I must apologize - before noisy work I have not managed until today to prepare my last rebalancing blog post for you here. But because most of it still applies, I'm catching up now & the details are as always directly in the blog post:
So here are my 2-cents on the last stock market month:
By mid-November, the stock market recovered amazingly well. Especially on November 10, 2022, stock prices rose unexpectedly. It was the strongest price increase in the last two years - that is, since 2020. Shares from the technology sector rose particularly sharply. The technology-heavy Nasdaq Composite Index rose a full 7.35% in that one day. That was the highest price increase since March 2020, when stocks recovered after the first Corona shock.
The trigger for this was that inflation in the U.S. rose 0.4% last month. The expectation was for inflation to rise 0.6%. It is actually inconceivable that a small deviation of 0.2% between the expectation and the actual figures has such a high impact on share prices. If you look at the inflation rate over the last 12 months, the difference is more pronounced: in November, annual inflation was 7.7%, compared to 8.2% in the previous month. This was the annual inflation rate since January 2022. In the stock market, it is not so much the present that is traded, but rather the future, and thus also the expectations for the future. After all, it is future developments that are decisive in determining whether an investment made today will yield a good return.
The lower inflation rate gives hope that interest rates will not have to be increased by the national banks as much as expected. This in turn means that money will not become as much more expensive as expected. This means that more of it is available for investmentswhich in turn is good for the economy and therefore also for share prices.
Value & Momentum worldwide
My sample portfolio with the Value and Momentum strategy also recovered strongly from 13.4 % in October to 16.8 % return per year. The total return is again at 54 % since the start. During the rebalancing in November, there were again significantly more companies that showed positive price momentum in the share price. It is amazing how fast the returns are recovering. This shows once again that it is important to stay with it and not to do any market timing market timing: Because if you miss days like this on the stock market, you ruin all the returns to nothing.
Anyone who has trouble letting go of market timing is in good company. However, in my opinion, you have good opportunities to protect yourself from this.
Here are three suggestions on how to protect yourself from yourself when investing:
A strategy with clearly defined rules and then apply them strictly.Monthly, quarterly or annually - the main thing is to invest at equal intervals - for the same amount an index fund or ETF on an index.Hire a professional and let him do his job.
Unfortunately, in my practice as an asset manager, I often see that the first two strategies do not work. This is not because they are bad: Rather, it is because they are not consistently implemented. The logic is easily explained, and the resolution to implement them strictly is also quickly made. The much bigger problem is to control one's own emotions under control. When prices plummet 30%, many lose their nerve - often without really admitting it to themselves. At best, they just stop buying stocks or ETFs and bury their "head in the sand." They then wait until share prices have recovered and sell as soon as the loss has been made up. Often only to get back in later at higher prices and the whole thing starts all over again. It's even worse when prices rise sharply in a short period of time, then everyone wants to be there - they're afraid of missing out while everyone else gets rich and buy at top prices: Just look at the just look at the craze around cryptocurrencies in the last few years. Bitcoin went from around 12,000 francs in November 2020 to just under 57,000 francs in March 2020. It then headed rapidly south until it turned around at 29,000 francs in July 2021. By November 2021, it had climbed back to almost 60,000 francs. Today - one year later - it still costs just under 16,000 francs - over 73 % less than a year ago. A negative record that has beaten virtually every asset class in the world. To this day, no one has been able to plausibly explain to me how to assess the effective value of a cryptocurrency. The appeal, like the lottery, seems to lie more in the hope of a quick win. In fact, I'd argue it's the main appeal. I can hardly imagine that such hype would have developed without this hope.
The third strategy - hiring an expert - works best when there is trust, and that often takes some time. This too is an experiencewhich I as an asset manager as an asset manager. But now back to my favorite topic - cheaply valued value companies with high momentum - and the rebalancing in November 2022:
Rebalancing Value and Momentum
Sold this month was the Italian company OVS. As a fashion retailer, the company is struggling with several problems: On the one hand are rising on the one hand, inflation is costs and private consumption is declining. So these price increases cannot simply be passed on to consumers, which in turn puts pressure on margins. On the other hand, there are still problems with the supply chains. The share price of OVS has lost a lot of momentum over the past year, causing a loss of -32.2% for the portfolio. Most recently, OVS accounted for only about 2.3% of the portfolio, so the loss was well absorbed by other positions.
New in the portfolio are three companies: Resolute Forest Products and Crew Energy are two of them from Canada. The third company - NRW Holdings - is from Australia. Although all three are active in the raw materials sector, they could not be more different. Resolute Forest Products is active in the production of pulp, fibers, wood products and paper, while Crew Energy Explores and produces natural gas, crude oil and liquefied natural gas. NRW Holdings on the other hand, offers a wide range of services for the mining and energy sectors as well as for the civil infrastructure and urban development sectors.
The current portfolio can be found here in a clear table and with detailed descriptions of all companies:
https://www.valueinvestments.ch/portfolio-verm%C3%B6gensverwaltung
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$RFP
$CR
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