Sharpen myself

My editorial on You Tube

On February 17th, I sold my position in ATM Grupa. I managed to strike a deal at PLN 4,9 per share, which, after transactional fees, gave me a two-week rate of return at 1,74%. Once again, I broke the rules I declared I would follow. I was supposed to take investment decisions once a month, and here I made one half-way through that period. I wonder what exactly is at work in me, when I suddenly do things like that. The simplest answer would be: ‘Lack of discipline’ etc. Yes, it was lack of discipline, and it occurred in a person – me – who is prone to compulsive discipline, like really. In many other fields of my life, I tend to be overly consistent. I am like one of those golems in Terry Pratchett’s novels. When you tell me to dig a hole in the ground, I will keep digging until you tell me to stop, and if you forget to tell me to stop, well… I will keep digging. People around make me understand, every now and then, that it would be a good thing to accept a bit of chaos into my order.

Thus, what makes me suddenly less consistent when it comes to financial investment? Would it be about a subjectively new type of match between information and decision? Looks like… Another hypothesis is that what I see, for the moment, as lack of consistency, is precisely the right amount of consistency. Maybe my initial assumptions – making investment decisions once a month, as I collect my rent from real estate once a month – were wrong. This is a tricky one: on the one hand, investing capital at the same pace it comes to me is pretty intuitive, and yet, on the other hand, financial investment is supposed to have liquidity, and my own investment strategy should bring me more than just the average rate of return based on market indexes.

One thing is certain: given my ordinary schedule of work, it takes many days, even weeks, to plough through the information I need to make really informed investment decisions. Maybe I can use a strategy in two steps: once a month big shopping with the freshly received rent, and mid-month a correction of the course.

For the moment, I have just taken into account the advice that professionals give: cut your losses short. After having sold ATM Grupa, I have just decided to sell the positions I was losing money on: OAT, Aprea Therapeutics, Vir Biotechnology, Aston Martin, Black Diamond Group, PGE, Cyfrowy Polsat. I sold them all at market price. With the proceeds from selling and the Polish CDM platform, thus with proceeds from selling ATM Grupa, Cyfrowy Polsat, PGE, and OAT, I bought into one position, a gaming company: 11 BIT Studios. This particular egg in my basket is partly what I initially outlined as my strategy, and partly completely not. I guess something similar can be said about most things I do in life. Anyway, with an equity of roughly PLN 106,07 mln, and a market capitalization of PLN 255,93 mln, the company is clearly overvalued in the market. Still, they have good fundamentals, and their stock price growing like hell.

There is an interesting hypothesis to ponder, like generally: the financial count of equity, in a business, can be more or less accurate. The financial value of equity is an expression of underlying economic value in assets net of debt, and the interplay between financial value and economic value can take different forms. Debt is debt, and as long as I don’t want to make that debt tradable in the form of securities, it has a clear nominal value. Assets are a different story. When assets are being valued for the purposes of a balance sheet, two methods can (and should) be used concurrently: the book accounting, and the market valuation. I take the value of assets from the last time I counted it, I subtract depreciation from the current period, and I get the book value net of depreciation. From time to time, I can ask myself what price I could get for my assets if I decided to sell them. This is market valuation, and this is supposed to estimate quite closely the implicit economic utility of my assets, net of any subjective calculations of mine. It is possible that book valuation goes a long way above or below the market valuation.

Financial markets, such as the stock market, have a peculiar property, which was noticed, apparently, hundreds of years ago. When instead of trading assets in big chunks, like whole factories, we just trade small participatory titles in those assets, the financial market yields very sharp valuations of economic value. What? It is just about expectations? Hell, yes. The value of productive assets is all about expectations. Do you buy a factory in order to live inside? I guess it is for having some future business outcomes: it is about expectations. Anyway, in cases like 11BIT Studios, when equity is overvalued, but the stock price keeps flying high, and with good fundamentals, it can be hypothesised that some of their assets have greater an economic value than the official book valuation in their balance sheet. I know, I know: assuming that I see things that other people can’t see is tricky. Still, when that bloody price keeps growing, I guess other people see the same ghosts which I see, and this is reassuring.

I return to my corrective investments. In the DEGIRO platform, after having sold my positions in Aprea Therapeutics, Vir Biotechnology, Aston Martin, and Black Diamond Group, I decided to strengthen the ‘energy’ component of my portfolio. My assets of choice have been: Vivint Solar, and Norsk Hydro.  Vivint Solar’s fundamentals are sort of intriguing. On the one hand, they still lose money. On the other hand, they lose much less than they used to, and they seem being terribly resilient. I remember I spotted their financial reports in early Spring 2017, for the first time, and I was like: ‘What a sad story… Another ambitious bunch of innovators going bankrupt soon’. Still, they haven’t gone bankrupt. They are still there, they keep their head above the water, and they develop, step by step, their technological concept of small smart grids based on renewable energies. As for Norsk Hydro, these guys are fundamentally solid, period. I consider that position as a stabilizer.     

Now, once again, drums: I am drawing a bottom line under my so-far investment decisions. I sum up the state of my possessions as for today, i.e. February 19th, 2020, and I compare with the initial values on February 3rd. My account on the Polish platform CDM comes first. Starting point: February 3rd, cash 2693 PLN. Action #1: buying Cyfrowy Polsat, OAT, PGE, and ATM Grupa. Action #3: selling ATM Grupa at a negotiated deal price. Action #4: selling PGE, OAT, and Cyfrowy Polsat at market price. Action #5: buying 11 Bit at market price. Current status: cash PLN 584,73 + position on 11BIT PLN 1 936 = PLN 2520,73. Net loss of PLN -172,27, or -6,4%.

I pass to my account on the DEGIRO platform, for international investment positions. Starting point: February 3rd, 2020, cash: PLN 2 550. Action #1: I buy into Black Diamond Group, Macrogenics, Incyte, Vir Biotechnology, Amundi Epra (tracker fund), Frequency Therapeutics, Aprea Therapeutics, Aston Martin. Action #2: I buy into First Solar Inc. Action #3: I sell Black Diamond Group, Vir Biotechnology, Aprea Therapeutics, Aston Martin. Action #4: I buy into Vivint Solar and Norsk Hydro. Current status: cash €37,43 + € 512,54 worth of positions on Amundi Epra, First Solar, Vivint Solar, Norsk Hydro, Incyte, Frequency Therapeutics, Macrogenics = € 549,97 = PLN 2 348,37. Net loss: PLN – 201,63, or – 7,9%.   

In the first blog update in this fresh cycle (see Back in the game ), I wrote I am aware how humbling this learning will be. Well, it is humbling. Those losses are the cost of my learning. I understand why those tracker funds are so popular. Many people try what I am trying, i.e. learn by trial and error to invest profitably, and if one is not prepared to pay the price of learning, it is really frustrating. Yet, I am ready to pay the price, and I need to get the most value for that price. I need to learn as much as I can. In my plan, the moment of the next big shopping approaches. By the very end of February, or in the first days of March, I am supposed to invest the next rent, the PLN 2500. I have a few days to sharpen myself for that next step.

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