Experience the insights of our monthly Quant Value Investment Newsletter released on 2023-10-03. Subscribe now to receive it directly in your inbox on the first Tuesday of every month.

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Within the current edition, discover the correlation between paying less attention and higher returns.

Before delving into the portfolio updates, let’s take a closer look at making insightful investment decisions.

Evolution in the Portfolio

Europe – Divestment of Two

No fresh recommendations this month as the index maintains its position below the 200-day simple moving average.

Stop Loss – Divestment

Unload Smiths News Plc at a loss of 15.0%

Unload Kitwave Group plc at a loss of 14.5%

North America – Adding One

Introducing a new recommendation this month as the index is above its 200-day simple moving average.

It’s a remarkably affordable Canadian metal distribution company trading at a Price to Earnings ratio of 7.6, Price to Free Cash Flow of 6.0, EV to EBIT of 6.2, EV to Free Cash Flow of 5.9, Price to Book of 1.5, and boasting a dividend yield of 4.0%.

Asia – Two Additions, One Divestment, Two Holdings

There are two recent recommendations this month, supported by the index standing above its 200-day simple moving average.

The initial offering is a Japanese manufacturer of mechanical and functional parts trading at a Price to Earnings ratio of 12.1, Price to Free Cash Flow of 11.1, EV to EBIT of 4.9, EV to Free Cash Flow of 5.3, Price to Book of 0.8. It carries a dividend of 4.3% and in the past 12 months repurchased nearly 7% of its outstanding shares!

The second entails an undervalued, rapidly expanding Japanese food logistics enterprise, with a Price to Earnings ratio of 10.4, Price to Free Cash Flow of 4.3, EV to EBIT of 6.5, EV to Free Cash Flow of 4.1, Price to Book of 0.9, and a dividend yield of 3.0%.

Hold – Two

Retain APT Satellite Holdings Limited +16.7% (initially recommended in October 2021), and E J Holdings Inc. +40.9% (initially recommended in October 2021), since they continue to meet the portfolio’s selection criteria.

Crash Portfolio – Divestment of Two

No fresh Crash Portfolio concepts as most markets have regained their standing.

Of the 15 Crash Portfolio ideas suggested since August 2022, they have soared by an average of 20.2%!

Offload Delfi Limited with a profit of +86.4% as it no longer aligns with the portfolio’s selection criteria.

Stop Loss

Dispose of Groupe LDLC Société anonyme at a loss of 5.6%

Desire to Be a Savvier Investor? Free Yourself from Constant Portfolio Surveillance

In the realm of investing, we are frequently driven by two potent anxieties:

• The unease of missing out when the market is soaring.
• The unease of sustaining losses when the market experiences a downturn.

These anxieties can prompt us to make illogical, hasty choices. One method to foster a clear, rational mindset is to minimize compulsive stock monitoring.

Comprehending Stock Fluctuations

When a stock in your portfolio rises or falls, it’s imperative to recognize that investors hold stocks for a multitude of reasons. These motivations span from swift outcomes sought by mutual and hedge funds to algorithmic trading based on patterns. Some investors even acquire or divest stocks solely based on price trends, largely overlooking a company's fundamentals.

The reality is that daily stock price gyrations are, in most cases, effectively arbitrary. Unless there is specific, company-related news influencing a stock's price, the most plausible rationale for a stock’s movement is an imbalance between buyers and sellers. Endeavoring to ascribe daily fluctuations to specific causes resembles a guessing game, a game the media perpetuates all too often.

My Weekly Portfolio Inspection

A few years ago, I adopted the practice of assessing my portfolio solely once a week, and I would strongly advocate considering this approach.

Every weekend, the screener automatically dispatches my portfolio spreadsheet encompassing Friday's closing prices, in conjunction with all the metrics and indicators we monitor.

On Monday, I update my portfolio spreadsheet, evaluating price shifts, appraising stop-loss thresholds, and scrutinizing company valuations.

This methodology has shifted my focus from individual stock fluctuations to global portfolio variations.

Effectively, it has rid my mind of the two aforementioned anxieties throughout the week.

Understanding that I will scrutinize my portfolio on Monday liberates my mind to direct its attentiveness elsewhere during the week. It’s akin to my mind realizing that Monday is designated for portfolio scrutiny, absolving me from incessantly monitoring individual stock gyrations.

Act on a Monthly Basis

Surveying my portfolio weekly does not entail making trades based on weekly movements. Analogous to the investment strategy of the newsletter, I only execute trades based on monthly breach of stop-loss thresholds. This methodology substantially curtails trading expenses. Should a stop-loss threshold be breached during the week, I take note of it, but I solely buy or sell monthly.

I have discerned that breaches of stop-loss levels within a month may self-correct when appraised monthly.

Instill a Method

To completely free myself from the two anxieties during the week, I follow a rigorous method, the same one adhered to by the newsletter:

• Transact business with companies on a monthly basis.
• Operate based on monthly breach of trailing stop-loss thresholds.
• Abstain from purchases if markets are beneath their 200-day simple moving average.

This method effectively dispels both anxieties.

It eradicates the unease of missing out because I am aware that I will be making monthly investments. It also addresses the unease of incurring losses during market declines due to the trailing stop-loss threshold and the fact that no new companies are procured when a market is beneath its 200-day simple moving average.

If you are still fixated on your portfolio daily, I encourage you to review the protocols observed by the newsletter. You may find that they bestow tranquility upon you,Allowing you to shift your attention to other pursuits and declutter your thoughts.

Invest wisely, invest peacefully.

Recommended Reading

Becoming a nimble investor

A close companion, Raman Minhas, penned a profoundly personal and illuminating letter in the second quarter about ways to enhance agility as an investor.

So, what are the next steps?

The approach marries elements of valuation, utilizing historical figures spanning around 5 years and short-term forecasts, with straightforward charting and trading guidelines. My portfolio is quite focused with typical entry positions for testing around 3%, gradually building up to 10%. Risk management stems from (i) margin of safety, (ii) portfolio sizing, and (iii) stop loss rules based on charting. 

Returning to the question in this letter – How can you become more nimble as an investor?

Always be learning. Always be humble.

You’ll naturally gravitate towards a style. Nevertheless, by continuously being a student of investing, by embracing that you can never know everything, and staying humble, you remain eager, receptive, and open-minded. It aids in developing a tailored approach that aligns with your inherent biases and emotional composition.

You can't hasten it (but you can engage in learning and taking action); it's an ongoing process rather than a destination.

Enjoy the journey.

Assessing the severity of debt issues in China

Nils released a mind-provoking and alarming letter titled Assessing the unfolding Chinese debt crisis.

How serious is all of this?

Revisiting the point I mentioned earlier, i.e. that a deceleration in China can have an impact on the rest of the world in three ways, let me conclude this letter with some observations on those points.  Regarding exports, a nation like Germany could be severely impacted, as Germany heavily exports to China.

The US economy, however, will barely be affected, as US exports to China are minimal when compared to the size of the US economy – a $25 trillion behemoth economy. Last year, ‘only’ about $155 billion worth of goods and services were exported to China. Thus, even a severe Chinese recession would hardly make a dent in the US bottom line.

Chinese slowdown can, and likely will, impact the rest of the world in other ways. My greatest concern is the psychological impact a meltdown might have on other financial markets if things worsen in China. If investors collectively determine that China has indeed reached its limit in terms of debt accumulation, then the fact that the effect on the real economy would be quite modest will probably be overlooked.

As I write these words, I observe that the DAX index of German equities is up 14% year-to-date, while the S&P 500 index of US equities is ‘only’ up 12% over the same period.  If my reasoning holds true, the German economy will suffer substantially more than the US economy, should economic fundamentals deteriorate further in China.

Consequently, from a fundamental perspective, one should favor US equities over German equities, if apprehensive about China. However, as we learned in 2008, once the secret gets out, fundamentals don't necessarily hold, and the resulting damage can be significant.

Wishing you lucrative investments

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