20240701 AUD EUR JPY USD trades

One exit to ring in H2, as we wait for end-of-H1 reports

Hi all, and welcome to the Two Crows Week#1 portfolio picks for July 2024.

As we enter the second half of the year I am eagerly awaiting the results and end-of-quarter letters distributed by various investment¹ managers² that I follow. I especially enjoy reading those materials that are written by 1-or-2-person, independant professional investment teams who (as opposed to working for some giant hedge fund) have set up their own small fund or investment management business, as it is a path I myself am pursuing. In these letters, a manager will often discuss their individual investment style and approach, and occasionally also the nuances of investing money for customers when operating as a professional portfolio manager³. Of particular interest to me, by following the letters from any given manager over time I can observe how they handle those occasional (inevitable?) periods of painful underperformance relative to the market and their peers.

Does the manager change styles often trying to follow trends and fads or the current “market darling” stocks? Do they take increasingly risky trades trying to play catchup if their portfolio is underperforming? Do they make excuses for poor performance, while taking credit for good performance? How long (in years), how good (in percentage terms), and how consistent (month by month, quarter by quarter, year by year) was their track record as a private investor before they were able to go pro? How is their fund structured, what fees do they charge, and do I think they’re worth the money? How do I myself differ in style and approach, and how would I handle those same challenges, victories and defeats?

Some of the better lessons I’ve observed so far include

• to avoid extreme concentration (less than say, 10 different companies across several market sectors), so that no one dud investment can blow up your portfolio. Iinstead, spread your investment bets across a minimum of 15-20 good stocks, (if you have sufficient cash to do so, or if not, you should probably just purchase a low cost index instead)

• that hoping for “turn-around”⁴ stocks to recover is rarely worth the hassle

• that even a great company can be a bad investment if you pay too much, and

• to try to always remain cautious and humble, because just as the Market gods sometimes giveth, so too they often aggressively taketh away⁵.

Monthly portfolio commentary

Over June I experienced a prime example of the aforementioned giving-and-taking in action.

The Two Crows EUR portfolio, which has consistently lagged its benchmark all year, started to tick up in value towards the end of May (as shown in green highlight) and for the first half of June, looked on track to finally generate a positive return for YTD.

EUR portfolio starting to recover in May, only to tank again in June approx 8% from high to low

Unfortunately however, on top of ongoing sluggish performance in our oldest EUR stock positions which are in cases down 20-30% YTD, this (in red) happened:

ALFEN took a further 50% dive in June, after already being down 40% from our initial entry, bringing its YTD performance to -70%. Yeah, *ouch*

What was “this”? Alfen announced that due to sales slowdown they expect to make *only* as much money this year as last year⁶, and the share price, already down significantly from when we first purchased, was subsequently cut in half! While painful in the short-term, the strategy says to HOLD for now, and unless further financial deterioration occurs we will not sell. That said, I don’t add to the position despite the cheaper price because other stocks currently appear higher in our quality ranking system. It will be one to keep a close eye on in the coming months though, for developments either good or bad.

The only sale we DID make, was DNX Corp. This stock was always somewhat of an outlier in the Two Crows Systematic portfolios as it has actually had declining revenue over several years (something I would typically avoid like the plague), but because of declining share count, very high dividends and otherwise solid ROIC/ROE figures, it appeared as a purchase candidate during ranking and stock selection earlier this year. Now, however, DNX have been slow to release their latest annual statements. In the real world, this often occurs if companies are embroiled in scandal or other financial difficulties and are forced to delay calculating and releasing their financial statement reports to the market. You might think of it as like skipping class to avoid having to tell your teacher that you didn’t do the homework… I’ve observed that statements released late often hint at trouble in future.

Rather than try to programmatically model and understand WHY the statements are late on a case by case basis, historically my strategy is to simply exit the position, sell all our shares and reinvest elsewhere. The Two Crows algorithm detects out-of-date financial statements, flags the stale data as a warning signal and a trigger to sell, and so that is what we do now, without further care or Fear-Of-Missing-Out. There are always plenty other interesting companies worthy of our cash.

No other sales occurred, and in most cases the stocks selected this month already appear as existing positions in our portfolios, so there are few new faces and no major surprises to announce.

Monthly Trades for AUD, EUR, JPY and USD

AUD denominated stocks (50 000 AUD + divs/sales)

• BUY FID.AX - Fiducian Group Ltd: 750 shares @ $7.47

• BUY JBH.AX - JB Hi-Fi Ltd: 150 shares @ $61.68

• BUY KOV.AX - Korvest Ltd: 500 shares @ $8.76

• BUY LYL.AX - Lycopodium Ltd: 100 shares @ $12.3

• BUY NCK.AX - Nick Scali Ltd: 300 shares @ $13.82

• BUY PRU.AX - Perseus Mining Ltd: 2500 shares @ $2.32

• BUY SIQ.AX - Smartgroup Corporation Ltd: 620 shares @ $8.51

• BUY SNL.AX - Supply Network Ltd: 50 shares @ $22.33

• BUY TNE.AX - Technology One Ltd: 370 shares @ $18.45

• BUY VLS.AX - Vita Life Sciences Ltd: 2700 shares @ $2.28

EUR denominated stocks (50 000 EUR + divs/sales)

• SELL ALDNX.PA - DNXCorp SE: 442 shares @ $18.1

• BUY AOF.DE - ATOSS Software AG: 60 shares @ $111.8

• BUY BETS-B.ST - Betsson AB: 300 shares @ $10.8

• BUY CAT1.DE - Caterpillar Inc.: 20 shares @ $305

• BUY CMB.MI - Cembre S.p.A.: 150 shares @ $38.55

• BUY CBAV.MC - Clínica Baviera, S.A.: 50 shares @ $26.9

• BUY COM.MI - Comer Industries S.p.A.: 100 shares @ $33.6

• BUY ELG.DE - Elmos Semiconductor SE: 52 shares @ $74.8

• BUY E3G1.SG - Evolution AB: 30 shares @ $97.9

• BUY FPE.MI - Fope S.p.A.: 100 shares @ $28

• BUY KRI.AT - Kri-Kri Milk Industry S.A.: 354 shares @ $11.05

• BUY MELE.BR - Melexis NV: 30 shares @ $79.6

• BUY MOUR.BR - Moury Construct SA: 7 shares @ $525

• BUY PVN.MI - Piovan S.p.A.: 350 shares @ $12

• BUY RBO.PA - Roche Bobois S.A.: 80 shares @ $48.3

• BUY UNITED.HE - United Bankers Oyj: 218 shares @ $17.95

JPY denominated stocks (5 000 000 JPY + divs/sales)

• BUY 3964.T - Aucnet Inc.: 155 shares @ $2720

• BUY 6532.T - BayCurrent Consulting, Inc.: 129 shares @ $3263

• BUY 9697.T - Capcom Co., Ltd.: 139 shares @ $3036

• BUY 2326.T - Digital Arts Inc.: 97 shares @ $4370

• BUY 3925.T - Double Standard Inc.: 240 shares @ $1757

• BUY 3150.T - gremz,Inc.: 163 shares @ $2590

• BUY 6866.T - Hioki E.E. Corporation: 63 shares @ $6750

• BUY 2124.T - JAC Recruitment Co., Ltd.: 630 shares @ $670

• BUY 3763.T - Pro-Ship Incorporated: 304 shares @ $1391

• BUY 7839.T - Shoei Co., Ltd.: 207 shares @ $2041

• BUY 3733.T - Software Service, Inc.: 29 shares @ $14350

• BUY 6196.T - Strike Company,Ltd: 90 shares @ $4695

USD denominated stocks (50 000 USD + divs/sales)

• BUY GOOG - Alphabet Inc.: 20 shares @ $186.86

• BUY AZO - AutoZone, Inc.: 2 shares @ $2955.4

• BUY ACLS - Axcelis Technologies, Inc.: 33 shares @ $139.42

• BUY IFCN.SW - INFICON Holding AG: 3 shares @ $1525.59

• BUY IRMD - IRadimed Corporation: 106 shares @ $43.96

• BUY KNSL - Kinsale Capital Group, Inc.: 12 shares @ $386.53

• BUY ORLY - O'Reilly Automotive, Inc.: 4 shares @ $1057.42

• BUY CASH - Pathward Financial, Inc.: 83 shares @ $56.07

• BUY SMLR - Semler Scientific, Inc.: 134 shares @ $34.75

• BUY TGLS - Tecnoglass Inc.: 94 shares @ $49.62

• BUY V - Visa Inc.: 17 shares @ $266.59

As always, thanks for reading, and please feel free to get in touch if you’re interested in systematic investment and modelling.

1. https://lettersandreviews.blogspot.com/p/fund-manager-letters.html

2. https://www.reddit.com/r/SecurityAnalysis/wiki/letters/

3. For example, the occasionally contradicting requirements of being a good investor, as opposed to a good business/salesperson

4. https://www.investopedia.com/terms/t/turnaround.asp

5. As I describe further below, see EUR portfolio :(

6. https://alfen.com/en-nl/news/alfen-decides-adjust-2024-guidance-and-reassess-mid-term-objectives