Status update - Portfolio, Equities, Savings

Hi everyone,

 

Think it's time for a status update, regarding the portfolio, equities and savings.

 

A lot of changes has been done in the portfolio, since the mess with the accounting problems in Vardia. The portfolio has now got some structure and more longterm holdings,even if I am still building the portfolio at the moment. As I often say: "Rome wasnt built in one day".

 

The portfolio today consists of 5 equites and two index funds.

 

The equities are as follow: Starbucks (SBUX), Mastercard (MA), Hennes & Maurits (HMB:Stockholm), Chipotle Mexican Grill (CMG), Vardia (VARDIA:Oslo).

 

Index funds: Avanza Zero and DNB Global Indeks.

 

In short the portfolio has been declining since purchase date overall, Avanza zero which is a swedish index fund have not been performing well and Chipotle Mexican Grill as well, due to a E.Coli outbreak. Although it gives me great buying opportunities which is good, have been buying Chipotle a lot over the last couple of weeks/months and have now stopped since it taking up to much of my assets. Mastercard, Starbucks and Vardia are all performing.

 

The next purschase will probably be Hennes & Mauritz, if the decline continues. Everything below the stockprice 300 SEK for Hennes & Mauritz do I think is a good buying opportunity for a long term investor.

 

Total value of the portfolio will be around 230 000 SEK by the end of this year. Saving rate for this year has been under all critism and need to be increased over the next year. Target number for saving next year should be around 120 000 SEK, this should be a problem since I increased my salary heavily in my new position in November 2015.

 

In the upcoming weeks will I post some articles around the portfolio, equities holding at the moment, goals for 2016 and a saving schedule for the new year.

 

Stay tuned!

 

Merry christmas and a happy new year all!

 

Best regards,

EWI 

ETFs or Index Funds? Whats the Best?

Description ETFs and Index funds
In the last years ETF:s has gained in popularity and become one decent alternative to the average investor. In the simplest terms, Exchange Traded Funds (ETFs) are funds that track indexes like the S&P 500, Dow Jones, OMXS30, etc. When the investor buy shares from an ETF, you're buying shares of a portfolio that tracks the return (Yes, yield as well) from that certain index fund that the ETF are replacating. ETFs are traded exactly like an equity investment, as stated you're buying shares in an portfolio.
In other words index ETFs are not trying to beat the market, they're trying to be the market or the index.
 

Index funds on the other hand is passively managed mutual funds, made to mirror the performance of a market index (i.e S&P 500, Dow Jones, OMXS30), which in other words is almost the same. Index funds compared to actively managed mutual funds has two primary advantages:

1. Lower management cost is the first one, which means the guys behind the fund takes less from you for the service of managing the fund. This is often around one-half to two-thirds less than actively managed mutual funds.

2. On average the index fund has gained the investor more return than actively managed funds, in other words a lot of experts has a problem to outperform the market (index). Of course there are some actively managed funds that have generated significantly higher returns than index funds.

ETF versus Index funds
ETFs has some advantages which comes with the flexibility the investor has since they are traded as equity on the stock exchange, this means they could be bought and sold instantly, which means you could close the position any time. This compared to the index funds, when you get the end price of the day. The rules out from this is if you're an active investor the ETF will suit you better. Passive normal investors will on the other hand love the index funds for their simplicity, no need for brokerage account.

Dividends are often payed out on index ETFs, which is the opposite compared to a normal index fund where they keep the dividends within the fund. This has both advantage and disadvantage. For a long-term investor I would say that keeping the dividends within the funds is better (You dont need to pay comission when you need to re-invest the dividend again).

Whats the best is hard to answer and I will say as so the journalist says; it depends.

Hope you enjoyed the text and it was meaningful.

Best regards,

Eighth wonder investing

Building blocks in my portfolio strategy

As I told you in the last post that I have been working on a new strategy, which will be a mix between stocks and index funds. This post will be dedicated to describe the portfolio and the reason why I believe this is the best way to go.

From my experience in Vardia I reliazed the importance of diversification; the portfolio down 25% in one day is pretty bad when believing in value investment and that day got me to re-consider my diversification strategy and in the end my whole portfolio strategy. 

If you don't have a clear strategy for diversification and hiding behind Warren buffets strategy that is that if you know your companies you don't need to have to many in the portfolio (good article why Warren Buffet doesnt diversify here). I truly recommend you to re-consider your exposure to a few assets and think about all factors that could impact returns, everything from fraud to hackers gather all their data (think about Ashley Madison).

The new portfolio strategy will be built like this (percentage);

Stocks: 35%

Swedish index funds: 35%

Global index funds: 15%

U.S. index funds: 15%

This setup will be the building blocks in my portfolio, there will in most cases also be around 5% cash for unexpected opportunities. This 5% cash will be smaller as the portfolio grows and when it gets bigger there will be more monthly purchases. Why did I go for this strategy? Time.. Since I started to work I didn't reliaze how much time I spend on the work and how tired I am when I come home. In other words, I don't really believe I have the time to have 100% stocks in my portfolio, just because there's not enough time to analyse them and find the risks involved with them, therefore the diversification.

At the moment I'm 50% invested, and this will be the case for a while, since I believe we have pretty high valuations on the markets. This will change as soon as the market conditions are better, i got some this week; MasterCard (MA), Starbucks (SBUX) and DNB Global Indeks fund.

Now I'm off to a pool party, take care!

Eighth wonder investing

What did go wrong in Vardia and The portfolio status

Vardia Insurance has been on my mind for a long time, lost 50K SEK (approx. 5400 euros) in one day.
Rough day? Yes, was a used Rolex Submariner which went away over a night..

Mad? No, could only blame myself..

Before writing what did go wrong maybe it's better to say how the days went when Vardia went through Armageddon and until now.

26th February 2015, Vardia is trade stopped from request from the company and postponing the announcement of the fourth quarter earnings.

26th Feb - 4th March, a lot of speculations is going around on blogs, newspapers, forum etc. I have a really bad feeling but couldn't imagine what were to come.

3rd March 2015, due to an accounting principle which has to do with booking of sales costs makes Vardia show a loss at 219 million NOK (approx. 25 million EUR). The stock is dropping 50 percent in the opening. 

4th March, I'm liquidating my whole portfolio, including Vardia and is back to zero from my gains in Protector. 

4th March - until June 2015, my trust for the stock market is zero, lost money on Tesco on accounting principles and now this in Vardia. Have still saved a lot of money during the months, but mentally I'm not ready to go into the stock market again. 

Thinking about other investments, properties etc. but know that the stock market is where you should be to make the real money with as little risk as possible.

Deciding to take some vacation from work and really rest, get my mind together and continue the thinking. Going to Hawaii for two weeks on my saved money, to start over when I come back with a new strategy (will come back to that in a later post, but shortly a mix of index funds with stocks). 

Over to what really went wrong in Vardia and in my analysis;

As stated above, Vardias accountants had a different view on how to accrual costs, sales costs. Accordingly to Vardia they were not allowed to do accrual the sales costs anymore and had to back-calculate everything and take it as a cost, 219 million NOK was gone over a night. 

They launched a new shares issue on 275 million NOK and with an interim loan to meet the solvency requirements in Norway. This together with massive cost reductions would make them profitable..Already here I knew these money will not be enough to make them profitable. Cost reductions take at least 3-6 months before you see any impact, it's not like you stop paying your employees the next day.

Last thing I read was that they will now do a management buy out (MBO) of the sales organization to bridge until they are profitable for 30 million NOK (?). Maybe that will be enough, didn't pay that much attention but it seems it's only good for management and not for the shareholders. 

What did go wrong in my analysis? Mostly a lack of time and limited knowledge in insurance accounting. In other words, I could only blame myself..

Portfolio status today;

50 000 SEK (buy price) in Avanza Zero (bought the last month)

10 000 SEK (buy price) in DNB global index

6282 SEK per share (buy price) - 3 shares of Chipotle Mexican Grill (CMG)

745 SEK per share (buy price) - 16 shares of MasterCard (MA)

430 SEK per share (buy price) - 36 shares of Starbucks (SBUX)

Hopefully I will be posting some more now, when I'm back on my trip to financial independence! 

Will update the portfolio and trades and also get back with a post on my new strategy.

Best regards,
EWI

This should not be taken as advise as always and all the numbers on this blog could be wrong and I am not taking responsibility for anyone who uses this information.

Vardia Insurance Cooking The Books?

Vardia Insurance were expected to announce their Q4 today, but instead they gave the market the message that the financials for Q4 will be announced tomorrow. On the top of this they also halted the trading in the stock until the release of the results.

Vardia's comment today were this:

The postponement is due to new information received from the Company's auditor regarding accounting principles. Vardia has after consultation with Oslo Børs decided to suspend the trading of the stock until the results are published.

In addition to the comment  Aleksander Nordahl IR-responsible at Vardia stated during the day that this were the case, with the vague explanation:

We have received new information from the accountants and has in discussions with Oslo stock exchange suspended the trading in the stock.

So what could all this mean? It's at least not positive for The reputation thats for sure. Experience say me that is use to be bad when stocks getting halted due to accounting troubles, but who knows (still hasn't forgot the cold shower from Tesco). 

I have actually been speculating the whole day on what a valid reason could be for the postponement and the halted trading and came up with these four options which I see are the most likely ones:

• Formalia. Could be some sort of error in the way of presenting the numbers which led to no signature from the accounting firm which validates it. Things that speaks for this is that the message came as a lightning from the sky and that they only postponed it one day. I am still concluding that this is the dream scenario and consider this the most unlikely one.

• Tax issues. Speaking for it; have been on the wall before. Still doesn't see this scenario is very likely either, one day postponing is way to less for a tax problem. Worst case scenario there will be a new issue of the stock.

• Assets. The assets are not what they should be. Could be due to different things, most likely some issue regarding the acquisitions Vardia made in the past. Worst case scenario huge new issue which fails and bankruptcy. 

• Income/Costs/Reserves. Miscalculus in some way of the cost of goods sold, revenues or that the reservations for the Insurance business has been to low. Worst case scenario here will be a new issue of the stock. This option is the most likely from my point of view.

On the other hand we still have the sales (which should be correct) and the GWP which is backing up the case.
Whatever happens tomorrow the stock will most likely open down and that could open opportunities for more purchases. Tomorrow will be an interesting day!

Remember that this is only speculations and hopefully transparent facts will be announced tomorrow.

Best regards,
Eighth Wonder Investing



Full disclosure: I am heavily invested in Vardia Insurance Group with 3200 shares.

Thoughts About Settling Down

Today I asked myself that question, what would I really do with more money or if I were financial independent?. The question is really hard to get and very vague.
The definition I have for more money are financial independence.

Let's start with financial independence, which differs a lot between people. When are you really financial independent? For me personally is that question impossible to answer because it depends on so many factors, as everything else in this world..

Wikipedia is stating that financial independence is a state a human has when he or she has sufficient wealth to live, without having to work actively for basic necessities. Often financial independent peoples assets generate more income then their expenses.
Another definition comes from a survey done 2013 by Capital One 360. The survey states that 44% of U.S adults said financial freedom meant not having any debt, 26% said it meant having enough saved for emergencies and 10% defined it as being able to retiring early.

From my point of view neither Wikipedia nor Capital One 360 has right here, just because of the simple reason that it depends so much external factors that its so hard to answer this question, especially for me at an age of 25.

Let's bring up a scenario.
I guess a lot of people like me wants to live in a nice neighborhood, fancy car and friends with the same mindset around you. In other words this neighborhood will be wealthy and to a certain extent contagious. Why? 
People with high incomes consumes a lot, which enriches corporate to small medium business and those companies will start to demand manpower. These things is pushing salaries north and then the snowball is rolling with the society as a winner and me as financial independent as a loser?

I dont know but its a good thing to think about, should you choose to settle down in a more "expensive" neighborhood or in a cheaper region like Asia for example.
I will definitely put that up on my to-do-list, what is actually financial independence for me.

Besides the philosophical thinking I am working on a general analysis of the fast food industry, which will probably be done and posted in the upcoming weeks.


Best regards,

Eighth Wonder Investing

Marvelous Company, Marvelous Numbers - Protector Q4 2015

As probably no one has missed by now in the blog world, Protector's Q4 report was astonishing and the stock market received it with open arms. Protector is now up 10.11% since the announcement of the report.
The best announcements in the report from my side were that Sweden and Denmark are now showing profit and that is under extreme growth. Sweden is growing GWP by 121%, Denmark with 89% and Protector overall with 28% to 2375M NOK (1861).

Here are some more candy from the report,

• Protector forecast higher profit 2015 and with 18% growth.
• Protector increases the dividend from 1.75 NOK to 2 NOK. 14.28% increase!
• Combined net ratio down to 84.5% from 86.7% last year.
• Investment portfolio know has a value of 4 958M NOK up from 3 999M NOK last year.
• Profit per share grew from 3.47 NOK to 4.63 NOK.

New target price for Protector are 68 NOK, this comes from that I think they will make around 5.785 NOK per share. Which means a profit growth on 25% and a future P/E 11.75, should be doable for the great company Protector!

Besides Protector's marvelous announcements I have increased my share in Vardia Insurance at the price 27.9 NOK with 1400 shares. Total numbers of shares in Vardia are now 3200 shares and a total market value of 102 486 SEK. I will continue to grow my shares in Vardia since that it the most udnervalued company at the moment.

Best regards,

Eighth Wonder Investing