I use a service provided by Valuatum.com 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 United Bankers (3,3)
#2 Orava Asuntorahasto (3,2)
#3 Taaleritehdas (3,1)
#4 eQ (2,6)
#5 Technopolis (2,5)
>#6 Citycon (2,4)
>#7 TeliaSonera (2,4)
#8 Sponda (2,3)
#9 Revenio Group (2,2)
#10 Raute (2,1)
#11 Okmetic (2,1)
#12 Ponsse (2,1)
#13 Keskisuomalainen (2,0)
#14 Orion (2,0)
#15 Sampo (1,9)
#16 Aspo (1,9)
>#17 Metso (1,9)
>#18 Siili Solutions (1,9)
#19 Restamax (1,8)
#20 Yleiselektroniikka (1,8)
...
>#27 UPM (1,6)
>#28 Fortum (1,6)
>#80 Nokia (0,9)
...
Average Score of all companies in the research database: 1,3
Average Score of our positions: 1,8
Median Score 1,2
Our positions that have higher score than median: 6 out of 7
Worst Score 0,2 (#108 Talenom)
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.
Sunday, December 13, 2015
Friday, December 4, 2015
Exit from Volkswagen
Exited Volkswagen position after some 25% gain in few months.
I realized that we have way too many positions now waiting for better days:
Micron, TeliaSonera, Fortum, oil & mining sector stocks, ..
Even our long time Western Digital position has taken a real beating this year.
Money from Volkswagen will be put into some of our existing positions which continue to be on levels I view as "bargain pricing".
Haven't yet figured which ones. Probably need to look how to hedge the bets evenly - from the viewpoint of sector and individual stock allocation.
I realized that we have way too many positions now waiting for better days:
Micron, TeliaSonera, Fortum, oil & mining sector stocks, ..
Even our long time Western Digital position has taken a real beating this year.
Money from Volkswagen will be put into some of our existing positions which continue to be on levels I view as "bargain pricing".
Haven't yet figured which ones. Probably need to look how to hedge the bets evenly - from the viewpoint of sector and individual stock allocation.
Wednesday, October 21, 2015
Thoughts on Western Digital's acquisition of Sandisk
Consolidation in memory/storage space continues with Western Digital (WDC) acquiring Sandisk (SNDK).
It's not surprising to me that Western Digital is making the move instead of Seagate.
One of the reasons I originally selected Western Digital (instead of Seagate) was the fact that they used far less leverage (debt). This kind of deal would have more difficult for Seagate.
Flipping through the the presentation on this deal, the following stands out:
As there has been consolidation in all these spaces, the remaining companies have good position to extract profits from growth of data as barrier of entry to these markets is high.
It's not surprising to me that Western Digital is making the move instead of Seagate.
One of the reasons I originally selected Western Digital (instead of Seagate) was the fact that they used far less leverage (debt). This kind of deal would have more difficult for Seagate.
Flipping through the the presentation on this deal, the following stands out:
- Very little dilution to Western Digital stockholders (almost entirely cash deal financed via taking more debt)
- Complementary portfolios: Western Digital+Sandisk will have widest ranging storage portfolio out of all other companies.
- Combined company will have significant patent portfolio and R&D units
- Addressable market doubles
As there has been consolidation in all these spaces, the remaining companies have good position to extract profits from growth of data as barrier of entry to these markets is high.
Sunday, October 11, 2015
Update on portfolio allocations
Due to recent changes in portfolio I decided to post an update about our allocations.
Our portfolio is currently allocated as follows:
Stocks 96,2%
Gold 1,9%
Cash 1,9%
No bonds.
I simply substitute bonds with quality dividend payers in our portfolio.
Geographical Allocation (stocks):
Europe 61,4%
North America 28,7%
Emerging markets 10,0%
Actually, place of incorporation is pretty meaningless for most corporations we have invested in.
Most operate and sell globally.
Sector Allocation (stocks):
Information Technology 36,2%
Oil & Gas Production 11,9%
Low Emission Power Generation 10,3%
Forest Industry 6,3% (from now on separated from "Other" category)
Communication Service Providers 6,2%
Health Care 5,7%
Mining & Exploration 5,7%
Metal Industry 5,5% (from now on separated from "Other" category)
Other 12,2%
Top 5 positions:
Company/ETF (place of incorporation -- sector) allocation%
Siili Solutions (Finland -- IT) 10,7%
Fortum (Finland -- Power Generation) 9,9%
Western Digital (USA -- IT) 7,2%
UPM (Finland -- Forest Industry) 6,1%
Nokia (Finland -- IT) 5,9%
23,3% of all stock positions are done via ETFs.
None of those positions made it to top 5 though.
Our portfolio is currently allocated as follows:
Stocks 96,2%
Gold 1,9%
Cash 1,9%
No bonds.
I simply substitute bonds with quality dividend payers in our portfolio.
Geographical Allocation (stocks):
Europe 61,4%
North America 28,7%
Emerging markets 10,0%
Actually, place of incorporation is pretty meaningless for most corporations we have invested in.
Most operate and sell globally.
Sector Allocation (stocks):
Information Technology 36,2%
Oil & Gas Production 11,9%
Low Emission Power Generation 10,3%
Forest Industry 6,3% (from now on separated from "Other" category)
Communication Service Providers 6,2%
Health Care 5,7%
Mining & Exploration 5,7%
Metal Industry 5,5% (from now on separated from "Other" category)
Other 12,2%
Top 5 positions:
Company/ETF (place of incorporation -- sector) allocation%
Siili Solutions (Finland -- IT) 10,7%
Fortum (Finland -- Power Generation) 9,9%
Western Digital (USA -- IT) 7,2%
UPM (Finland -- Forest Industry) 6,1%
Nokia (Finland -- IT) 5,9%
23,3% of all stock positions are done via ETFs.
None of those positions made it to top 5 though.
Monday, September 28, 2015
Changes to portfolio
Crazy times in market...
That can be viewed also as an opportunity to make changes.
- And change we did.
I have made a few changes recently to our portfolio that are significant enough to be mentioned:
Sold:
Which one stands out?
That's right... Volkswagen. Well, that's purely opportunistic position in a stock that I have once considered, but didn't buy at the time. I don't think we would be in there without the huge 40% drop following the emission scandal. Only time will tell how good or bad time this was to enter.
Otherwise this change is about shifting money from IT to other focus segments of ours: Oil & Gas, Health Care and Mining sectors.
That can be viewed also as an opportunity to make changes.
- And change we did.
I have made a few changes recently to our portfolio that are significant enough to be mentioned:
Sold:
- Cisco Systems (USA)
- Microsoft (USA)
- Volkswagen (Germany)
- Market Vectors Oil Services ETF (NYSE: OIH)
- Vanguard Health Care ETF (NYSE: VHT)
- Chevron (USA)
- Statoil (Norway)
- iShares MSCI Global Select Metals & Mining Producers (NYSE: PICK)
Which one stands out?
That's right... Volkswagen. Well, that's purely opportunistic position in a stock that I have once considered, but didn't buy at the time. I don't think we would be in there without the huge 40% drop following the emission scandal. Only time will tell how good or bad time this was to enter.
Otherwise this change is about shifting money from IT to other focus segments of ours: Oil & Gas, Health Care and Mining sectors.
Sunday, September 6, 2015
Two positions above 10% of portfolio
Due to recent wild swings in the market and our portfolio allocation changes, we have now two companies that have above 10% share in portfolio.
These are Fortum (Finland) and Siili Solutions (Finland).
My most recent posts about these companies here (Fortum) and here (Siili Solutions).
Overall, this year has potential to turn out as our worst year vs. benchmark, but we have still roughtly 4 months to go, so let's see.
These are Fortum (Finland) and Siili Solutions (Finland).
My most recent posts about these companies here (Fortum) and here (Siili Solutions).
Overall, this year has potential to turn out as our worst year vs. benchmark, but we have still roughtly 4 months to go, so let's see.
Friday, July 24, 2015
Increased stakes in Fortum
I have more than doubled our position in Fortum lately because I think it is now very attractively valued.
My seven reasons for holding Fortum have not changed much in two years.
The reason #7 has now realized and hidden value has been unlocked. Fortum now has liquid funds worth 8,6 billion EUR after the divertments of Finnish and Swedish power distribution businesses.
At 15,50 EUR per share it has market cap of only 13,8 billion EUR.
According to fund manager Anders Oldenburg, the hydroelectric power plants that Fortum have are alone worth 15–17 billion EUR.
Add that and the liquid funds together and you start to see the picture.
Market seems to value the company very much differently. There are short term headwinds with low price of electricity and market likely is hypersensitive with the business in Russia.
While it's entirely possible that the stock will continue to go south, one gets paid reasonably well for waiting for "better days". The "usual" dividend from Fortum has been 1,1 EUR (7,1% yield @15,50 EUR). On average analysts seem to expect 1,26 EUR next time.
My seven reasons for holding Fortum have not changed much in two years.
The reason #7 has now realized and hidden value has been unlocked. Fortum now has liquid funds worth 8,6 billion EUR after the divertments of Finnish and Swedish power distribution businesses.
At 15,50 EUR per share it has market cap of only 13,8 billion EUR.
According to fund manager Anders Oldenburg, the hydroelectric power plants that Fortum have are alone worth 15–17 billion EUR.
Add that and the liquid funds together and you start to see the picture.
Market seems to value the company very much differently. There are short term headwinds with low price of electricity and market likely is hypersensitive with the business in Russia.
While it's entirely possible that the stock will continue to go south, one gets paid reasonably well for waiting for "better days". The "usual" dividend from Fortum has been 1,1 EUR (7,1% yield @15,50 EUR). On average analysts seem to expect 1,26 EUR next time.
Saturday, July 18, 2015
Sold Orion
Even though I like Orion as a company, the price climbed recently too high to make sense to me.
There are other companies in Finland of same quality, with higher dividend yield, better future prospects and more reasonable valuation.
It seems that many companies in pharmaceutical sector are valued high (P/E > 25) - just like Orion was when I sold it. It seems bit challenging given the headwinds most companies need to face with blockbuster drugs going out of patent protection.
There are other companies in Finland of same quality, with higher dividend yield, better future prospects and more reasonable valuation.
It seems that many companies in pharmaceutical sector are valued high (P/E > 25) - just like Orion was when I sold it. It seems bit challenging given the headwinds most companies need to face with blockbuster drugs going out of patent protection.
Thursday, July 2, 2015
Portfolio update: Allocations and Top 5 positions
It has bee quite a ride in the markets past 6 months. First 4 months most of our stocks were performing really nicely. In the last two months aggregate gains have been almost wiped out.
Our portfolio is currently allocated as follows:
Stocks 98,0%
Gold 1,9%
Cash 0,1%
No bonds.
I simply substitute bonds with quality dividend payers in our portfolio.
Geographical Allocation (stocks):
Europe 54,5%
North America 33,6%
Emerging markets 11,9%
Actually, place of incorporation is pretty meaningless for most corporations we have invested in. Most operate and sell globally.
Sector Allocation (stocks):
Information Technology 44,6%
Other 21,8%
Health Care 8,8%
Oil & Gas Production 8,4%
Communication Service Providers 6,6%
Low Emission Power Generation 5,8%
Mining & Exploration 4,0%
Top 5 positions:
Company/ETF (place of incorporation -- sector) allocation%
Siili Solutions (Finland -- IT) 9,2%
Western Digital (USA -- IT) 6,8%
UPM (Finland -- Other) 6,4%
Micron (USA -- IT) 6,1%
Nokia (Finland -- IT) 5,9%
21,1% of all stock positions are done via ETFs.
None of those positions made it to top 5 though.
Our portfolio is currently allocated as follows:
Stocks 98,0%
Gold 1,9%
Cash 0,1%
No bonds.
I simply substitute bonds with quality dividend payers in our portfolio.
Geographical Allocation (stocks):
Europe 54,5%
North America 33,6%
Emerging markets 11,9%
Actually, place of incorporation is pretty meaningless for most corporations we have invested in. Most operate and sell globally.
Sector Allocation (stocks):
Information Technology 44,6%
Other 21,8%
Health Care 8,8%
Oil & Gas Production 8,4%
Communication Service Providers 6,6%
Low Emission Power Generation 5,8%
Mining & Exploration 4,0%
Top 5 positions:
Company/ETF (place of incorporation -- sector) allocation%
Siili Solutions (Finland -- IT) 9,2%
Western Digital (USA -- IT) 6,8%
UPM (Finland -- Other) 6,4%
Micron (USA -- IT) 6,1%
Nokia (Finland -- IT) 5,9%
21,1% of all stock positions are done via ETFs.
None of those positions made it to top 5 though.
Wednesday, June 24, 2015
Added Micron to portfolio
I recently added Micron to our portfolio. General thesis behind that stock is the same as with Western Digital: amount of data in the world is growing exponentially and will keep on doing that for many years to come.
All that data will be stored on the fly to volatile memory and then for permanent storage to hard disk drive or non-volatile memory (solid state drive or non-volatile memory chips inside device). Micron makes both memory chips (of volatile and non-volatile kind) as well as solid state drives (which essentially come down to bunch of non-volatile memory chips).
The amount of memory chip manufacturers have come down over the years similarly to hard disk drive providers. This should make the overall playing field more healthy as there are less players going for crazy price points at expense of profitability.
It can be also foreseen that every major step in technical advance will increase the "moat" of dominant players i.e. create barrier of entry and makes sure only the very big ones can stay on the leading edge. As with all technology, most profits are made on that edge.
There are many things that have pointed to Micron as a potentially good position. Micron has popped up in my screens as value play. Intel and Micron are collaborating on 3D NAND Flash memory technology, which may get them market share boost in this space.
What also has caught my eye is that David Einhorn has a very big position in Micron (he is one of the value oriented money managers I follow).
Finally, Micron serves as hedge to our position in Western Digital. Transition to solid state drives has not been as fast as many predicted years ago, but it's there as a trend and threat to hard disk drive manufacturers.
--
We have positions in Micron, Western Digital and Intel.
All that data will be stored on the fly to volatile memory and then for permanent storage to hard disk drive or non-volatile memory (solid state drive or non-volatile memory chips inside device). Micron makes both memory chips (of volatile and non-volatile kind) as well as solid state drives (which essentially come down to bunch of non-volatile memory chips).
The amount of memory chip manufacturers have come down over the years similarly to hard disk drive providers. This should make the overall playing field more healthy as there are less players going for crazy price points at expense of profitability.
It can be also foreseen that every major step in technical advance will increase the "moat" of dominant players i.e. create barrier of entry and makes sure only the very big ones can stay on the leading edge. As with all technology, most profits are made on that edge.
There are many things that have pointed to Micron as a potentially good position. Micron has popped up in my screens as value play. Intel and Micron are collaborating on 3D NAND Flash memory technology, which may get them market share boost in this space.
What also has caught my eye is that David Einhorn has a very big position in Micron (he is one of the value oriented money managers I follow).
Finally, Micron serves as hedge to our position in Western Digital. Transition to solid state drives has not been as fast as many predicted years ago, but it's there as a trend and threat to hard disk drive manufacturers.
--
We have positions in Micron, Western Digital and Intel.
Tuesday, June 2, 2015
Which stocks famous money managers hold?
Dataroma tracks famous value oriented money managers that they call "superinvestors". Among them are legendary investors like Warren Buffett.
I regularly take a look what they hold, what they have bought and what let go.
An interesting question with regards to these money managers is that given they park billions, how far they deviate from index investing?
Top 20 by ownership count was as follows:
I included two more stocks into the list since Google and Berkshire is there twice with different classes of shares.
Obviously they have to select big corporations because of the amount of money they need to put into a single position.
However, the companies are not in the order that you would expect in terms of market cap. The order will change a bit if you look at amount of aggregate money in these positions, but the conclusion does not. They are still not in the order of market cap.
There are three companies with market cap below 100 billion USD: Liberty Global Inc., AIG and American Express. Very many big names with much larger market cap are not in the list: Wal-Mart, Facebook, Pfizer, P&G, Verizon, Amazon, Chevron etc.
To me it seems that atleast these money managers as aggregate deviate what could be called "index investing".
Overall, the "superinvestors" seem to prefer technology and financial sectors. Also, they clearly prefer corporations based in USA rather than elsewhere in the world - even if those would be listed in the NYSE or NASDAQ.
I regularly take a look what they hold, what they have bought and what let go.
An interesting question with regards to these money managers is that given they park billions, how far they deviate from index investing?
Top 20 by ownership count was as follows:
Obviously they have to select big corporations because of the amount of money they need to put into a single position.
However, the companies are not in the order that you would expect in terms of market cap. The order will change a bit if you look at amount of aggregate money in these positions, but the conclusion does not. They are still not in the order of market cap.
There are three companies with market cap below 100 billion USD: Liberty Global Inc., AIG and American Express. Very many big names with much larger market cap are not in the list: Wal-Mart, Facebook, Pfizer, P&G, Verizon, Amazon, Chevron etc.
To me it seems that atleast these money managers as aggregate deviate what could be called "index investing".
Overall, the "superinvestors" seem to prefer technology and financial sectors. Also, they clearly prefer corporations based in USA rather than elsewhere in the world - even if those would be listed in the NYSE or NASDAQ.
Friday, May 1, 2015
Helsinki Top 20
I use a service provided by Valuatum.com 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.
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..
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.
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!
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.
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.
Wednesday, January 7, 2015
Portfolio performance 2009-2014
It's time to compare the performance of our portfolio in the year 2014 against passive index investing.
Our "benchmark investment" is an imaginary passive ETF that closely tracks the performance of MSCI all country world (ACWI) index in euros.
In 2012 we significantly underperformed, in 2013 we significantly overperformed and last year we lost a bit to the benchmark. Overall, we are a bit ahead in terms of performance.
Our performance during 2009-2014 has been as follows:
I have made changes to how "benchmark investment" is calculated and this reflects in performance of all the years (in case you compare to my previous "portfolio performace" articles). Over the years I have also corrected some minor errors in the spreadsheets.
Our portfolio has been more defensive (less risky) and less volatile than the ACWI index. Therefore, it has underperformed in bull market and overperformed in bear market - except for 2013 where our big turnaround bet to Nokia paid off and we also got above market gains from Western Digital and UPM.
During 2014 it looked like we may beat our benchmark by wide margin. Especially our U.S picks from the IT sector delivered above average gains (Western Digital, Intel, Microsoft, Cisco Systems) and overall things were progressing very nicely - until last quarter.
Euro declined from 1,3791 to 1,2141 U.S. dollars (-11,96%) during 2014. Our portfolio is much more tilted to Europe and Eurozone than the ACWI index where U.S dollar exposure is currently 52% (source: XTF). This was likely the most serious headwind for us in 2014. Also, our oil sector positions - especially Fred Olsen Energy - did very badly in the latter part of 2014. Mining sector wasn't doing that good either.
Generally, our european positions - outside of the sectors that did very badly - didn't help the race by producing above average gains - apart from Orion. However, most of our european positions pay out above average dividends compared to what ACWI index funds pay out. Long term that will matter and limits the downside risks.
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 15EUR + 0.5% per transaction and 0,48% tracking difference per year. The latter is estimated to be 1,6 times Total Expsense Ratio that in turn is estimated to be 0,30%.
Also, I am taking into account paid taxes. The ones that we have paid for real and the ones we would have paid if we would just buy and hold the benchmark investment instead. In Finland, gains of ETFs and stocks are treated the same. There is, however, difference in how payouts are treated. Tax rate for dividends from stocks is lower. That is actually one reason, why we have much more direct investments to stocks than money parked in passive ETFs. Over time, even small differences matter a great deal.
To take into account taxes that would have been paid by us, our benchmark investment gets penalty of 0,60% per year. This is assuming that in reality it would pay out roughly 2% yearly dividend which would be taxed at 30% in Finland before we could invest money back into the fund.
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 an insitutional investor or fund would have to pay to various countries where they have holdings)
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 if more money is added into the brokerage accounts during the year. To take that into account, the yearly returns are 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)]
Background materials:
For the changes done this time around, I actually browsed through quite a bit of materials. Best are linked here.
About MSCI index calculation methodology
About tracking difference and "hidden costs" that are not explained by Total Expense Ratio (TER):
Our "benchmark investment" is an imaginary passive ETF that closely tracks the performance of MSCI all country world (ACWI) index in euros.
In 2012 we significantly underperformed, in 2013 we significantly overperformed and last year we lost a bit to the benchmark. Overall, we are a bit ahead in terms of performance.
Our performance during 2009-2014 has been as follows:
I have made changes to how "benchmark investment" is calculated and this reflects in performance of all the years (in case you compare to my previous "portfolio performace" articles). Over the years I have also corrected some minor errors in the spreadsheets.
Our portfolio has been more defensive (less risky) and less volatile than the ACWI index. Therefore, it has underperformed in bull market and overperformed in bear market - except for 2013 where our big turnaround bet to Nokia paid off and we also got above market gains from Western Digital and UPM.
During 2014 it looked like we may beat our benchmark by wide margin. Especially our U.S picks from the IT sector delivered above average gains (Western Digital, Intel, Microsoft, Cisco Systems) and overall things were progressing very nicely - until last quarter.
Euro declined from 1,3791 to 1,2141 U.S. dollars (-11,96%) during 2014. Our portfolio is much more tilted to Europe and Eurozone than the ACWI index where U.S dollar exposure is currently 52% (source: XTF). This was likely the most serious headwind for us in 2014. Also, our oil sector positions - especially Fred Olsen Energy - did very badly in the latter part of 2014. Mining sector wasn't doing that good either.
Generally, our european positions - outside of the sectors that did very badly - didn't help the race by producing above average gains - apart from Orion. However, most of our european positions pay out above average dividends compared to what ACWI index funds pay out. Long term that will matter and limits the downside risks.
Our benchmark index 2009-2014 (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 15EUR + 0.5% per transaction and 0,48% tracking difference per year. The latter is estimated to be 1,6 times Total Expsense Ratio that in turn is estimated to be 0,30%.
Also, I am taking into account paid taxes. The ones that we have paid for real and the ones we would have paid if we would just buy and hold the benchmark investment instead. In Finland, gains of ETFs and stocks are treated the same. There is, however, difference in how payouts are treated. Tax rate for dividends from stocks is lower. That is actually one reason, why we have much more direct investments to stocks than money parked in passive ETFs. Over time, even small differences matter a great deal.
To take into account taxes that would have been paid by us, our benchmark investment gets penalty of 0,60% per year. This is assuming that in reality it would pay out roughly 2% yearly dividend which would be taxed at 30% in Finland before we could invest money back into the fund.
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 an insitutional investor or fund would have to pay to various countries where they have holdings)
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 if more money is added into the brokerage accounts during the year. To take that into account, the yearly returns are 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)]
Background materials:
For the changes done this time around, I actually browsed through quite a bit of materials. Best are linked here.
About MSCI index calculation methodology
About tracking difference and "hidden costs" that are not explained by Total Expense Ratio (TER):
Thursday, January 1, 2015
Portfolio update: Allocations and Top 5 positions
Happy New Year 2015 !!
At the beginnig of each year I have two tasks to complete regarding investments: document our portfolio allocation and compare how we did last year against our bechmark.
The latter requires quite many excel drills so I will start with the easier one.
Our portfolio is currently allocated as follows:
Stocks 97,8%
Gold 2,1%
Cash 0,1%
No bonds.
I simply substitute bonds with quality dividend payers in our portfolio.
Geographical Allocation (stocks):
Europe 55,8%
North America 33,2%
Emerging markets 11,0%
Actually, place of incorporation is pretty meaningless for most corporations we have invested in. Most operate and sell globally.
Sector Allocation (stocks):
Information Technology 43,6%
Other 20,2%
Oil & Gas Production 9,3%
Health Care 8,1%
Communication Service Providers 7,3%
Low Emission Power Generation 7,0%
Mining & Exploration 4,5%
Top 5 positions:
Company/ETF (sector) allocation%
Western Digital (IT) 10,0%
Siili Solutions (IT) 8,2%
Nokia (IT) 7,2%
UPM (Other) 6,4%
Intel (IT) 5,9%
20,8% of all stock positions are done via ETFs.
None of those positions made it to top 5 this year.
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