Wednesday 9 July 2014

Personalized Index Fund A: July 2014

DAX, PIF A, one year

As can be seen in the graph above DAX did continue to beat PIF A for the entire year and we ended up with DAX being 26.46% up while the Personalized Index Fund A only increased with 18.90% (which is still around 25% better than what I accomplish with my stocks).

PIF A is the fund that was started by buying every company on DAX and based on the result from the last one year the five worst one we invested 2,500 € into. The five best performing once we invested 1,500 € into and all the other 20 shares on the DAX we invested 2,000 € into. It is extremely boring, mechanical and has nothing to do with value investing since it is purely based on share price performance. This means that I really want this fund to perform as poorly as possible (still it is sad to see that it is beating me...). For the previous article concerning this fund please see Personalized Index Fund A - March 2014.

This fund was re-balanced based on the performance of the companies during the last year. This means that the five best performing shares we sold off down to a value of around 1,500 € left and the money that came out from the sales were re-distributed evenly into the five worst performing shares during the last year.

So due to good performance this mean that we sold off:

Osram Light (which was a spin off from Siemens that we received some shares in)
Continental (analysis of Continental 2014)
Daimler (analysis of Daimler 2014)
Deutsche Post (analysis of Deutsche Post 2014)
Infineon (analysis of Infineon 2014)
ThyssenKrupp (analysis of ThyssenKrupp 2014)

And we bought more of:

FMC (analysis of FMC 2014)
K+S (analysis of K+S 2014)
Lanxess (analysis of Lanxess 2014)
RWE (analysis of RWE 2014)
SAP (analysis of SAP 2014)

I collected all the share prices of the DAX companies on the 22nd of May and from then the changes to the fund were made.

The development up until todays date with the rebalancing can be seen in the graph below and it continues in a fashion that I like very much. DAX keep beating it! Not by much but still enough to give me some peace of mind.

DAX, PIF A, July, 2014

Conclusion: During the first year DAX definitely beat PIF A and this is good news! The start in the new year is also looking good


Dividend Life said...

Hi Fredrik,
Could you explain your objective behind the PIF.A fund? I'm not sure I understand why you want it to be beaten by the DAX index.

I'm enjoying reading your stock analyses although I tend to stay with US company stocks. I have worked for Continental in Germany, so it was interesting reading about that too!

Thanks and best wishes,

Fredrik von Oberhausen said...

Hi DL,

I currently run three imaginary funds that I call PIF A, PIF B and PIF C. The reason why I started them is because of my rule that if I do not beat DAX in five years then I must start to invest in "funds" instead of individual stocks and this is to build up a feeling for mechanically run "funds".

The reason why I want PIF A to fail is because it is purely based on the movement of the share price (during the last year) and has nothing to do with the value of the company and how contrarian they might currently be in terms of P/E, P/B, dividends payments etc.

So PIF A is what one could call a speculative fund with a small contrarian twist since I buy more shares in companies that have share price wise performed badly.

PIF B is based on a calculation of the ten best companies on DAX when looking at P/E, P/B and dividends.

PIF C is PIF B with the addition of also looking at the ROE value.

Continental has had a great journey since the crash! Was it a good company to work for?
As an example I bought my Intel shares based on employee satisfaction and that has served me pretty ok until now.

There are still fairly valued companies in the US so it makes sense to keep investing there but it is good that you keep your eyes open to other markets!

I kind of like the dividend strategy besides from one aspect of it and that is the selling of companies when then dividend payments are decreased or even kept at the same level a year. I think that leads to unnecessary amount of trading and trading fees that almost always follow.

Do you sell the companies directly when the dividend is changed?

Dividend Life said...

Hi Fredrik,

Thanks your explanation makes sense. So if you were forced to consider the fund approach, you're evaluating what technique might work best.

I actually did a comparison of my stock performance and how it compared to buying a low expense fund using the same purchase amount at the same time. Both funds I compared against beat my portfolio. The results are on my blog if you're interested.

Conti was a pretty good company on the whole; although the division I worked in was quite fractured politically and geographically and I don't know if things have improved since. This was ~5 years ago now.

That's a good point about employee satisfaction. I've certainly used for reviewing comments from the company's employees in some cases when I've done stock research but I should be more systematic about it.

I would not automatically sell a company that cut or froze a dividend. Some US companies increase the dividend every other year to show an annual growth...technically you could say it's a freeze but overall it's still higher dividends on a yearly basis. But I'd be watching that stock carefully and likely not purchase more of it until it had resumed regular increases for a while.

I did sell a stock today but not from dividend increases. It was stock I bought more on emotion and while it did well (nearly double in price), it didn't meet my criteria so I'm replacing it with something else.

Best wishes,

Fredrik von Oberhausen said...

Hahaha DL, glassdoor was exactly what I used to find Intel.

I read your article about your sale of Delta. In my opinion a good move of you!

There was a Canadian dividend investor woman that did exactly that. She sold the companies when the dividend dropped due to share price increases.

Dividend Life said...

Hi Fredrik,

Yes glassdoor is a useful site - for my last job interview I was able to research questions that I would be asked. Many of them came up in the interview so it was very helpful :)

Thanks for the support on the delta sale - I really don't like to sell.

That's interesting about the Canadian investor. The low yield due to high price wasn't a factor in my decision since the yield I was actually receiving is the Yield On Cost. But even my YOC of 1.3% was pretty low and I couldn't see Delta growing it very fast.

I appreciate your insights, thank you! :)