This the editorial of our monthly Quant Value Investment Newsletter published on 2022.09.06. 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 about how to choose the ideas that will perform best.
But first the portfolio updates.
Portfolio Changes
Europe – Sell Three
No new recommendations this month as the index is below its 200-day simple moving average.
Sell Société BIC SA (+5.7%) as it no longer meets the newsletter’ selection criteria.
Stop loss - Sell
Cairo Communication S.p.A. -0.8%
Airtel Africa Plc +8.8%
North America – Sell One
No new recommendations this month as the index is below its 200-day simple moving average.
Stop loss – Sell
Valhi, Inc. +42.5%
Asia – Buy One – Sell One – Hold One
One new recommendation this month as the Japanese index is above its 200-day simple moving average.
The Japanese company is a growing automobile wheel and tire retailer attractively priced at a Price to Earnings ratio of 7.8, Price to Free Cash Flow of 8.0, EV to EBIT of 4.5, EV Free Cash Flow of 6.3.
Sell Eagle Nice (International) Holdings Limited (-5.6%) as it no longer meets the newsletter’ selection criteria.
Continue to hold SAN Holdings (+61.1%), recommended in September 2020, as it still meets this portfolios’ selection criteria.
Crash Portfolio – Buy Two
Two new ideas for the Crash Portfolio this month.
The first is a Chinese (Hong Kong listed) oil and gas exploration and production company. As you can imagine very undervalued at Price to Earnings ratio of 4.6, Price to Free Cash Flow of 5.1, EV to EBIT of 3.6, EV Free Cash Flow of 5.4. Its Dividend Yield of 6.7% is also attractive.
The second is a Hong Kong based designer, manufacturer and seller of lady’s shoes, very cheap trading at Price to Earnings ratio of 6.9, Price to Free Cash Flow of 8.5, EV to EBIT of 5.4, EV Free Cash Flow of 8.0, Price to Book of 0.8. It also has an attractive Dividend Yield of 12.1%.
What investment ideas will perform best
What companies recommended in the newsletter will perform best?
Must I buy all the recommended companies, or can I pick and choose?
These are great questions subscribers struggle with. Perhaps it is something you have asked yourself.
You and I have no idea
As you have also realised forecasting the stock market – up or down - is hopeless.
I know the media always manages to find someone that is “sure” exactly what will happen. And he or she may even have a good sounding argument. But the simple truth is no one knows what will happen.
Studies have proven it
Numerous research studies have proved that humans simply cannot forecast, even if their lives depended on it. And so-called experts don’t do any better; in fact, they do worse than amateur forecasters.
So where does it leave us?
This means that neither you nor I can say what the market will do, or which companies will perform best.
A few examples
Let me give you a few examples of companies recommended in the newsletter. Yes, these were some of the best performing companies, but I list them here to show you how unlikely even these large gains looked at the time we recommended them.
Eckert & Ziegler +75.0% in six months (October 2018 to March 2019)
This sleepy Germany-based provider of nuclear isotope technology for medical, scientific, and industrial use increased 75% in 6 months.
CropEnergies AG +75.9% in 15 months (September 2016 to December 2017)
Would you have thought that a German-based bio-ethanol producer would increase 76% in 15 months?
Stock Spirits Group +74.3% in one year (November 2016 to November 2017)
What about a London listed distributor of branded spirits in Central and Eastern Europe, mainly Vodka in Poland, that increased nearly 75% in a year.
Hunter Douglas +67.8% in 11 months (August 2016 to July 2017)
This Netherlands-based company that mainly sells window blinds – how dull can it get - increased just under 70% in a year.
Christian Dior +67.7% in one year (April 2016 to April 2017)
Don’t count large cap companies out either, this €70 billion market value company increased nearly 70% over a year.
Communisis PLC +43.5% in 3 months (August 2018 to November 2018)
Cheap quality companies make good takeover candidates as happened to Communisis when a takeover offer was made at 39.8% more than the existing stock price.
Reply SpA +269% - in 3 years (November 2011 to November 2014)
Reply SpA an Italy-based IT company went up nearly 3 times over three years or around 90% per year. Not only was this a great return but it shows that a company can remain in the newsletter’s portfolio a few years.
I had my doubts about the company because when it was recommended it had accounts receivable of more than 400 days - that was more than its yearly sales. An Italian friend later mentioned that it is not unusual for Italian companies.
MGI Coutier +239% in two years (May 2013 to June 2015)
This French automotive equipment supplier also remained in the portfolio for more than a year and went up just under 120% per year.
MGI Coutier’s share price was also at a five year high when we recommended it and its sales in the first quarter fell 6% due to the sluggish European economy, making it an unlikely candidate to increase much.
Delclima SpA +92% in nine months (May 2015 to January 2016)
Delclima SpA an Italy-based company that produces and sells air-conditioning and heating systems was spun off from the De Longhi Group in 2012.
Its share price increased nicely and jumped substantially because of a takeover offer. That is also the reason why the company was in the portfolio for only nine months.
Due to losses and write-offs from discontinued operations the company incurred a loss before interest and taxes of €51.2 million when it was recommended.
Afren PLC -75% in one year (Jan 2014 to Jan 2015)
As with any investment strategy things do of course not always go right. If someone tells you about a strategy that always works be very careful (think Madoff).
Afren is an example of an idea that did not work out as the share price fell 75% due to fraud. After this loss and a LOT of research we introduced the trailing stop loss system for the newsletter in March 2015.
Recent examples – still in the portfolio
Here is a more recent example:
Arctic Paper S.A. +193.7% in 11 months since October 2021
Would you have thought that a Polish paper manufacturer would go up nearly two times in just under a year?
SAN Holdings +61.1% since September 2020
This Japan provider of funeral services performed great, up over 30% per year since it was recommended in September 2020.
The Hour Glass Limited +62.3% since August 2021
In August 2021 we recommended a luxury Asian only watch retailer. Remember lock downs were still going on in China and travel to Hong Long and gambling to Macau was impossible. In spite of this the stock price increased over 60% in a year.
What’s the point?
What you can see is that these companies performed great in spite of being in industries that were not exciting and that had all kinds of problems and uncertainties when they were recommended.
The best thing you can do
So, what can I do you may be thinking?
The best is to simply follow the newsletter’s investment system.
This means:
- Don’t buy when markets are falling - follow the 200-day simple moving average rule
- Invest in a diversified portfolio of undervalued quality companies – the ones the newsletter’s investment model finds for you
- Keep each investment small, from 2% to 4% of your total stock portfolio
- Limit your losses through the trailing stop loss system the newsletter follows
- Sell after a year if the company in not in the newsletter’s investment model
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