The year ended in this financial world and the lessons were immense. The learnings from Brexit to Oil to trump to some losses all point in the same direction; ignore the noise, focus on the underlying business.
I returned 14.5%. This is after -4% last year. This is quite average especially if you look that most of that return came from one position alone. So this year left a sour taste despite the good performance. Xilam was a 5 bagger and is now my largest position. I sold some, but the main thing is I was right, it was cheap and still is. Here is a link to my analysis of Xilam. I also got killed on a bad position in Concordia and I would not exclude it from my returns.
The family portfolio returned 31%, with speculative positions in WPX energy and Mittal.
my purchase strategy will focus on what I know better. I am not comfortable with drug and industrial companies. Drug companies because I do not know at what price they can sell the drugs and when do competitors will enter a drug market. These companies have high gross and net margins but I feel that they are often value traps as they have no durable moat and need to reinvest their free cash flow not only to grow but to compensate for the loss of earning power that their current drug portfolio has. Industrial companies because you need to know where you are in a cycle with an extreme precision to perform. We saw that with Oil and Gas, Automobile suppliers. A diversified industrial conglomerate is still a possibility, but not a specialized industrial company.
I find that currently the obvious generational opportunities are emerging markets with undeserved populations in terms of equipment rates, and online services where the runway is huge. They also tend to be areas where I am comfortable and have some related work and life experience. I got caught in the fallacy that a portfolio has to have a bit of each sectors. I totally disagree with the notion now because some sectors are hard.
-I should probably stay out of future heavily hated controversial companies since it did not work well, or wait until a turnaround has materialised.
-Its apparently more ethical to sell dangerous addictive substances (Soda) to third world country kids whose parents do not have an health an nutrition education, than to sell overpriced products that save lives, while no one is excluded from treatment. Or Maybe it is because your name is Warren Buffet. BTW I own and use both so I am totally neutral.
-It is better to diversify because you never know what might happen
-My goal of doing less was not achieved.
-Accept when you are wrong and move on, if facts change. This is my learning of 2016. I knew it already because I read it before but to actually do it is something else.
Portfolio clean up en of year
–SELL CONCORDIA HEALTHCARE; This position was sold at a large loss when I saw a judgement from the UK competition authority it made me realize that the UK will probably tank this company. I was unlucky on this one but also stubborn to not exit quickly when facts changed (UK generic price controls). The short thesis being wrong also confused me. When I say wrong, is that the vocal people did not mention the regulatory problems but were rather stating some made up facts or not understanding GAAP earnings. Seeing that their thesis were wrong, I was reinforced in my long thesis. They were just lucky to be short for the wrong reasons. I am sure that other smart short and long investors exited knowing the future issues in the UK business.
-SELL SERITAGE; I felt that it was fairly valued and in Euros the gain was large. Nothing wrong with this for long term holders, I just got frustrated at the slow pace of renovations compared to the size of the real estate portfolio. I would rather have a company that can show the same growth rate without capex.
-SELL NATIONAL OILWELL VARCO; Due to the overall gains in 2015 I exited this position, for a swap to another position affected by oil prices but cheaper and with a clearer growth runway. It is still potentially undervalued but sometimes it is good to start fresh.
-BUY CRITEO ; Rapidly growing French ad tech company. Market leader, Net cash positive, and aggregates more and more services on top of the main re targeting business. Also very focused on R&D. This industry is controversial but I believe in its integrity, knowing the culture of excellence of the French scientific schools where the engineers and mathematicians come from.
-BUY KOOVS PLC; Indian startup in fashion e-commerce. Burns cash. Its a bet as the chairman and management are all seasoned Asos executives. There is a strong investor base ready to support its growth such as media group Times of India and Waheed Alli. Waheed Alli was chairman of Asos for over ten years, bringing it to the success it was. Fashion e-commerce is a profitable subset of e-commerce due to quality differentiation. Indian e-commerce will boom. It is my first pure growth investment. It is from Masa Son (CEO of Softbank) influence that led me to do it.
-BUY ATLAS MARA; African Banking venture founded by Bob Diamond and Ashish Thakhar, who is a serial African entrepreneur and founder of the Mara group. This bank is selling for under 0.5 times tangible book value, because investors are scared of Africa at the moment when it is the most exciting opportunity for Banking. Small position for now.
-These three investments are ones where I believe in the long term story. I also REINFORCED SOFTBANK
Most of my stocks did have a bad 2016, so I am quite optimistic for 2017. Sears and Valeant got killed but I definitely see the value there. I have many emerging market stocks, long term stories, or hated stocks, so I do not suffer from the stock market overvaluation .
Portfolio, from biggest to smallest position,
-My employer (IT sector)
-Bolloré and Financière de l’odet
-Altisource Portfolio Solutions
I intend to resume the holding series with Liberty Lilac next.