Saturday 2 November 2013

Summary of October 2013

Contrarian stocks October 2013

Life wise October was a hard month like I suspected it to be especially since I went a bit overboard with the money transfer to my stock account. This month I was more cautious and I only transferred a little bit more then what is needed for being able to make a ~1000 € monthly investment in stocks. I therefore transferred 350 €. This will on the other hand make November interesting because then I must try to bring in almost the entire amount of 1000 € so we shall see! I think it will be possible especially since I will hopefully step up to a more normal salary again and with the slight change in lifestyle that I have done over the last couple of months I do not see it as impossible to accomplish just hard.

My stocks have jumped here and there. A big dive happened especially for Kernel due to the yearly report that came out very recently. I will try to give a summary of that shortly and since it is the annual report I will then also update the analysis with the new values included.

contrarian stocks October 2013

In the above pie chart which represents the money I have invested in stocks only a small change has occurred and that was the addition of some more K+S. The value invested is around 32,406 €. It starts to be plenty of little cake pieces so I should probably focus on increasing more in stocks that I already own just like I did now with K+S.

The current value of the portfolio is down to a total value of 29113 € (-10.2%). The value of my stocks have improved by 3.6% since last month which is pretty good but I am still far behind DAX that are now up over 9000 points which means an increase of 30% since the comparison started and 3.7% since last month. If I would have pushed everything into DAX I would have had slightly more money but on the other hand the value I would have bought the index fund for would not have been the same as that starting value since I would have bought each month so also that would have been worse then what it looks like.

In the graph above you can see my development and the development of the DAX index. I think it is good for me to see this each month to get a grasp of how bad I am as an investor. A cold shower every now and then does not hurt and I am still not worried about any of investments. Well... I am worried about Associated British Foods since it starts to have a scary high P/E value and I do not want to sell it.

For the full portfolio report please go here and if you have suggestions for stocks that I should analyse then please go here. If you do write a comment then it will not appear directly because I always screen it first and as soon as I have done that it will be published.


PoomK said...

From my quick look at your portfolio, it seems like you're sensitive to PE and PB ratios. Which made your portfolio ends up with 3 types of stocks.

1. One-time-gain stocks: The business had profit which occurs only once. This makes PE lower than reality if you're not careful with the calculation.

2. Electricity-provider stocks: This kind of business usually has low PE in nature. The reason is that each business unit (e.g. a power plant) has limited life-time. At a certain point of time, the revenue generated from a business unit will be reduced to zero. That means the "E" of PE will decrease if no new investment is made (e.g. E.ON will stop nuclear power plants by 2022). And since the investment in a power plant is too much to pay in cash, the company has to borrow it from bank. In the end the company is limited by it's debt ratio, and cannot make a substantial growth (e.g. E.ON has D/E ≃ 3).

3. Banking stocks: Banks perform best when the economic is doing well. People go to bank, and lend banks some money, some borrow money and invest in their business. Then they pay banks interests. But when the economic is in trouble (remember the Greece's debt crisis?), the borrowers may not be able to pay back the money. This ends in defaults or re-financing. If things like this happen once, the bank may risk bankrupt, because it cannot find enough money to return to the lenders of the bank (citizen like me and you).

Insurance company is also a kind of banking companies. People buy insurances and expect something from the company in long-term. The insurance company invests customers' money to a "safe" assets, such as government bonds.

Now what if a government, like Greece's, defaults? The customer money will be all gone, and the insurance company will have to bare huge losses. So, be careful with this kind of business.

See the profits of Münchener Rück, Deutsche Bank, Commerzbank during European debt crisis 2010-2011, you'll get the idea.

So to summarize; I won't say that theses 3 types of stocks are bad. But I'd say it is necessary to know the nature of the company you're investing in. Once you know it and take it into consideration, the downside-risk will be reduced.

PS. Be extremely careful with Chinese companies registered in Europe. I'm not even sure if the company really exists or it's just playing with numbers.

Fredrik von Oberhausen said...

Thank you for your excellent comment Poom K.!

I start from the back and work my way up. Sorry for the late reply but it started to become very long so I did not manage to reply to you directly.
Chinese companies can indeed be dangerous and I thought it over several times before I stepped into Asian Bamboo. Back then I was looking at two different Chinese companies one is in retail and is called Kinghero and the other one was Asian Bamboo. I contacted Kinghero and asked them if I could get more clear addresses to the shops because I could not find a single one of them on Google maps besides from their head quarter. They never replied back to me so then they were directly out. Asian bamboo has as CFO from my hometown so I talked to him directly and I got no bad feeling which of course could be wrong since one never knows but he left a competent impression on me. I also liked that the founder owned his shares directly (a company on the virgin islands though...) on the Asian Bamboo AG in Germany and not over some strange companies in Hong Kong or in mainland China which is sometimes the case and cuts out the German shareholders in an odd way. I agree one must be very careful with companies in China and I might have made a mistake there... future will tell. This year has been very bad for them and they claim to have had problems to find people for harvesting the bamboo if that is correct they have at least tried to correct their problem and that is for me always a first step. The founder (over his investment company) also bought plenty of stocks (0.5% of total) back in June/July this year so he found it to be cheap and was buying plenty. Future will tell.

Bank stocks are excellent in my opinion and I would have loved if I would have been on the stock market back in 2009 and bought as many of them as possible. There are still good possibilities out there such as in my opinion both Deutsche Bank and Commerzbank here in Germany. Also many other European countries have very nice banks. The banks in Sweden are close to normal valuation, the banks in Denmark have jumped up like crazy in the last nine months and I think we will see more of this in all the European areas. Part of the problem is the low interest rates and that classical banking generate very little money and both Commerzbank as well as Deutsche bank went heavy into that before as well as after the start of the crisis. Commerzbank took over Dresdner bank which almost made them go belly up but they also became the second largest bank in Germany with plenty of private customers. Deutsche bank took over Post bank and managed to remain the top bank for private people in Germany. Once the interest rates go up DB but especially Commerzbank will start to make money again.

The contrarian way is to look at the P/E, P/B, P/CF or dividends. David Dreman to my knowledge went through the development of each and every one of those four key figures and P/E was the one performing best over time which is why I ended up focusing on P/E, P/B and I like dividend so I try to bring in that also. He might be very wrong and I might be stupid to follow the strategy but I want to try it out.

Fredrik von Oberhausen said...

A long time ago Sweden was supposed to have stopped their power plants also. In the end one was closed down and the other still runs. The politicians tend to place the timeline in a period when they do not expect themselves to be in power any longer. This means that it is free for the next politicians to take a new decision concerning the matter and usually that also happens. The one power plant that was closed down in Sweden the Swedish taxpayer was forced to pay plenty of money to close it down it is not easy in democracies today to force private companies to do things. It always comes with a price tag and the seller demands the price. So I am not too concerned with E.On and Enel for that matter they pay good dividends, will survive what comes and as soon as inflation takes off a little in Europe again their chance of increasing prices also arrive. Just like banks with plenty of private customers live on the interest rate utility companies are living on inflation for pushing their prices higher.

I would prefer to divide my stocks differently and will base it on what I bought them as well as what I consider them to be today. Some will be in many categories but the * indicates for which category I mainly bought the stock:

Deutsche Bank
Asian Bamboo

Out of Favour
Deutsche Bank*
Asian Bamboo

Asian Bamboo*
Associated B.F.*


I guess it automatically becomes plenty of turnarounds and out of favour stocks with looking very strictly at the P/E like I do but that is the contrarian path I have chosen as of yet and in one or two years from now maybe my skill have increased and I will pick stock completely differently then it will be fun to look back on this blog to see all the stupid decisions I took.