This is the editorial of our monthly Quant Value Investment Newsletter published on 04.06.2024. Sign up here to get it in your inbox the first Tuesday of every month.
More information about the newsletter can be found here: This is how we select ideas for the Quant Value investment newsletter
This month you can read why world regions behave differently and why we may have no recommendations in a region even if the market is above its 200-day simple moving average.
But first the portfolio updates.
Portfolio Changes
Europe – Buy Two – Hold One – Sell Two
Two new recommendations this month as the index is above its 200-day simple moving average.
The first is a GBP 940m fast-growing UK geotechnical contractor trading at Price to Earnings ratio of 10.5, Price to Free Cash Flow of 9.1, EV to EBIT of 7.0, EV to Free Cash Flow of 11.5, Price to Book of 1.8 and paying a dividend of 3.0%.
The second is a €420m debt free Belgium-based lingerie manufacturer trading at Price to Earnings ratio of 12.6, Price to Free Cash Flow of 10.3, EV to EBIT of 8.2, EV to Free Cash Flow of 9.1, Price to Book of 2.6, with a dividend yield of 6.9%.
Hold One
Continue to hold Strabag SE +41.9% (recommended June 2021) as it still meets the portfolio’s selection criteria.
Sell One
Sell Rexel SA at a profit of +46.8% as it no longer meets the portfolio’s selection criteria.
Stop Loss
Sell Huuuge, Inc. at a small loss of -7.3%
North America – Buy One – Sell One
One new recommendation this month as the index is above its 200-day simple moving average.
The company is a CAD 1.1bn Canadian broadcast and film industry soft and hardware developer trading at Price to Earnings ratio of 15.0, Price to Free Cash Flow of 8.6, EV to EBIT of 9.5, EV to Free Cash Flow of 8.3, Price to Book of 4.3, with a dividend yield of 5.2%.
Stop Loss
Sell Russel Metals Inc., with a small loss of -1.7%
Asia – Buy Two – Sell Two
Two recommendations this month as the index is above its 200-day simple moving average.
The first is a fast growing, debt free HKD 3.3bn (€390m) Hong Kong toy manufacturer trading at Price an Earnings ratio of 4.0, Price to Free Cash Flow of 3.1, EV to EBIT of 2.0, EV to Free Cash Flow of 1.9, Price to Book of 0.9 with a high 10.3% dividend yield.
The second is a fast-growing, JPY12.4bn (€74m) Japanese furniture rental company, currently trading at Price to Earnings ratio of 7.8, Price to Free Cash Flow of 7.9, EV to EBIT of 4.7, EV to Free Cash Flow of 7.3, Price to Book of 1.3 with a 2.4% dividend yield.
Stop Loss
Sell Nishimoto Co., Ltd. at a loss of -12.7%
Sell Mitani Corporation at a loss of -29.9%
Crash Portfolio – Nothing to do
No new Crash Portfolio ideas as most markets have recovered.
To date the 15 Crash Portfolio ideas, recommended between August 2022 and May 2023, are up an average of 37.0%!
Two Good Subscriber Questions
This month you can read my best ideas to two great subscriber questions.
Question #1: Do World Regions Behave Differently
In the Quant Value Newsletter, you give recommendation in three different regions (North America, Europe & Asia) and as I understand it you use the same system for all three regions.
Have you ever made an analysis if the newsletter’s investment strategy works different in different region?
It makes sense to me that different market behaves differently (different culture, different investors, different economy, etc...).
I am curious if you have found differences in effectiveness of the investment strategy in different regions.
And if you take this into consideration when you choose companies you recommend?
Answer #1: Yes, Markets Do Behave Differently
Yes, markets can behave differently based on various factors such as culture, investor behaviour, and economic conditions.
For example, a value investment strategy performed great in Japan last year but did not do well in the USA where momentum (large tech companies) performed best.
And as you know past results don't guarantee future outcomes.
Another example, the US market has performed great over the past 10 years, leaving all other markets worldwide far behind. But this has made it expensive. The question is will this great performance continue or will the rest of the world start beating the US market?
No one knows!
We Know the Strategy Works
However, what we do know is that Quality, Value, Momentum – the strategy we use in the newsletter – has worked over the long term in up and down markets.
Does this mean that it will always beat the best performing market worldwide?
It will not! To do that you have to know which market and what investment strategy will perform best. AND you need to know this one year in advance.
This is impossible to know.
That is why the newsletter is only focused on finding high-quality undervalued momentum companies, wherever we find them.
And the wider we look (North America, Europe, and Asis) the more likely we are to find the best companies that fit the newsletter’s strategy.
Question #2: Why No Recommendations in a Region?
You sometimes give no recommendation in a specific region even if the index is above the 200 simple moving average (SMA). (Reminder: The newsletter only recommends companies in a country if its index is above its 200-day SMA)
What is the reason?
Is it just because no company passes the "check list test" or because of some other reason?
Do you give yourself some free choice that is not as strict as what the system says and what passes the approval checklist?
Does your opinion also play a role?
Answer #2: We Recommend Only the Best Companies
When we recommend an investment idea to you, our only goal is to find the most undervalued, quality momentum company available. The absence of recommendations in a region, like the US, is due to better opportunities elsewhere.
If a region is expensive, companies from other regions automatically become more attractive and rank higher. This means they are selected first because they are a much better fit with the investment strategy.
And if there are a lot of better ranked companies in other regions it may be that the best ranked companies we find are in other regions.
We Keep Our Opinion Out of The Selection Process
We all have our biases, but we try to keep our opinion out of the selection process as far as possible. The goal of the newsletter’s investment system is to minimize human bias and rely on the data to guide our selections.
However, we do consider industry diversification to avoid overconcentration in any single sector.
For instance, despite finding numerous undervalued shipping companies, we aim to maintain a balanced portfolio by not over-representing any single industry.
I hope this gives you a more detailed view of the newsletter’s approach and methodology.
Our only goal with the newsletter is to give you the most valuable and unbiased investment recommendations we can find to help you achieve your financial goals.
