There must be 50 ways to make a record

You sit and think about how you can hit the scene […]

You need to find yourself as honest as can be […]

Now don’t get wrapped into the hype and what they think […]

There must be 50 ways to make a record …

A few weeks ago I listened to the debut mixtape of Kid Cudi: “A KiD Named KuDi” and one song stuck on my mind for the next couple of days. First because of the melody, later because of the lyrics. I started to realize how many parallels you are able to draw on investing.

You sit and think about how you can hit the scene […]

What especially stood out for me, personally, is how fittingly the song described my investment journey.

When I started to learn about investing I was fascinated and overwhelmed by the enormous number of available information. I remember thinking loads of hours about the right investment approach which fits my style and will, with a high probability, outperform the market.

The stock market doesn’t follow certain rules like science does.
One absolute term applies though: the law of supply and demand.

So I knew from the start you have to be different to beat the market. To put it in Kudis words:

Don’t get wrapped into the hype and what they think…

One prime example is the historical underperformance of large-cap stocks (if you combine it with factor investing or sort out “junk” companies) or top market cap stocks. Even though as a beginner it might feel counterintuitive, considering you are probably more attracted to invest in more well-known companies you daily encounter or companies that get media or analyst coverage. By the way, most of the time you shouldn’t listen to analysts or price targets anyway.

IMG_1206

One thing you should always know though is the reason why YOU invest. Listen to your own mind instead of listening to others. Even when no one sees certain opportunities as you do doesn’t mean your right or wrong. You must see the right answer for yourself.
Everyone got different perceptions about certain topics and so do you. So, in the end, it’s just you who can make the truly right decision.

There is one passage in the famous book “The Reminiscence of a Stock Operator” which reflects that perfectly:

“I kept my business to myself. It’ was a one-man business, anyhow. It was my head, wasn’t it? Prices either were going the way I doped them out, without any help from friends or partners, or they were going the other way, and nobody could stop them out of kindness to me. I couldn’t see where I needed to tell my business to anybody else. I’ve got friends, of course, but my business has always been the same a one-man affair. That is why I have always Played a lone hand.”

Another answer from legendary trader Marty Schwartz supports that opinion too :

“I tried to clone myself and it didn’t work. I taught them all my methodologies, but learning the intellectual side is only part of it. You can’t teach them your stomach.

You need to find yourself as honest as can be […]

If it is one thing I´ve learned from “Market Wizards” it´s that you should always cut losses quickly if the investment doesn’t perform as intended. But first, you have to set the rules for your investment. There are multiple questions you can ask yourself before making an investment but in my opinion, these are the most basic and important ones: Why you go into the trade, when and why you get out of it.

In this quote, Marty Schwartz explains how most investors let their emotions influence their investment decisions and how he became a (way) above average investor once he stopped irrational and emotional thinking:

“[Traders] would rather lose money than admit they’re wrong. What is the ultimate rationalization of a trader in a losing position? “I’ll get out when I’m even.” Why is getting out even so important? Because it protects the ego. I became a winning trader when I was able to say, “To hell with my ego, making money is more important.”

Personally, I avoid that problem by focusing on the numbers and historical results.

Another quote I like, about the mental aspect of investing, is from Dr. Van. K. Tharp:

“I’m not saying that controlling your mental state is the magic solution to trading success. It’s just part of the answer. But when you admit that the answer is within yourself, you’ve come a long way. The realization that you are responsible for the results you get is the key to successful investing. Winners know they are responsible for their results; losers think they are not.”

There must be 50 ways to make a record …

To sum it up: Whatever road you take in investing, there are plenty. Choose the strategy which fits your personal preference and always make sure you understand WHY you invest instead of solely listening to others. Additionally, you should be honest with yourself, rational and always open-minded. Maybe you are so open-minded to take investing lessons from a rap song…

“Everything that can be interpreted can also be misinterpreted” – Unkown

 

 

8. Nippon Antenna

Nippon Antenna is a Japanese antenna producer and seller.

The current Enterprise Value amounts – ¥ 2,00 Billion spread on 14,30 Million Shares.

The current price of the share is ¥780 while the Enterprise Value you acquire is ¥920 per share.

The Takizawa family hold mentionable positions in the company.

Bildschirmfoto 2018-05-19 um 16.15.12
Source: http://www.4-traders.com/NIPPON-ANTENNA-CO-LTD-14116111/company/

Yutaka and Koichi Takizawa are on the current Board of Nippon Antenna.

The reason for the massive discount is that (according to the financial reports) the television and the housing market are in a tough spot and as of right now it is not looking like they going to recover soon.

Valuations:

Bildschirmfoto 2018-05-26 um 12.08.27

 

For clearer understanding please make sure to read the Strategy section.

Disclaimer:  This blog is for informational purposes only. Everything on this blog represents my personal opinions or the personal opinions of others and should not be construed as financial advice. Talk to a professional if you need specific financial advice.
Shadow Valley Investing will not be liable for any false, inaccurate, inappropriate or incomplete information presented on the website.
Please read through the whole disclaimer section.

7. Tsutsumi Jewlery

Tsutsumi Jewelry is, as you can already tell, a Japanese jewelry producer, whole- and retail seller.

Current Enterprise Value amounts: -¥1,25 Billion.

Biggest Shareholder is current Chairman Seiji Tsutsumi with a stake of 48,5%.

This year they opened 3 new stores, renewed 16 existing stores and closed 9 stores.

Since 2014 revenue and profits are steadily declining. Alone last year revenue declined by 11.9% and since 2014 by around 44%.

Pay attention that you can only buy multiple of 100 stocks.

Bildschirmfoto 2018-04-07 um 14.39.37Source: https://finance.yahoo.com/quote/7937.T?p=7937.T

Valuations:

Bildschirmfoto 2018-04-07 um 13.59.22.png

For clearer understanding please make sure to read the Strategy section.

Disclaimer:  This blog is for informational purposes only. Everything on this blog represents my personal opinions or the personal opinions of others and should not be construed as financial advice. Talk to a professional if you need specific financial advice.
Shadow Valley Investing will not be liable for any false, inaccurate, inappropriate or incomplete information presented on the website.
Please read through the whole disclaimer section.

I am long Tsutsumi Jewelry.

6. Quest For Growth Belgium

Quest For Growth is an actively managed investment fund which invests mostly in growth companies with the focus on realizing capital gains.

Current Enterprise Value amounts -19,62 Million spread on 15,16 Million shares.

The interesting thing about QFG is that their focus is on paying out dividends. Due to their company structure, they don’t have to pay tax on dividends.

At least 70% is invested in quoted companies and at least 25% is invested in unquoted companies. The remaining percentage is invested in VC funds. The criteria for company selection is financial strength, growth prospects, management strength, market position, and valuation.

Bildschirmfoto 2018-03-31 um 12.46.59Bildschirmfoto 2018-03-31 um 12.47.28Snapshot of owned companies taken from the Annual Report

 

Most of all companies got a small or mid-sized market capitalisation in Europe, mostly Germany and Belgium.

The payout ratio of the dividend this year was 99,18% which amounts 1,52€.

Valuations:

Bildschirmfoto 2018-09-29 um 20.39.46

For clearer understanding please make sure to read the Strategy section.

 

Disclaimer:  This blog is for informational purposes only. Everything on this blog represents my personal opinions or the personal opinions of others and should not be construed as financial advice. Talk to a professional if you need specific financial advice.
Shadow Valley Investing will not be liable for any false, inaccurate, inappropriate or incomplete information presented on the website.
Please read through the whole disclaimer section.

 

5. Gamecard Joyco Holdings Inc.

Gamecard Joyco Holdings Inc. is a Japanese company which is engaged in the Pachinko prepaid card business.

As of today, the Enterprise Value amounts around –¥392,9Million.

The largest shareholder is Sankyo Co. Ltd. with 14,9%. They are also engaged in the Pachinko business.

One downside to the Pachinko business: The active player number declined by half from 2002 and 2012 and the revenue declined from ¥31 Billion in 1929 to ¥19 Billion in 2012.
One positive aspect of the business though is that the percentage of players under 30 increased from 5% to 9%.

Pay attention that you can only buy multiple of 100 stocks.

 

Valuations:

Bildschirmfoto 2018-04-08 um 21.52.37

 

For clearer understanding please make sure to read the Strategy section.

 

Disclaimer:  This blog is for informational purposes only. Everything on this blog represents my personal opinions or the personal opinions of others and should not be construed as financial advice. Talk to a professional if you need specific financial advice.
Shadow Valley Investing will not be liable for any false, inaccurate, inappropriate or incomplete information presented on the website.
Please read through the whole disclaimer section.

I am long Gamecard Joyco Holdings Ltd.

4. MFF Capital Investments Ltd.

This week ill present another Australian company: MFF Capital Investment Ltd.

As of today, their Enterprise Value amounts -92,65 Million AUD

They mainly invest in North American Stocks. Listed here:

Bildschirmfoto 2018-03-17 um 14.19.53Source: https://www.mffcapital.com.au/results-reports/annual-reports/mff-2017-annual-report/

They intend to charge a fee of 10% if they manage to outperform the MSCI World Index or the 10-yr bond rate.

The managing director holds an 11,4% stake in his own company.

According to their annual report, they invest medium to long-term.


Valuations:

Bildschirmfoto 2018-04-04 um 22.26.00


For clearer understanding please make sure to read the Strategy section.

Disclaimer:  This blog is for informational purposes only. Everything on this blog represents my personal opinions or the personal opinions of others and should not be construed as financial advice. Talk to a professional if you need specific financial advice.
Shadow Valley Investing will not be liable for any false, inaccurate, inappropriate or incomplete information presented on the website.
Please read through the whole disclaimer section.

I am long MFF Capital Investments Ltd.

3. Charle Co. Ltd.

For clearer understanding please make sure to read the Strategy section first.

 

Charle Co. Ltd. is a Japanese wholesale company, which mainly sells women´s underwear and cosmetics.

As of today, the Enterprise Value amounts  –¥1,08 Billion.

 

The minimum amount of stocks you have to buy is 100. That means to the current price of ¥554 you need to spend at least $519 or 420€.

While the company only holds 1,55% of their own stock, they have a big shareholder: the Hayashi family which owns about 34,8% of the company.

Charle Co. Ltd. acquired heavily their own share. Since 2016 they bought back more than 3 million shares, from 19,17 Million to 16,07 Million shares.

Compared to last year the net income has decreased by 72,5% from ¥1.01 Billion to ¥276 Million. Overall sales declined by 4.08%.

Current Valuations:

Bildschirmfoto 2018-04-08 um 21.08.02.png

 


Disclaimer
:  This blog is for informational purposes only. Everything on this blog represents my personal opinions or the personal opinions of others and should not be construed as financial advice. Talk to a professional if you need specific financial advice.
Shadow Valley Investing will not be liable for any false, inaccurate, inappropriate or incomplete information presented on the website.
Please read through the whole disclaimer section.

2. Chalice Gold Mines Limited

!Please make sure to read the Strategy section first!

Chalice Gold Mines Ltd. is a mining company based in Australia.

The current Enterprise Value amounts -AU $4,05 Million.

They manage 4 mines, three of them based in Australia and one in Canada in which they mine Gold, Copper, and Nickel.

The company agreed to a share buyback back in July 2016. As of the date of the annual report (30.6.2017), they bought back around 21,5 Million shares for around $3,77 Million.

According to the annual report, four company insiders hold mentionable stock positions. All of them amount 17,89%. The largest position holds the managing director of the company with 17,16%.

 

Current Valuations:

Bildschirmfoto 2018-04-08 um 21.35.45.png

 

 

Disclaimer:  This blog is for informational purposes only. Everything on this blog represents my personal opinions or the personal opinions of others and should not be construed as financial advice. Talk to a professional if you need specific financial advice.
Shadow Valley Investing will not be liable for any false, inaccurate, inappropriate or incomplete information presented on the website.
Please read through the whole disclaimer section.

 

I am long Chalice Gold Mines Ltd.

1. EOS Russia

!Please make sure to read the Strategy section first!

My first presented stock will be a Swedish one which actively invests in power companies in Russia.
Their main objective is to create shareholder value through acquiring undervalued shares of companies.

They plan is to reinvest capital gains and to always be fully invested while only holding liquid assets for financing activities.
Since 2012 they have constantly bought back shares.

Insiders of the company hold around 2,6 million shares.

The Board of EOS Russia demands a management fee which consists of :

1. 1/12 of 1% of EOS Russias Net Asset Value per month
2. 5% of EOS Russia positive stock price appreciation including dividends and stock repurchases

According to the Shiller Cape ratio, Russia is as of right now one of the cheapest countries. Bear in mind, investing in Russian companies implies taking on a political risk in one of the most corrupt countries.

 

Current Valuations:

Bildschirmfoto 2018-04-08 um 21.40.03.png

 

 

Disclaimer:  This blog is for informational purposes only. Everything on this blog represents my personal opinions or the personal opinions of others and should not be construed as financial advice. Talk to a professional if you need specific financial advice.
Shadow Valley Investing will not be liable for any false, inaccurate, inappropriate or incomplete information presented on the website.
Please read through the whole disclaimer section.

I am long EOS Russia.

The strategy behind this blog

Shadow Valley Investing is a quantitative investing blog which will present you a negative enterprise value momentum strategy.

The articles on this page are written as bias-free as possible to leave room for your own thoughts.

My humble self will invest in every presented stock.

This article will show you my thoughts on the strategy and deliver transparency why I think it´s a good idea to invest in a negative enterprise value momentum strategy:

 

    1. The reason why I use this quantitative investing approach is mainly to prevent biases. A prime example for that is a study from that person who put quantitative investing on the map: Joel Greenblatt. Quickly summarized, he wanted to test if his, so-called “Magic Formula”, which selects 20 stock after fundamental criteria, can be beaten through individual stock picking from the universe of those 20 given stocks.
      As you may expect the whole portfolio (the 20 quantitative selected stocks) outperformed the “stock pickers” by an amazing 25% (and the S&P500 by around 20%).
      To put it in simple words: for the average investor, its pretty difficult to beat the market through stock picking and most of the time to you do more damage than good.
      As the saying goes: Sometimes less is more…
    2. A negative enterprise value based strategy is a special form of a quantitative value strategy. It´s basically picking companies which have currently more cash per stock sitting in their bank account than a single share costs. That means you get, for example, 1 dollar for 80 cents. Which theoretically makes no sense.
      The reason why they are so cheap is, as you may imagine, they have broken businesses or are too small to be covered. They typically burn cash, have to settle lawsuits, are cyclical, have bad news etc.
      Sometimes those stocks getting punished from the market so badly they end up with incredibly cheap valuations and some with a negative enterprise valueBe aware, some of those companies go bankrupt or decline even further. The key question is though did a decline or an increase in the stock price happen more often and if so: by which percentage?
      Since none of us can look in the future, the only thing that we can do is look in the past and fortunately, a person called Alon Bochman has done that for us. The backtest he has done clearly shows that the good scenario happens more often than the bad one and we end up with a hypothetical return of 50.4% per year in the timeframe between 1972 and 2012.
      As you can see another advantage why this strategy may work so well is that this strategy fits more the individual investor since you got a lot of small cap stocks in which the institutional investor is, most of the time, unable to invest in.
      Another reason why people avoid those stocks is, it can be very hard to invest in them mentally since you tend to read mostly good stuff about other stocks in the market.
      Additionally, most of the time while the normal market is soaring up it can happen (more often than you think) that your value stocks go down or don’t move in any direction at all for very long periods of time.
      Patience is key and at times, its easier said than done. Don’t forget just because there is more cash in the bank doesn’t mean that the stock will reach its intrinsic value.
    3. The third criteria is momentum investing and it´s quite a phenomenon to me. As I´ve said before we can´t predict future returns but according to studies, momentum investing does that in his own kind of way: Stocks that have performed well in the past months will perform better than the market average in the future. Potential reasons why and a more detailed explanation is given by this paper from Jyske Capital at page 5.
    4. Additionally, the stocks will be rated after their Piotroski F-Score. The F-Score determines the financial strength of a company. This will be used to separate financial stable and strong companies from the weak ones. This should potentially improve returns and reduce drawdowns as shown by multiple backtests. One example would be from Piotroski himself. He tested value stocks (stocks with low price to book value) with a high F-Score compared to value stocks with a low F-Score. Results were that he would have increased the returns by 7,5% just by only investing in value stocks with a high F-Score.
    5. To prevent home bias in investing, we invest in global markets.
      Excluding China. As you can see in the negative enterprise value study from above  China performed extremely bad due to fraudulent accounting (at that time) in the small-cap universe.
    6. After 12 months every stock will be reevaluated if it still meets all the criteria if not the stock will be sold.

 

After filtering all the stocks with the criteria mentioned above I´ll end up with a list of companies. I´ll present you one each week unless there are no new companies to present.

 

Disclaimer:  This blog is for informational purposes only. Everything on this blog represents my personal opinions or the personal opinions of others and should not be construed as financial advice. Talk to a professional if you need specific financial advice. Past performances may not be indicative of future results.
Please read through the whole disclaimer section.