This is the editorial of our monthly Quant Value Investment Newsletter published on 2022-05-03. Subscribe here to receive it in your inbox every first Tuesday of the month.

More about the newsletter can be found here: This is how we choose ideas for the Quant Value investment newsletter

Get ready to explore the critical differentiator between good and great investors – strategy versus logistics.

Let's begin with the portfolio updates.

Portfolio Adjustments

Europe – Selling One

No new recommendations this month as the index remains below its 200-day simple moving average.

Stop loss – Sell

Vertu Motors Plc                   +86.1%

North America – Selling Two

No new recommendations this month as the index remains below its 200-day simple moving average.

Sell

Sell Green Plains Partners LP (+31.0%) as it no longer meets the newsletter’s selection criteria.

Stop loss – Sell

Gray Television, Inc.             -21.1%

Asia – Buying One – Selling One

The Japanese market is below its 200-day simple moving average, hence no new ideas there this month.

The Australian market is volatile around its 200-day moving average. I found an appealing idea in Australia, and thus, it is included this month. 

The opportunity pertains to an Australian electrical installation and maintenance services provider. It is attractively priced, trading at a Price to Earnings ratio of 10.8, Price to Free Cash Flow of 8.7, Price to Book of 1.0, and boasts an appealing Dividend Yield of 6.0%.

Sell

Sell IVE Group Limited (+55.8%) as it no longer meets the newsletter’s selection criteria.

Corona Crash Portfolio – Selling One

Sell Exco Technologies Limited (+47.3%) as it no longer meets the selection criteria for this portfolio.

No more ideas: +56.4% average return

As of now, the Corona Crash portfolio has demonstrated exceptional performance with all 26 investment ideas delivering an average return of +56.4%.

Exploring the Differences Between Good and Great Investors

In these challenging investment times, one realizes that achieving the best returns isn't solely dependent on the top investment strategy (though, undoubtedly, it is crucial to have a formidable, time-tested approach) but rather on the way it is executed.

Interestingly, I recently came across a compelling article titled Strategy vs Logistics by Joachim Klement, which eloquently illustrates this concept. (His newsletter Klement on Investing is highly recommended!)

Make sure to peruse the entire article (linked above) as I will only provide excerpts in the subsequent commentary.

I have a fondness for history, and in the realm of military history, one might encounter a quote attributed to General Omar Bradley:

                              “Amateurs discuss strategy, while professionals focus on logistics”.

Proficient Investors Prioritize Logistics

Upon reflection, investment appears deceptively simple.

One acquires undervalued sound companies, anticipates their appreciation, and then sells them for a profit. If they fail to appreciate or depreciate, they are sold. (This mirrors an amateur’s emphasis on strategy)

However, the persistent challenge in executing the aforementioned steps is our emotional responses, particularly our strong aversion to losses!

Consequently, successful investors must discover means to manage their emotions to adhere to their investment plan. (Herein lies the essence of a professional’s concern for logistics.)

Logistics Facilitate Adherence to a Superior Strategy

In the investment domain, there is often a lament that not enough emphasis is placed on strategy and strategic asset allocation, which is valid. Nevertheless, it is equally lamentable that meticulous consideration is frequently not accorded to the logistics necessary to sustain a strategy over time.

In my career, I learned through challenging experiences that establishing sound logistics is imperative for upholding a strategy. When I advised private clients, this entailed maintaining sufficient liquidity to ensure that the client could meet their cash flow requirements over the next three to five years without needing to dip into their equity portfolio.

When I commenced guiding my parents on retirement investments, this principle became a cornerstone.

Building a Buffer is Essential

The objective was to establish a financial buffer so that they aren't compelled to sell stocks during a market correction.

In prosperous years, the buffer is replenished so they always have three years of cash reserves to navigate a market correction.

I myself adhere to this practice. While maintaining minimal cash reserves without leveraging, I ensure I have enough cash to endure a market correction without being pressured to sell.

Implementing Robust Logistics

During my tenure managing equity portfolios for institutions, I integrated stop losses and other risk management techniques even in value portfolios.

Why? This approach guaranteed that extended underperformance was not sustained over multiple quarters. Consequently, my investors were spared enduring lengthy deliberations and explanations regarding my underperformance. This, naturally, entailed forgoing some short-term upside with undervalued stocks, which is why I supplemented my stop losses with re-entry triggers based on the price momentum of these stocks, enabling me to reinvest in undervalued stocks once they exhibited signs of sustained recovery. All of this was executed to ensure comprehensive logistics were in place to support my investors through a period of prolonged underperformance.

For the majority of my professional journey, I harbored a penchant for strategy and devoted extensive contemplation to it. However, over time, I grew to appreciate the seemingly mundane tasks pertaining to logistics.

The term logistics serves as a metaphor.

It alludes to strategies thataid in preventing financial depletion, such as employing stop losses or framing your investments in a manner that mitigates fear when they behave unexpectedly.

Another approach is to isolate your speculative funds from your long-term investments in a separate portfolio, ensuring that you don’t alter your strategy in order to safeguard your speculative funds. The options are plentiful.

This is precisely what we specialize in with our newsletter.

We adhere to a rigorous trailing stop loss mechanism and we suspend purchases during market downturns only resuming them when the market rebounds.

Only engage if you have an exit strategy

We've all been there; it's much simpler to invest in a stock when you have the assurance that you can exit with minimal losses if you were mistaken. This is crucial as it empowers you to act even in times of apprehension, because you have the necessary mechanisms in place!

The most challenging aspect

One of the toughest challenges for me is sending you the newsletter this month without new recommendations because all markets are below their 200-day moving average.

However, I am fully convinced that this is the right course of action since there is nothing more disheartening than investing in a declining market and having to offload your stocks soon after they hit the stop loss levels.

I'm sure you concur that we cannot adhere to a strategy that yields such results.

Therefore, in order to ensure that we adhere to a sound investment strategy over the long haul we must incorporate these protective measures.

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