The year started off with a lot of market movement, but it’s nothing to be worried about.
Portfolios holding up very well
So far in 2016 the portfolios are holding up very well with the European portfolio down only 3.1% (index is down 8.7%) and the North American portfolio is down only 0.6% (index is down 5.5%).
And are optimally positioned
And both portfolios are well positioned to profit from current market conditions. The European portfolio is 56% in cash, and the North American portfolio holds 90% cash.
The percentage of your portfolio in cash will of course be different but it gives you an idea of how much of each portfolio (Europe and North America) is invested at the moment.
Average returns still outstanding
On average (since July 2010) 141 European ideas have increased by 29.0% and in North America (since October 2011) the average return of all 92 investment ideas is +16.9%.
Next I want to help you understand why times like these, with markets falling, and a lot of fear around, are your best friends.
A crisis is your friend
Great investors that have been around for a long time appreciate a good crisis.
They see crisis situations for what they are – tremendous opportunities. Opportunities to buy assets at cheap, depressed prices that let you earn large gains later.
Great investors read a headline like “Oil price hits a new 10 year low” or “Offshore drilling stocks plummet after Gulf of Mexico spill” as the opportunity to start looking for really undervalued companies.
A crisis is your chance
It is thus very important that you teach yourself that a crisis situation is one of the very few times you will ever get to buy assets at bargain prices. This is because a crisis creates panic. And when people panic, they sell things without thinking about what they are worth.
They sell first and ask questions later.
So, if you can stay calm (not always easy), you can take advantage of the panic and buy assets cheaply that will give you huge profits later.
Amateur investors run away
Amateur investors do exactly the wrong thing – they run away from a crisis.
An amateur investor is the person that always struggles in the market. He or she sees crisis situations a lot differently than a great investor.
As soon as an amateur reads a crisis headlines he is either – glad that he doesn’t own those companies, or if she does own them, she panics and sells.
He or she thus reacts to the news, rather than thinking what the value of an asset may be and only acting after carefully thinking the situation through.
Amateurs buy the wrong investments at the wrong time
Amateur investors also buy the wrong companies because they are focused on buying whatever is the most popular investment or story in the news at that moment.
They want to do what everyone else is doing, as that gives then the feeling that they are doing the right thing.
But as you know, investing with the crowd is a recipe for disaster. People that buy what is popular or what is getting the most positive news are inevitably buying expensive, overpriced assets.
The master doesn’t buy overpriced assets. He or she buys bargains, and that is exactly what we help you do with this newsletter.
It only has to get better, not even good
Remember, when things are really bad, you don’t need them to get good in order to make a lot of money. All that has to happen is things simply have to go from really bad to less bad.
This newsletter helps you become a master investor
My aim with the newsletter is to help you become a great investor.
Over the past five years the newsletter has not only given you great returns, but during 2015 when the markets were largely overvalued, especially in the USA, it:
- Stopped recommending overvalued companies in North America,
- Increased the cash percentage of your portfolio through its stop loss strategy,
- Continued to recommend undervalued companies in Europe, which have done very well,
- Started recommending much undervalued companies in Japan in 2016.
Your portfolio is optimally positioned
If you have followed the newsletter’s recommendations (even just some of them) your portfolio is now very well positioned with a few undervalued companies and a lot of cash to invest in the outstanding opportunities this market correction will give you.
What are the risks?
As with any opportunity there is also risk.
The biggest risk with a crisis is that it gets a lot worse, or that it takes a long time before it starts getting better. For example, the current low commodities prices may fall even more or they may just stay low for another 5 to 7 years.
That is why you have to follow a time-tested investment strategy like the one we have for the newsletter.
As you know, the newsletter has an investment model that focuses on buying quality, undervalued companies and (this is even more important) it has a system in place to limit your losses if the crisis gets worse or takes longer to recover.
The newsletter also limits your risk by keeping position sizes small – 2% in each company – and the strict trailing stop-loss system that limits your losses to around 20%.
The newsletter also does not rush into a crisis to buy companies left and right. It gives you a few investment ideas each month so that you can gradually increase your portfolio.
Now for this month’s recommendations:
This month’s ideas
In Europe, I am recommending a French holding company mainly of a plastic auto parts supplier (PE = .10.3, EBIT/EV = 17.8%) and a Swedish specialist paper pulp company (PE 6.9, EBIT/EV = 13.7%).
In Asia, I am recommending a very undervalued Japanese manufacturer of entertainment equipment (PE = 10, EBIT/EV = 31.7%, EV/FCF = 7.9).
In North America, I have still not been able to find any attractive investment ideas for you.
2016 performance to date
European portfolio – 2016 performance -3.1%
So far in 2016 the European STOXX 600 Index has declined 8.7%. This is more than the European portfolio, which was down only 3.1% over the same period.
North American portfolio – 2016 performance -0.6%
To date in 2016 the North American portfolio is down 0.6%, which is better than the S&P 500, which is down 5.5% so far this year.
Wishing you profitable investing