Investment summary of 2015

Results

+43%. (For all accounts of the family, including cash). 2014 was +39% and 2013 was + 70%.

Avanza 2015

Obviously a great result. Volatility wasn’t bad either. Another easy year emotionally.

Portfolio

The portfolio was mostly invested in swedish small cap stocks, with two large holdings – Effnetplattformen (30% of portfolio) and Bahnhof (was 24%, now 15%). I owned a sizable position in Effnetplattformen and increased in the offering in February. The Bahnhof position was gradually decreased during the fall as the stock appreciated (and some of the money went into the non-public offering in their subsidiary Elementica).

About 15% of the portfolio was in US Large Caps: Berkshire, Amazon, Apple, Google, Starbucks and IBM. Added a position in canadian insurer Fairfax during the fall.

Successes

The two highest conviction bets. Something to note is that those were found from screening stock lists rather than blogs/writeups.

Selling equities. Eliminating the ~25% margin I started the year with as valuations rose and moving into fixed income.

Selling at the first sign of accounting problems (Vardia).

Short term trading in the main positions to add to returns worked well. Example screenshots:

Failures

Buying minor positions in low conviction bets that weren’t obviously cheap. I partially use this as a screening method, now that trading fees are so low. But I used it a bit too frequently and should focus on doing valuation ranges for more stocks and screening a bit less.

Buying two companies found via the blogosphere (Vardia Insurance, Bonheur) where I had little feel for mgmts abilities or the proper valuation of that type of company. Theres an action craving voice in me sometimes that needs to be ignored.

Merger arbitrage on a danish stock – all profit and some more went to taxes.

Process

Happy that I continued to educate myself, reading books and studying for Swedsec. It felt fun an easy.

I wrote my first two write-ups of companies. Want to do more of them this year.  I’m happy owning meaningful positions in only 6-7 stocks. But want to have my own analysed price ranges for all of them.

When it comes to analysis I also want a more structured picture of macro sensitivity of my holdings. So far I’ve mostly had some kind of mental map of this, which is fine, but has it’s limits and I fear I might loose sight of the goal if prices fluctuate enough.

Too much time was spent watching short-term price action. I’m happy to earn a little money trading around positions or acting on events that I happen to spot when researching, but I’ve no desire to become a full time trader. I’d much rather move into actually being involved in managing small companies as the longest term plan.

Process improvements 

Posting analysis online to get feedback and create a record.

Notes from the books I read as I read them rather than short summaries after the fact.

Studying Damodarans Investment Valuation to improve my simplistic models and better understand some types of companies I currently don’t (financial institutions, option type stocks).

 

My investment reading 2015

Some of the worlds top investors apparently read 500 pages a day.  I wasn’t close to that number in 2015, but I had a lot of joy reading good books. With exception for the Swedsec books the books were read for pleasure. Below the books I’ll share some thoughts on what and how I plan to read in 2016.

Investing: The Last Liberal Art, by Robert G Hagstrom

This book opened my eyes to the concept of complex adaptive systems, which I’m going to learn more about this year. The book is based on Mungers idea of having a broad set of mental models. The author shares some of the biggest ideas across the disciplines of physics, mathematics, ecology, psychology, sociology, philosophy and decision making with plenty of references to further reading.

Swedsec books

I studied for the swedsec exam reading parts of the books Placeringsrådgivning by Oxenstierna, Vår Ekonomi by Klas Eklund and Finansiell Ekonomi i praktiken by Gavelin and Sjöberg. Vår Ekonomi is really well written and broad introduction to economy. Placeringsrådgivning also had interesting parts and would also be worth a read for anyone who leaves their money in the hands of advisors.

Det är jag som äger Carnegie by Karolina Palutko Macéus

A book about the swedish investment bank Carnegie and it’s takeover by the government. Similar to the Erik Penser book in that a lesson learned is that treating you fairly will not always take center stage when you are supervised by the financial authorities and step too close to a thin line. Pretty well-written book with some insight into an interesting opportunistic company culture and the strengths and weaknesses of it.

Spekulanten by Bengt Ericson

Story of swedish financial hero Erik Penser. How he went into trading, came to own his own bank and later had to sell for 1 SEK to the government. In a similar vein to the book above one learning is that you don’t always get fairly treated when you owe money. And that if somebody tries to bully you to sign a document quickly, you should probably delay.

The Match King

The story of Ivar Kreuger. Interesting and well told. Kreuger was one of the first to use shady business practices still being used today. He doesn’t come across as a pure fraud like Maddoff at least became later in life but more like an extremely intelligent person who pushed a working strategy too far and wasn’t humble enough to scale back. Reading this you will also learn about negotiating a monopoly by giving government loans and how Kreuger used perpetual preferred shares.

The INTP: Personality, Careers, Relationships, & the Quest for Truth and Meaning

Not exactly an investment book. But given it will probably save you from badly investing time by avoiding stupid mistakes come close. For me the main takeaway from the book was that the need I feel for independence, feeling out of place in groups, is something I share with more people than I imagined. And some strategies to deal with it, such as living cheap.

King Icahn: The Biography of a Renegade Capitalist

Listened to this one on my way to work. Some fun stories about Icahn’s intimidation based negotiation tactics. Can’t recommend since I found it a bit longwinded.

The Education of a Value Investor

Guy Spiers shares his story from highly educated to employed in shady wall street bank to running his family’s money. He comes across as a genuinely nice guy. Good example of how far, and in what unexpected ways, conscious mimicking of other people can take you.

Charlie Munger: The Complete Investor

More of Mungers mental models. There is a list of the 24 tendencies from the talk on human misjudgement. Also a section of 7 principles that describes the Berkshire Hathaway investing style. Recommended!

Some quotes:

“The iron law of nature is that you get what you reward for. If you want ants to come, put sugar on the floor.” [Reward and punishment superresponse tendency]

“An example of a really responsible system is how the romans built an arch. The guy who created the arch stood under it as they removed the scaffolding. It’s the same as packing your own parachute.” [Reward and punishment superresponse tendency]

“It’s counterproductive for a prey animal that is threatened by a predator to take a long time in deciding what to do” [Doubt-Avoidance Tendency]

“Three things ruin people. Drugs, liqour and leverage” [Drug-misinfluence tendency]

“The brain of man conserves programming spaces by being reluctant to change” [Inconsistency avoidance tendency]

The Rational Optimist: How Prosperity Evolves

In a similar vein as Guns, Germs and Steel and Sapiens. A historical escapade exploring the power of trade and free markets for innovation and improved living standards.

A central theme is that the true message, that our lives are improving quicker than ever, doesn’t cell newspaper copies as well as more heavy subjects.

Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future

Bold visionaries are often interesting to read about. What seems rare about Elon is his level of technical genius. And his personal awkwardness.

The Little Book of Market Wizards

Nice summary of different aspects that are important when trading. And an illustration that there are many, many different ways to trade. And that success comes from trading in a way that lets you utilize your personal strengths.

The Dao of Capital: Austrian Investing in a Distorted World

A contrarian manifesto. Roundaboutness. Hardness of money. It is a high level book built on metaphors. My favourite one is about the strategy of the conifers whose cones will only open through intense heat during forest fires. The bottom line is that patience is underpriced. Patience is seldom rewarded but when it happens the magnitude can be big.

There’s also a section in forest economics that I found interesting.

‘When the physical growth of the forest and expected future price of timber are such that they yield a return greater than the interest rate the forester should stay his axe.

Clearly then, an increase in interest rate, with all else equal, will decrease the optimal rotation period. T’

The Most Important Thing

Howard Marks main message is that investing is a complex processes and that you need to consider many things in parallel to make good decisions.

Flash Boys by Michael Lewis

An interesting read on HFT firms and the competition for speedy access to markets. Michael Lewis is one to count on to enjoyably convey financial stories and doesn’t fail in this one. I can understand why people get upset when people can create money out of ‘nothing’ as the HFT firms do. As active private investors however it’s a phenomenon so inconsequential it’s not even worth thinking about in my opinion. The hero of the book is Brad Katzuyama who is head of X, prompting a new type of exchange. Will be interesting to see how much traction that can gain, being backed by Y.

Teach Us to Sit Still: A Skeptic’s Search for Health and Healing by Tim Parks

The authors shares his story of trying to heal from prostatitis. He goes through horrors in the conventional medical system and eventually finds a breathing exercise that helps. He then proceeds to take up meditation and join a silent retreat.

Since I’ve shared the authors condition this was of personal interest. I had a few experiences similar to the author, but not as bad. The author found the same book as me that actually understands this condition as being caused by excessive habitual tension in the pelvic floor: A headache in the pelvis.

How to Get Rich by Felix Dennis

Felix Dennis, creator of Maxim magazine shares his story and strategies for getting rich. Not a way that I personally plan to copy, but enriching to read about. The book is full of poetry, and I love it. You can listen to some of his poems here. Read this without knowing Felix had already passed from cancer the year before.

Books I want to revisit in 2016

The Nature of Value: How to Invest in the Adaptive Economy (Columbia Business School Publishing)

Complex adaptive systems. Ecology thinking. Niche identification. Generalist vs specialist business models (or what is the rat equivalent of the investment world?).

The Intelligent Option Investor: Applying Value Investing to the World of Options

Learning by doing is my main motto. Except for subscription rights I have close to zero experience in options. It is a zero-sum game with transaction costs. I know from my poker days the downside of such a setup and don’t believe options are necessary to have a good investment career. They do have their uses however. It could be worth a lot to be prepared with the option knowledge and options for leverage it offers for when an opportunity presents itself in the market. I want to pave the way for this by trying my hand at some low volatility options strategies, such as covered calls and entering a stock selling put options.

This book was at the right level for me but I feel I need a refresh.

The Checklist Manifesto: How to Get Things Right

Since I’ve shared the authors condition this was of personal interest. I had a few experiences similar to the author, but not as bad. The author found the same book as me that actually understands this condition as being caused by excessive habitual tension in the pelvic floor: A headache in the pelvis.

Since checklists mainly take care of our lapses and weaknesses I want to read this book with the following questions in mind:

What items can I check to prevent impatience?

What items can I check to prevent sloppiness?

What items can I ask to ensure I have done enough own thinking?

How can I intertwine checklists with what I feel is a natural strength – combining short term trading with investing?

I’ll think about this and perhaps follow-up with another post.

If you have any suggestions for good books – please leave a comment.