%
Gold 2,5%
Cash 0,7%

No bonds.
I simply substitute bonds with quality dividend payers in our portfolio.

Geographical Allocation (stocks):

Europe 57,7%
North America 29,5%
Emerging markets 12,7%

Actually, place of incorporation is pretty meaningless for most corporations we have invested in. Most operate and sell globally.

Sector Allocation (stocks):

Information Technology 34,1%
Other 30,6%
Health Care 11,4%
Communication Service Providers 9,5%
Low Emission Power Generation 6,5%
Oil & Gas Production 6,5%
Mining & Exploration 1,4%

Top 5 positions:

Company/ETF (sector) allocation%

Western Digital (IT) 9,0%
Nokia (IT) 8,6%
UPM (Other) 7,9%
Orion (Health Care) 7,4%
Vanguard MSCI Emerging Markets ETF (Other) 6,7%

Monday, January 6, 2014

Valmet demerger from Metso

We have a new position (Valmet Corporation) since Metso Corporation was split in to two publicly listed limited companies. Both are listed in NASDAQ OMX Helsinki.

Valmet Corporation is a leading global developer and supplier of services and technologies for the pulp, paper and energy industries. Mission of the company is " Converting renewable resources into sustainable results". They have over 200 years of industrial history. 1999 Valmet and Rauma corporations were merged to form Metso and now Valmet a separate company again through the demerger.

Demerger was driven by Swedish investor Christer Gardell who has been on board of directors of Metso since 2006. His investment corporation Cevian Capital is biggest shareholder in both Metso and Valmet with close to 14% share of both. Cevian Capital is known for active ownership investment strategy. Finnish state owns approximately 11% of both corporations through holding company Solidium. There are no other significant shareholders since even the major Finnish pension funds don't own more than 1-3% of the companies.

Valmet’s net sales in 2012 were approximately EUR 3 billion. Profitability of Valmet is much poorer than that of Metso. EBITA before non-recurring items was EUR 192 million in 2012. The net sales split in 2012 was roughly as follows:
  • Pulp and Energy 39%
  • Services 34%
  • Paper 27%
Valmet’s services cover everything from maintenance outsourcing to mill and plant improvements and spare parts.  

The net sales split by geographical area:
  • Europe, middle-east and africa 40%
  • Asia/Pacific (incl. China) 24%
  • North America 19%
  • South and Central Amercia 17%
Valmet is established market leader in all markets served.  The company faces limited growth opportunities in all of its markets served. It seeks long term growth potential in market for biomass conversion technologies.

Nordnet wrote about the demerger in their morning briefing on 3rd of January 2014. They have "reduce" recommendation for both Valmet and Metso. At 6,65 euros per share for Valmet they estimated
  • P/S: 0,4
  • P/B: 1,2
  • 2014: P/E 20; EV/EBITDA 6,4
  • 2015: P/E 15 EV/EBITDA 5,4
They think the valuation is challenging short term due to market weakness and fairly high forward P/E valuations. For Metso they estimated:
  • P/E 2014: 14-15
  • EV/EBITDA: below 10
Nordnet stated valuation to be fair, but challenging due to weakness and unclear trajectory of the mining industry, which matters great deal to the new Metso. 

I don't yet have strong opinion on Valmet. I started position in Metso originally mostly because of the businesses that are now part of the "new" Metso. Since these types of transactions usually unlock hidden value, I will give time - maybe 1 year - for Valmet and then see whether it's good idea or not to keep it in our portfolio.

The author holds shares of both Metso and Valmet.

Sources (beyond linked ones):

Friday, January 3, 2014

Portfolio performance 2009-2013

Happy New Year 2014!

It's time to compare the performance of our portfolio in the year 2013 against index investing.

As regular readers know by now, I have chosen MSCI all country world (ACWI) index as our benchmark index. In 2012 we significantly underperformed, but last year we took back the difference and are leading our benchmark investment by a small difference.

Our performance during 2009-2013 has been as follows:

Our portfolio is currently defensive (less risky) and less volatile than the ACWI index. Therefore, it has underperformed in bull market and overperformed in bear market - until 2013. The explanation is our largest position & turnaround bet - Nokia, which gave quite a boost to the overall portfolio by doubling.

Also, Western Digital - which also happens to be one of our largest holdings - rose 100% in dollar terms. Apart from UPM, which is luckily yet another large position, I don't recall above average returns this year. However, these three were enough to boost performance from below average to above average in 2013. Apart from Nokia I haven't been trimming down the winners. Nokia just grew too big within the porfolio. I used the opportunity to offset losses and to grow other promising positions.

Our benchmark index 2009-2013 (based on MSCI All Country World Index; Net; Euros)

I have not calculated our performance during 2007-2008 because we were off the market. During that time and also before that our benchmark index would have been different because the investment objective was different and risk level was much lower.

About the "benchmark investment"

I have chosen to construct my own imaginary benchmark index fund out of MSCI ACWI index instead of choosing one particular index fund that tracks the index. The main reason for this is that I would never invest all our money in any particular fund. I would rather choose several funds managed by several companies that as a whole would track the index close enough. My estimate for average cost level for the benchmark investment is 0.5% per transaction and 0.5% per year.

The index data itself is available via MSCI Barra web site as excel-file at least at the time of writing this post. I use a version of ACWI index which has large and mid cap companies in it. I use it with the following parameters:
- EUR (as in euros)
- Daily (as in daily quotations of the index)
- “Net” (as in “With Net Dividends” that takes into account taxes that you would have to pay before you can reinvest back into the fund. “Gross” option reinvests dividends wholly.)

The benchmark investment is always fully invested into the passive index. Starting balance was invested at end of 2008 to the index. By dividing the money with the value of the index, you get “shares in index”.

About calculating the yearly returns

The yearly return of the index and the "benchmark investment" will be different due to addition of money into the brokerage accounts during the year. The yearly returns are simply calculated as
[balance at end of year N] - [(balance at end of year N-1) + (additions to brokerage accounts during the year N)] / [(balance at end of year N-1) + (additions to brokerage accounts during the year N)]