This is the editorial of our monthly Quant Value Investment Newsletter published on 2024-02-06. 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 what you can expect in 2024.
But first the portfolio updates.
Portfolio Changes
Europe – Buy Three – Sell One
Three new recommendations this month as the index is above its 200-day simple moving average.
The first company is a near debt free French manufacturer of plastic packaging trading at Price to Earnings ratio of 8.6, Price to Free Cash Flow of 7.2, EV to EBIT of 7.4, EV to Free Cash Flow of 8.3, Price to Book of 1 with a dividend yield of 2.9%.
The second is a small Sweden-based paper producer trading at Price to Earnings ratio of 7.1, Price to Free Cash Flow of 5.3, EV to EBIT of 6.3, EV to Free Cash Flow of 6.6, Price to Book of 2.5 and it currently pays an attractive dividend of 10.6%.
The third is a UK structural steel company trading at Price to Earnings ratio of 8.3, Price to Free Cash Flow of 3.0, EV to EBIT of 6.3, EV to Free Cash Flow of 3.3. It is currently trading at 0.8 of Book value and pays a dividend of 7.0%.
Stop Loss – Sell
Sell Card Factory PLC at a small profit of +0.3%
North America – Nothing to do
No new recommendation this month as the companies we found elsewhere in the world fit the newsletter’s investment strategy a lot better.
Asia – Buy Three – Sell One
Three Japanese recommendations this month as the index is well above its 200-day simple moving average.
The first is a debt free Japanese computer systems design company trading at Price to Earnings ratio of 11.8, Price to Free Cash Flow of 9.9, EV to EBIT of 7.5, EV to Free Cash Flow of 9.1, Price to Book of 2.2 and it pays a dividend of 2.4%.
The second is also a debt free (net cash equal to 60% of market value) Japanese manufacturing and IT company. It is currently trading at Price to Earnings ratio of 11.4, Price to Free Cash Flow of 7.4, EV to EBIT of 3.5, EV to Free Cash Flow of 3.3, Price to Book of 1.2. It has a 2.0% dividend yield and last year bought back 2.5% of its outstanding shares.
The last idea is a Japanese concrete products manufacturer. It is trading at a Price to Earnings ratio of 7.2, Price to Free Cash Flow of 8.3, EV to EBIT of 4.7, EV to Free Cash Flow of 8.1, Price to Book of 1.3 and pays a dividend of 3.2%.
Sell One
Sell Komori Corporation at a profit of +60.4% as it no longer meets the portfolio’s selection criteria.
Crash Portfolio – Hold One
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 31.4%!
Hold One
Continue to hold AJIS Co., Ltd. +20.6% (recommended February 2023) as it still meets the portfolio’s selection criteria.
Things you can expect in 2024
Let’s get the most important point out of the way first!
I have NO forecasting ability, exactly zero - but neither do you or anyone else – as many research studies have conclusively proven.
Remember if anyone says they have they are lying.
This is not forecasting!
This article is not about forecasting but about things that may happen to you this year and my best ideas to help you make the best of them.
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Your 2024 returns will be influenced by how you feel about what happened in 2023
If you had good returns in 2023 you may be more aggressive with new investments. But if you had a bad year, you will most likely be a lot more careful.
As humans’ recent experiences have more weight in our minds. Keep this in mind as you invest this year.
Check your investment system in terms of position sizes and how much cash you are holding and adjust.
For example, if markets are moving up and you are finding attractive investment ideas BUT you are still holding a lot of cash. Ask yourself why (a bad year last year perhaps) and if there is no definite reason start investing more. A small amount at a time.
How the newsletter helps you
The newsletter follows a system that helps you overcome recency experiences we all have.
It does this by:
- Recommending good quality undervalued companies when the markets are moving up,
- A fixed 2% Investments per company
- Stops buying when they fall and
- Sells companies when they start falling (break the trailing stop loss)
I want to mention the last two points again…
Investors underestimate how important it is to keep losses low.
I am sure you agree it’s important to keep your capital safe, but the real problem is losses hurt you psychologically. Worst case scenario it may lead to sell all your investments near the lowest point.
This removes the possibility to make up your losses but at that point you may not care – you simply want the pain to stop.
If you keep losses low it gives you the courage to get back into the market once the worse is over, and that is what the newsletter helps you do!
Why the newsletter is boring
The system is also the reason why a few subscribers have said following the newsletter’s system is boring. There is no excitement of a wild bet, or wild movements.
But that is EXACTLY what the newsletter helps you with. Following a boring investment system that works and it helps you stick to it.
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Something completely unexpected will happen
You can be sure that something no one expected will happen this year. This can be company news, country events like Brexit and any other event that may causes wild market moments.
This is a fact of life, and it also happens in your personal life.
The best you can do is to keep calm, be patient to take decisive action if you must.
What the newsletter does
That is also where the newsletter helps you.
It only looks at market movements (trailing stop losses and new investment ideas) once a month. This means wild movements have settled down and if it is still necessary companies are sold and new ideas recommended.
It follows a system that works.
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The best investment you can make will be an increase in your savings
You need money to invest, and this is one of the few things you can control. It does not matter if you can invest the money right away or later not.
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There will be other people getting richer than you (or claiming to be)
You know the story - there is always a someone at every party that keeps on talking about a wild return he or she made recently – most likely with an investment that is in the news a lot, think about bitcoin last year.
I just smile, say well done and move on to talk about something else. Just like you I cannot talk about the companies in my portfolio as no one knows them.
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Expect plenty of I told you so’s
This was the worst thing I heard all the time when I was a fund manager.
At the end of the year colleagues, customers and managers asked why the fund did not own the best performing companies or asset classes.
Well, you had to buy these at the BEGINNING of the year when no one knew that they would go up.
Whatever you do don’t say this to yourself, there is just no way you could have known at the start of the year.
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There will be a stock, fund, strategy, or asset class that skyrockets that you wish you owned more of
You know what I am talking about, we all do this.
Just smile when you think of how nice it would have been to own more of that asset that went through the roof and move on following your investment strategy.
It’s no use beating yourself up about something you could not have known.
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You won’t be able to distinguish between luck and skill
This is the most frustrating thing about investing. Only over long periods of time – 7 to 10 years or more – can you tell if you are a really a good investor or if the returns were just luck.
That is why we used long term back tests to make sure the investment strategy we use in the newsletter is not just based on luck over a short period. And the over 13-year track record has proven it works in up and down markets!
This is also the way you must look at the good or great investment performance of anyone else.
The best thing you can do is follow your investment strategy that has proven it works over long periods of time in up and down markets, like the strategy you follow in the newsletter.
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Diversification will make you feel silly
This goes back to point 5 and 6 above where you wish you owned more of the best performing company in your portfolio.
Again, there is no way to know this and that is why the newsletter recommends that you invest the same 2% of your portfolio in each investment idea.
I know it is conservative, but it spreads your risk, keeps losses low and gives each investment an equal chance to perform. In other words, it puts the strategy and not any one company to work in your portfolio.
Even though you know that you are following a good investment strategy that will give you great returns over the long term, it does not mean you know what companies will give you the best performance. No one knows that!
The most important thing is that you stick to the strategy.
Your analyst wishing you profitable investing
P.S. The Quant Value newsletter is published on the first Tuesday of the month – so look for the next issue in your inbox on Tuesday 5 March 2023.
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