This the editorial of our monthly Quant Value Investment Newsletter published on 2023-06. 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 why I am not invested in all ideas.
But first the portfolio updates.
Portfolio Changes
Europe – Buy One – Hold One
One new recommendation this month as the index is above its 200-day simple moving average.
It’s a France-based company engaged in the distribution of electrical parts and supplies trading at a price of 6.5 times Earnings, Price to Free Cash Flow of 8.4, EV to EBIT of 6.4, EV to Free Cash Flow of 12.2, Price to Book of 1.1 and with a dividend yield of 6.1%.
Continue to hold Strabag SE (+33.2%), recommended in June 2021, as it still meets this portfolio’s selection criteria.
North America – Buy Two – Sell One
Two new recommendations this month as the index is above its 200-day simple moving average.
The first is a Canada-based marketing and business communication company trading at Price to Earnings ratio of 14.8, Price to Free Cash Flow of 5.1, EV to EBIT of 6.9, EV to Free Cash Flow of 7.8, and Price to Book of 5.5.
The second is a US-based global consulting company trading at Price to Earnings ratio of 8.6, Price to Free Cash Flow of 6.1, EV to EBIT of 5.3, EV to Free Cash Flow of 5.2, Price to Book of 1.3 and with a dividend yield of 3.5%.
Stop loss - Sell
Sell Perdoceo Education Corporation at a loss of 12.5%.
Asia – Nothing to do
The two most undervalued, quality, companies we could find in Asia were listed in Hong Kong and Singapore.
Unfortunately, both indices fell below their 200-day simple moving average so no new recommendations in Asia this month.
Crash Portfolio – Sell One
No new Crash Portfolio ideas as most markets have recovered.
To date the 15 Crash Portfolio ideas we recommended since August 2022 are up an average of 15.7%.
Stop loss - Sell
Sell Texwinca Holdings Limited at a loss of 19.1%.
Correction – Broker FX charge
Thanks to the subscribers who mentioned that the Interactive Brokers fees for exchanging foreign currency in the previous newsletter were not correct.
The charges differ based on the type of customer, but for most of us, it will be around 0.2% with a minimum fee of $2.
You can find more information here: Interactive Brokers foreign exchange charges
Why I am not invested in all ideas
This is a question asked by many subscribers, and it's a valid one as the newsletters’ investment strategy is one, I use in my own portfolio.
There are several reasons.
I may already be fully invested
Firstly, I may already be fully invested.
I follow different investment strategies and depending on how much money I have invested in each, there may not be anything left to invest in newsletter ideas.
I also follow other investment ideas or themes
Secondly, I follow other investment ideas or themes.
For example, as you know I diversified my portfolio by buying tobacco stocks as a replacement for a bond portfolio. I did this to add income and stability to my portfolio through the high dividend income.
I also invest in ideas recommended by fund manager friends, mainly focusing on deeply undervalued companies. Although this has cost me in the past, it's something I find hard to avoid.
You can read about my worst deep value investment mistake, which led me to pay a lot more attention to momentum here: Worst investment ever – My story and how you can avoid it
I also invest in smaller companies
Additionally, I sometimes come across smaller companies that are not suitable to recommend in the newsletter due to their low trading volume – less than $100,000 per day.
If I find them very attractively priced, to make up for the low volume, I may buy them.
It's worth noting that research has shown that US companies with low trading volume – below $100,000 per day - tend to have lower returns, even if they are cheap.
This makes sense as if volume is too low it makes the potential pool of investors so small that there's hardly anyone to move the price, irrespective of how cheap the company may be.
I've also moved away from companies trading at less than $100,000 a day, but sometimes I cannot help myself.
I started exploring trend following
I have started exploring trend-following strategies to diversify my portfolio. This involves momentum-based strategies in the futures market, which offers a wide range of potential investments across stocks, bonds, commodities, currencies and more. I have an investment in a trend-following fund run by a trusted friend.
I don't know any better than you
It's important to add that I don't have superior knowledge compared to you as to what company will perform best.
I have made mistakes by avoiding certain newsletter companies based on personal biases, only to find out later that they were the best performers.
This confirms that no one knows what will happen and the importance of diversifying our portfolio.
Remember we won't always beat the market. It's a mistake to assume that good performance over the long-term guarantees beating the market every year.
There will be times when we underperform, and the biggest risk is abandoning a sound investment strategy to chase the most recent best-performing strategy. This often leads to significant capital losses, as seen during the internet and tech stock bubble.
Slow and steady wins the race
In the end, I, and I hope you also, value slow but steady returns year after year. It’s not exciting, but it lets us compound our capital at high rates over the long term.
Stop loss study update!
I just want to give you a quick update on the stop loss study we started earlier this year.
Remember, we wanted to take another look to see if using stop losses can help us get higher returns and lower volatility over the long term.
Early results are promising, showing that while stop losses result in lower overall returns, the lower volatility and less emotional distress during market downturns make up for it.
Once we have finished the analysis, I will share it with you.
In the meantime, I will continue to follow the 200-day simple moving average rule and stop buying new investments when markets are falling. Based on what I've seen so far, it's a strategy worth sticking to.
Not a subscriber? Click here to get ideas from the BEST strategies we have tested NOW!
