First I want to apologize for not posting more last year.

I have a new job, and unfortunately due to that I’m more restricted in what I can post publicly, in order to avoid conflicts of interest.

I’m still writing down my equity analysis, but for now those will remain unpublished.

What I can publish is my own personal finances, which includes this annual report!

So, lets begin.

Current Portfolio

My portfolio had a lot of changes this year, and now it looks like this:

That looks a bit confusing with all those labels merged together, but we can split it into 3 main sections:

The “Basket” is a new thing that i started early this year, and it comprises of 12 Japanese stocks chosen purely quantitatively for their value. I did no in-depth research on them, beyond the fact that they came up on my value screener. This is effectively my attempt at Benjamin Grahams investment strategy, and so far it has worked reasonably well.

The “Stocks” is my usually investments, which i have done in depth research on. There are 9 of them, and I held them all coming into 2025, and you may read about why i purchased them if you go back through the newsletter.

The “ETF” comprises of the 2 ETF that I hold since the beginning of my investment journey, and which I regularly invest into. This is the backup portion of my portion, where I don’t make active choices, and is just a pair of passive index funds (one of which I do not contribute to).

I also got married this year, and so my wife has her own portfolio which comprises only of passive index funds. Her portfolio is not included in any of this.

ETF

Nothing much has changed here. I did bring the ETF allocation to close to 65% of the portfolio and I mean to keep it that way.

This isn’t a part of my portfolio I think about, beyond buying new shares of it on a monthly or bmonthly basis.

Like I mentioned previously VWCE is an all world portfolio, and what I use as my benchmark. This is the one ETF I am actively investing in.

SXR8 is a S&P500 index tracker ETF, that i no longer invest in. I prefer the more diversified VWCE, but I don’t want to have to pay taxes on the capital gains for SXR8, and so I haven’t sold it yet. If I need cash to buy a house I will probably be selling this for the down payment.

Stocks

These are the long term holds of my portfolio, and the ones I did more research on.

You will find that all of them I have already discussed in previous issues of the newsletter, and that all of them were present in last years annual report.

That said, there are a few changes from the end of 2024, namely:

Bought

• LULU

• OLVAS

• JXN

• WU

Sold

• LULU

• OLVAS

• PG

• JNJ

• O

You may notice I bought and sold and OLVAS throughout the year. Both of these were short term holds that either ended successfully faster than expected (LULU) or didn’t turn out as I wanted quickly and I exited for a small gain (OLVAS).

I did write down equity analysis for both of these, but those are sitting in my drafts folder due to the concerns of my work. I may publish them in the future.

Additionally I reinforced my (at $86.13) and (at $8.92) positions.

I also sold a number of puts in the middle of the year, accounting for 530€ in premium collected. Mostly JXN and TROW puts, none of which were triggered.

Basket

The basket as I call it is an experiment I am running on purely quantitative investing in the style of Benjamin Graham.

Effectively what I did was download a historical financial record of all Japanese stocks directly from the regulator, and used that to generate a screener and classify each stock as a function of both quality and value.

That gave me a list of 30 or so stocks that were both very cheap, and relatively decent quality.

I then attempted to buy more or less equal amounts of each stock. Due to the high stock price of some securities I ended up with only 12 stocks, which I purchased an equal weight of.

I did little research in each of them, and focused only on the financials.

Nonetheless they have done relatively well with an average return of around 20% since march when I bought them.

I have an (unpublished) newsletter article where I go over this too.

I plan on selling them all in 2027.

Dividends

This year i achieved a new all time high in terms of dividends received, with and being particularly high payers.

We can also compare this to other years:

It’s only a very slight increase over 2024, but please keep in mind that the Euro strengthened quite a bit during this time, and most of my dividends are in USD and JPY.

Nonetheless I did reach my goal of 3000€ in dividends received per year.

Benchmarking

Of course none of this matters without a review of the benchmarks, and the risk taking.

Here is the data since inception:

And for the past year:

Neither of them are particularly different from the indexes that make up the majority of my portfolio for obvious reasons.

That said I am satisfied with the returns I’ve received.

My Goals

Looking back at 2024 I had 3 goals:

• 3000€ in dividends received

• Reverse the under-performance vs my benchmark

• Reduce the number of positions in the portfolio

I achieved 2 of them, and only slightly failed in the “reverse under-performance” part.

In fact given that a significant part of that under-performance actually came from the S&P500 ETF I hold…

Going forward I will continue to trawl through Japanese stocks (I’m looking into an interesting one!) and focus on my family for the next year.

For 2026 I will:

• Maintain my existing dividend level

• Outperform VWCE

• Add at least one more position to the portfolio

Conclusion

Once again, I sleep well at night, the portfolio is on track and I’m happy with it.

See next time!

• Name: Olvi Oyj (OLVAS HE)

• Sector: Alcohol

• Share Price: 29.60 €

• Dividend: 1.20 €

• Market Cap: 612 Million €

• Areas of Operation: Finland, Baltic Countries, Belarus

Business:

The parent company Olvi plc holds 100 percent of the Estonian brewery AS A. Le Coq, 99.88 percent of the Latvian brewery A/S Cesu Alus, 99.66 percent of the Lithuanian brewery Volfas Engelman, 100 percent of the Danish Bryggeriet Vestfyen and 96.36 percent of the Belarusian brewery Lidskoe Pivo. Olvi plc holds 100 percent of Servaali Oy which is a leading import, sales and marketing organization for premium beverages in Finland and 100 per cent of The Helsinki Distilling Company.

This is effectively a holding company for a Finnish brewery, alongside a number of other breweries based in the Baltic countries and Belarus.

This is a “multi-local” company that grows primarily through acquisitions and whose profits derive from adjusting their products to local tastes and by leveraging localized brands.

This is not a global business like Carlsberg or Diageo, it’s purely a regional competitor focused almost entirely on the eastern baltic region.

The company has 3 main regions:

• Finland

  • 36% of Sales

  • 26% of profits

• The Baltic Countries

  • 47% of Sales

  • 32% of profits

• Belarus

  • 21% of Sales

  • 43% of profits

The company produces the following drinks:

• Beer (53% of volume)

• Soft Drinks (15% of volume)

• Water (11% of volume)

• Kvass (9% of volume))

• Long Drinks (5% of volume)

• Cider (2% of volume)

• Juice (2% of volume)

• Other (3% of volume)

The company owns a number of brands and breweries, and uses them to produce and market their products. Most of these brands are old, with longstanding community bonds, some of which have existed for hundreds of years.

As a whole, alcohol is a really stable and mature business, with regular cash flows and high returns on assets.

Historically this has been a relatively stable business with 10% profit margins pre-covid, however margins have meaningfully worsened since.

That said the management team is aware of it, and has made it a solid priority to get those back up, which combined with the doubling in revenues seen since 2019 will (if successful) result in double the earnings.

That doubling in revenues is actually quite an interesting thing. The company has averaged over 10% growth in revenues for the past 5 or so years, which is pretty amazing and attributed to a combination of additional volume and price increases, as well as a handful of acquisitions.

Finally, and importantly, the company has a clean balance sheet with effectively no debt, maintaining only operating liabilities. This provides an additional margin of safety that i like, while giving management the option to leverage up if they happen to find a good acquisition, or want to “juice up” the returns to equity.

This is actually something they highlighted in their latest quarterly report:

I’m fairly ok with this, since they have been mindful of their acquisitions so far, and if they can find a nice bolt-on acquisition to complement their existing brands I think the added risk is worth it for the additional growth.

Important Notes

Background

The underlying business is fundamentally solid, and I don’t expect any major disruptions there, but that doesn’t mean that the stock is rsik-free, or without issues.

Every company has its warts, and Olvi Oyj has two:

• Multiple Share Classes with a controlling shareholder

• The Belarusian Business

Lets begin with the simple one, the Belarusian business.

As mentioned above the company’s business in Belarus accounts for 21% of its revenues and 43% of its profits, but as I’m sure you’re aware relations between Finland and Belarus aren’t exactly in the up and up given the conflict in Ukraine.

The company has already suffered from fines (which may have been politically motivated), and due to sanctions doing business in Belarus has become significantly harder.

Nor is capital flows to and from Belarus currently possible (and may not become possible for the foreseeable future), and of course there is always the danger of full on expropriation.

As the company stated in its report::

The market has noticed this, hence why the share price tanked upon the beginning of the conflict.

Personally I think that this is probably priced in? I don’t think the market is valuing the Belarusian business at all when looking at comparable businesses, and so the way I see it, if international relations normalize, that would likely provide a decent catalyst to a higher valuation.

The bigger problem is really the elephant in the room. The dual share class structure.

There are 2 share classes, A and K shares. Both classes have the same economic rights, but K shares have 20 votes per share, compared to the 1 vote per share of A shares. Only the A shares are publicly traded.

As you can see, despite K shares having only 18% of economic rights, they hold 81.5% of voting rights, presenting a serious mismatch in incentives.

Worsening this is the fact that there is a controlling shareholder:

This effectively means you’re at the mercy of the whims of a non-profit foundation, which might interfere with the operations of the business, without suffering the full effects of that interference.

Ultimately this means getting control of the company is effectively impossible, and so we must value the business accordingly.

This is a classic case where a Dividend Discount model is appropriate to use, which is why i used that method.

Key Indicators:

• Revenue Growth CAGR: 8%

• Net Margin: 6%

• Return on Assets: 7%

• Return on Operating Capital: 8%

• Return on Equity: 13%

• Debt to Assets: 44%

• Book Value per Share: 14.37 €

• Cyclicality: Non-Cyclical

• Expected State: Stable

Current Valuation:

• Price to Earnings: 15.3

• Price to Book: 2

• Price to Tangible Book: 2

• Price to Revenue: 0.9

Shade Research Valuation:

Assumptions:

• Discount Rate: 8%

• Starting Dividend: 1.20€

• Dividend Growth Rate: 4.7%

Unlike most other valuations on this newsletter, this one was fairly simple and formulaic, I simply used the growing dividend discount model to get the output value.

The reason for this is simple, there is no way for me to ever acquire control of the business, and the reliable dividend makes the growing discounted dividend model the best option to value a stable and growing business like this.

I did fiddle with a few things though.

The discount rate that I arrived to was 8% and it is effectively a CAPM discount rate with a few changes:

• Risk-Free Rate: 2.2%

• Equity Risk Premium: 5%

• Beta: 0.8 (historically this has been 0.45)

To this I added my standard 30% margin of safety, making the 8% discount rate used above.

The reason for the increased beta is to reflect the added risk regarding the Belarusian operations.

This resulted in a value of 37.42€ per share, well above the current market price.

Results

Ultimately the company is undervalued for the type of business that it is, with a potential trigger to a valuation bump if EU-Belarusian relations improve.

There are 2 main issues with the stock as an investment:

• The discount rate, though appropriate for the business is relatively lower than what I usually use

• The controlling shareholder rubs me the wrong way

I’m uncertain at the moment. I actually like the company, and the investment, but I’m not really sure if the return matches my required rate of return.

That said I don’t think investors will do poorly here.

My Current Stance: BUY

Much like the previous year, 2024 was a good year for my portfolio, with it reaching all time highs, a good performance and overall progressing well ahead of my initial expectations when i started investing.

Beginning with the full portfolio, you can see a few changes:

We can see once again the impact of my focus on bringing my index fund allocation higher, and I am happy to report that sometime early in the year I was able to reach my goal of 60% into indexes.

In this case the indexes I’m allocated to are:

• VWCE - An all world fund

• CSPX - An S&P500 tracking fund

I haven’t put any more cash into CSPX since I originally invested in 2021, and have no intentions of doing so going forward. The only reason I haven’t sold it is due to the fact that I would have to pay significant capital gains taxes on that sale.

I prefer the more diversified VWCE option, though I’ve recently heard of a new index fund that is quite similar to VWCE, but has a lower expense ratio and slightly higher diversification, . You can find more details on it here.

At the moment I have no plans to enter a position there, since I prefer to keep my portfolio simple, and the high unit price makes it inconvenient to buy in. Still, if I were to start a brand new portfolio, that would probably be my pick.

If we stick to just my actively managed portfolio we see:

Here we see a few significant changes throughout the year:

• had essentially recovered at the beginning of 2023, and I was actually in the green a little bit, but the suspension of the dividend and now the firing of Pat Gelsinger has caused the entire position to crash back down to less than half of what I bought it for.

  • I’m currently considering selling the position entirely, since it’s not clear to me if the road the company is on going forward is the correct one. I will wait for a new CEO to be appointed prior to making such a decision.

  • It goes without saying that Intel has been my greatest failure in terms of monetary losses. I’m down over 60% of what I put in, maybe more when you account for options and other costs.

• used to be a big position but it looks like the company is getting re-rated downward. Personally I don’t see the issue, the company is healthy, generating agreeable profits and meeting and exceeding my GAAP earnings expectations.

  • Technically I’m in the red on capital gains right now, though the dividends received make it a positive total return.

  • I’m keeping it as is, though I won’t rule out increasing the position.

• had a big jump this year! I made a few purchases here and there, and the re-rating of the company bumped it up quite a few places in the portfolio.

  • I’m happy with the dividends, and performance, and have no plans to either buy more or sell.

• was sold at the beginning of the year. Obviously It heavily recovered since I sold it, and I would have been better off leaving it be.

  • Ultimately I just re-evaluated the company and didn’t really see where the growth would come from to justify such a high multiple.

  • I still don’t understand the re-rating the stock has undergone since.

• was sold when it cut the dividend. As is tradition it recovered since I sold it, and I would have been better off leaving it be.

  • I didn’t expect the spin-off (which I also sold), and the fact that they used it as an excuse to cut the dividend left a bad taste in my mouth.

  • Ultimately I bought this one as a dividend aristocrat that I expected would continue to pay the dividend while paying off debt. It didn’t happen so I decided to sell it since it didn’t match my expectations.

• I opened a new position here, if you’d like to see my reasoning, check out this post:

  Shade Research

  Jackson Financial (JXN)

  Key Data…

  Read more

  2 years ago · 2 likes · 4 comments · Tiago Dias

• 7575 - I also opened a new position with Japan Lifeline. I actually wasn’t expecting this, but it looks like the unwinding of the Yen carry trade caused it to trigger a couple of my buy orders. It’s only a small position though, which I regret since I’m up 30%!

  Shade Research

  Japan Lifeline

  Key Data…

  Read more

  2 years ago · 4 likes · 1 comment · Tiago Dias

• I also opened a new position in British American Tobacco. Ultimately the price was attractive, and the position has done well so far.

  Shade Research

  British American Tobacco (BTI - BATS)

  Key Data…

  Read more

  2 years ago · 3 likes · Tiago Dias

In terms of dividends received, we have once again reached a new all time high:

You can see a significant gap in Q1 2024, which seems to be due to western Union paying out that quarters dividend in Q4 2023.

That combined with unfavourable FX rates at that time, plus the lack of some heavy Q1 payers which had been sold in 2023 meant that Q1 2024 actually paid out less than Q1 2023!

Fortunately the remaining quarters caught up, and I’m happy to announce that I reached 2546€ in total dividends received for the 2024 year, above the 2145€ received in 2023.

If we check the capital gains only:

You can see that I’ve actually made a loss, as a result of the sales of and .

The total loss there was about 1000€, but got balanced out by the small amount of options selling I did this year.

Speaking of which, I haven’t sold all that many options in 2024. There is no real reason for this slowdown, other than the fact that I couldn’t be bothered to sell puts this year.

In hindsight I should probably do it more, since I can earn a fairly steady and “safe” income like that… If i had done it every month with a couple of stocks I could probably have turned this capital loss into a gain.

Benchmarking

The real question of whether I am having alpha is when you compare the portfolio value versus the hypothetical benchmark portfolio.

My benchmark portfolio is a simple buy and hold VWCE with a 3€ transaction cost. In essence it’s what I would have done if i had zero active management, and purely bought the index whenever I put in cash into the brokerage account.

In short I underperformed.

Not by much (when you don’t account for the tax drag) but underperformance all the same.

Most of this underperformance is directly attributed purely to which is unfortunate.

If you want to see the VAMe and risk analysis from the brokerage:

And that’s it in terms of key information!

My Goals

Looking back at 2024 I had 3 goals:

• 2500€ of dividends received

• At least 60% of portfolio value should be in Indexes

• Continue the newsletter

All of which I achieved, although the newsletter could have done with extra work.

Unfortunately I’ve been quite busy and that is looking to continue to be the case in 2025.

For 2025 I would like to have the following:

• 3000€ in dividends received

• Reverse the underperformance vs my benchmark

• Reduce the number of positions in the portfolio

Anything else is completely out of my mind at the moment, since my personal life is going through some pretty massive changes (I got engaged!) and that will only accelerate in 2025.

Conclusion

I sleep well at night.

Ultimately the portfolio is on track, I’m comfortable with it and that’s really all the matters!

Hopefully I will have passed CFA level 2!

See you on the next one!

Share Shade Research

• Name: Jackson Financial

• Sector: Insurance - Annuities

• Share Price: $90

• Dividend: $2.80

• Market Cap: $6.7 Billion

• Areas of Operation: USA

Business:

Jackson Financial Inc. (“Jackson Financial” or “JFI”), is a financial services company focused on helping Americans grow and protect their retirement savings and income to enable them to pursue financial freedom for life in the United States (“U.S.”). (…)

We offer a diverse suite of annuities to retail investors in the U.S. Our variable annuities have been among the best-selling products of their kind in the U.S. primarily due to the differentiated features we offer as compared to our competitors, in particular the wider range of investment options and greater freedom to invest across multiple investment options. We also offer fixed index, fixed, and payout annuities.

This is Prudentials old US annuity business which was spun-off into its own company a few years ago.

The company is one of the largest retirement services provider in the USA, and sells a range of retirement products from Registered Index Linked Annuities (RILA) to standard annuities, to other more complex financial products.

The company has a number of subsidiaries that handle the day to day operations, while the holding company owns it and coordinates everything.

The subsidiaries are:

• Jackson - The primary operating subsidiary

• Brooke Life - Another subsidiary, and the direct parent of Jackson

• Brooke Re - A Michigan based captive re-insurer that has been recently established

• Jackson Finance - Another subsidiary

• PPMH - Another subsidiary

• PPM - Another subsidiary

The main reason for this split is due to the fact that insurance and financial advisory are both highly regulated businesses both at a federal and a state level.

By splitting this up, the company can ensure that each subsidiary is regulated by only one regulator, allowing for clearer and more consistent regulatory guidance and norms.

The company generally operates through 3 reporting segments:

• Retail Annuities

• Institutional Products

• Closed Life and Annuity Blocks

• Other activities are reported under “Other”

Retail Annuities is the largest segment by far in terms of assets and sales:

On these assets the company effectively charges a fee, that is based not directly on the asset value but on the benefit base to the client, allowing a more stable fee business than one that would be dependent on the potentially volatile asset value.

Important Notes

Background

First things first. There is a reason the company is cheap.

From their latest annual report:

Due to this material weakness in our disclosure controls and procedures and internal control over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2022.

Material weaknesses in disclosures and internal controls are not a good thing, and it’s natural to demand a significant risk premium when such things happen.

In this case it looks like the issue has been resolved, and so I will be giving them the benefit of the doubt.

As a result of the material weakness, our management identified the need for additional evidence supporting the review and challenge of inputs and results as well as enhancements to the governance process in developing the discount rate used to estimate the fair value of some of our guarantee features. Our management has implemented new controls and enhanced certain existing controls to remediate the material weakness. Management has evaluated the effectiveness of these new and enhanced controls and has concluded that these controls are operating effectively such that the material weakness is fully remediated as of December 31, 2023.

Key Indicators:

• Revenue Growth CAGR: -2%

• Net Margin: 30%

• Return on Assets: 0%

• Return on Operating Capital: 2%

• Return on Equity: 9%

• Debt to Assets: 97%

• Book Value per Share: $125

• Cyclicality: Cyclical

• Expected State: Growth

Current Valuation:

• Price to Earnings: 7.7

• Price to Book: 0.7

• Price to Tangible Book: 0.7

• Price to Revenue: 2.3

Shade Research Valuation:

Assumptions:

• Discount Rate: 14.81%

• Nominal Revenue Growth: -10%

• Normalized Sales per share: $93.65

• Normalized Earnings per share: $38.66

• Normalized Book per share: $123.65

I’m valuing this business in a sum of the parts manner with 2 key parts:

• The Net Asset Value

• The Fee Business

In essence I have taken the fee revenues that come from selling and managing annuities and customer assets, and valued it as its own independent business.

Additionally I have taken the net non-operating assets of the business, provided some appropriate discount to account for asset quality and lack of direct control, and valued that.

The net asset value part is the easiest to value because the majority of the company’s assets on the balance sheet are either customer assets (which have a correspondingly equal customer liability), insurance operations related assets (deferred acquisition costs, reinsurance recoverable, etc…), and investments.

Those investments are really the primary asset we are valuing, and so I took the book value of them, considered the level of risk for the asset, and added a discount to it according to my own judgement.

At the end my own judgement on the actual value of these assets ended up being slightly more conservative than the fair market value of these assets as reported, so I’m reasonably confident in its accuracy.

Ultimately I valued this part of the business at $82.58 per share.

Next I valued the fee business.

In essence I took the cash-flows that came from selling and managing the customer funds, and attempted to normalize those values, and estimated it forward until 2030, assuming that those revenues would decrease 10% per year while costs would remain the same.

I feel this is a very conservative stance, and there’s a lot of subjective decisions here. A big issue is the changes in market value of the free standing derivatives, etc… which have a significant impact in the net income, but which i judged was not likely to impact the ultimate value of the business, due to the way they structure their annuity business.

Ultimately this part of the business was discounted at a 14.8% discount rate, and with a $0 terminal value, the earnings generated here were valued at $59.49 per share.

Results

Putting both of these parts together I estimate that the true Net Present Value of is around $142 per share.

This is slightly above the tangible book value of the business, and well in line with industry norms. Additionally it means the company is trading at a significant discount to what i estimate to be its true value, and so I have opened a position, and will continue to add to it as cash comes in from my day job.

My current stance on it is Buy.

Ultimately this is a high beta company that consists of a stack of treasuries and corporate bonds with a fairly stable fee business on top.

I like it, I’m buying it.

• Name: British American Tobacco (BTI - BATS)

• Sector: Tobacco

• Share Price: 23.92 £

• Dividend: 2.3552 £

• Market Cap: 53 Billion £

• Areas of Operation: Worldwide

Business:

British American Tobacco p.l.c. engages in the provision of tobacco and nicotine products to consumers worldwide. It also offers vapour, heated, and modern oral nicotine products; combustible cigarettes; and traditional oral products, such as snus and moist snuff. It also distributes its products to retail outlets. British American Tobacco p.l.c. was founded in 1902 and is based in London, the United Kingdom.

This is a large multinational corporation, and one of the largest in the world in terms of tobacco. They operate in essentially every country on earth, with only a few notable exceptions (Russia and Belarus, Iran, North Korea, etc…).

They have significant market shares in most of the countries they operate in, and they possess many highly valuable brands like Lucky Strike, Camel, Vuse, etc…

Its main competitors are the other multinational tobacco giants, Phillip Morris, Altria, etc…

The company has 3 main regions:

• US

  • 45% of revenues

  • Includes only the USA

• AME

  • 36% of revenues

  • Includes all other countries in the western hemisphere plus Europe

• APMEA

  • 20% of revenues

  • Includes Africa, Asia and Oceania

Their joint partnership in India has been sold off recently.

Additionally they split their product categories in the following way:

Combustibles

This is your standard cigarette sticks that you can find in supermarkets, stores, gas stations, etc…

The Group sold 555 billion cigarette sticks and 15 billion OTP (stick equivalents) in 2023. The Group operates internationally, with 38 fully integrated cigarette manufacturing facilities in 36 markets.

This corresponds to about 80% of revenues, and substantially all profits.

Traditional Oral

Traditional Oral products include snus and snuff. Snus is a moist form of oral tobacco originating from Sweden. It is available in loose form or as pouches. The tobacco is typically mixed with water, salt and aromas.

This corresponds to about 4% of revenues, and while the segment is profitable, the margins here aren’t as good as combustibles.

New Categories

This is further split into 3 categories, and represent their new “growth” products that they are trying to create a market for.

This corresponds to about 13% of revenues (and growing), and the segment is around break even, though they hope to make it profitable soon.

Vapour

Vapour products are battery-powered devices that heat e-liquids to produce an inhalable aerosol, commonly known as vapour. Although e-liquids usually contain nicotine, there is no tobacco in Vapour products.

Heated Products

Heated Products (HPs) comprise two main functional parts; an electronic handheld device that contains a lithium-ion battery that powers a heating chamber: and a specially designed consumable that is inserted into the device. Everything has been designed so that nicotine and flavour are released through precision heating.

Modern Oral

Modern Oral products are pouches which contain high purity nicotine, water, and other high-quality ingredients. Consumers place the disposable pouch between their gum and upper lip, typically for around 30 minutes, during which time nicotine and flavours are released and the nicotine is absorbed through the tissues lining the mouth.

Important Notes

Background

This is a huge business that has been looked through by every equity analyst under the sun, so it’s not the type of investment where anyone has any significant hedge, or new information they can bring to the market price.

I have no illusions that I know better than the market here, nor does my investment thesis require that.

Fundamentally this investment has 2 core factors:

1. Tobacco is a sin industry, and I mean to collect a premium for investing in an industry where certain investors are unwilling or unable to invest in. The fact that tobacco generally has favorable unit economics, and low CAPEX requirements is a bonus there.

2. The company recently reported a massive impairment on an acquisition they did years ago. This has meaningfully depressed their earnings, and the stock price tanked as a result. I don’t believe this impairment will meaningfully reduce their future cash flows, so I mean to take advantage of this temporary discount.

That’s basically it really.

The company generates cash flows, it’s returning them to shareholders, and the impairment plus the fact that is in a sin industry means it’s valuation is depressed, providing me greater “bang for my buck”.

I pretty much expect the company to remain stagnant (as it has remained for the past decade), and effectively slowly shrink in inflation adjusted terms. If the new products are a success, and they manage to make them profitable and have them generate large revenues, then great, but that’s not really key to the thesis.

Key Indicators:

• Revenue Growth CAGR: 2%

• Net Margin: 27%

• Return on Assets: 5%

• Return on Operating Capital: 34%

• Return on Equity: 9.7%

• Debt to Assets: 46%

• Book Value per Share: 33.91 £

• Cyclicality: Cyclical

• Expected State: Shrinking

Current Valuation:

• Price to Earnings: 7.3

• Price to Book: 0.7

• Price to Tangible Book: —

• Price to Revenue: 2

Shade Research Valuation:

Assumptions:

• Discount Rate: 10.2%

• Nominal Revenue Growth: 0%

• Expected Price to Earnings: 8

• Expected Net Debt to Adjusted EBITDA: 2.2

In my model I assumed that the company would have essentially 0% revenue growth, with net margins going down over the next 4 years before returning to its current values by 2030.

The reason for the decrease in the net margin during this time period is the result of higher financing costs as they have to refinance their existing debt at higher rates.

That said I suspect that I may be over-estimating this impact, since only about half of this long term debt will need to be refinanced. Furthermore I expect half of that debt that will be upcoming in the next 6 years will be paid off without refinancing at all.

I also checked the yield curve on USD denominated debt, and used that to estimate the change in the refinancing costs over time, when using a 2% risk premium.

Overall I expect that from 2024 to 2030 a total of 8 billion pounds of debt will be retired, contributing to a reduction of net debt to adjusted EBITDA to 2.2, on the low end of the management teams target range.

I think this is doable, and will likely be higher if financing costs are lower.

I assume that they will continue to raise dividends at 1 penny per year, and that they will pause all buybacks.

This last bit might not be reliable though, since they have already returned to conducting buybacks following their divestiture of the India joint venture.

That’s ok? They are paying almost a 10% dividend yield at this time, so buying back shares arguably does more to reduce their financing costs than paying off debt? Assuming they don’t want to cut the dividend, which seems reasonable to me.

I also calculate a CAPM discount rate of 7.22%, using a weighted average of USD and GBP risk-free rates, and a 0.25 beta. I bump that up by 3% to increase the margin of safety and account for the company’s real growth (or lack of it), hence the 10.2% discount rate.

Results

Given my assumptions I estimate a net present value of an investment in BTI of around 25.65£ per share, about 7% higher than the current share price.

This isn’t a big premium, but I think that there isn’t much possible downside here.

The multiple I’m paying is low, and the business itself is stable and profitable.

Additionally they pay a juicy dividend, which means I’ll be seeing my cash coming back relatively quickly, reducing my risk over time.

This isn’t going to 10X, nor is it particularly undervalued, but I think it’s got an attractive risk/reward ratio.

So I’m calling this a Buy.

I had to choose between buying the shares on the London Stock Exchange, or the ADR in New York (The South African market was not in consideration).

Ultimately I chose the ADR in New York due to reduced transaction costs (even after the ADR fee I’m better off), so I am currently a proud owner of 120 shares of BTI, and have sold 2 puts with a strike price of $30 per share and an expiry date of july 19th.

I might increase my position more in the future.

• Name: Solid Försäkringsaktiebolag (SFAB)

• Sector: Insurance

• Share Price: 69.5 SEK

• Dividend: 4.5 SEK

• Market Cap: 1 292 954 KSEK

• Areas of Operation: Sweden, other Nordics and Europe

Business:

Solid Försäkring (“Solid Försäkring” or “Solid”) is one of the leading niche insurance companies in the Nordic region in non-life insurance and sells insurance in the Product, Personal Safety and Assistance segments. The target group consists of private individuals but our insurance policies are primarily sold via our partners, such as retail chains, banks, credit institutions, travel agents and car dealerships that offer Solid Försäkring’s non-life insurance for the products and services they sell.

This is a niche insurer with a diversified and low value at risk range of offers, which are primarily sold via partners, affiliated agents or independent insurance brokers. Only a small minority of the insurance is sold directly, and that is primarily accounted for by renewals.

The partners are primarily credit institutions, banks, retail chains, travel agents and car dealerships, who have exclusivity contracts with Solid when it comes to the sale of insurance products.

Sweden accounts for 60% of the company’s gross premiums, with Denmark, Norway and Finland comprising an additional 30%. The rest of Europe accounts for less than 10% of the business.

The company has 3 main segments:

Personal safety

Personal safety is the largest segment with around 40% of the business. This segment includes income insurance, payment protection insurance and accident insurance.

These policies are essentially exclusively distributed through partners such as banks and credit institutions.

Product

Within the product segment the company offers all-risk coverage insurance and elimination of deductibles for a wide range of product categories, both as individual insurance and as group insurance. This is primarily bicycle and consumer electronics insurance, but also includes things like garden tools, glasses, watches and jewelry. This is 30% of the business.

These policies are primarily sold through retail chains together with the item being insured.

Assistance

This is roadside assistance insurance associated with vehicle warranties, along side travel insurance and deductible assistance for tax deductible expenses.

The vehicle related insurance is sold through dealerships, with the travel related insurance being sold primarily through travel agents and some direct to consumer.

Important Notes

Background

The company went public in 2021, and their prospectus gives a fairly detailed account of their history and the reasons for them being spun-off by Resurs Holding (also a publicly traded company).

This was essentially a small branch of a much larger company that was being ignored by the general market, and which was not benefiting from being part of a holding company.

By distributing the shares to the holding company’s existing shareholders, the hope has been to put additional focus on the company, and enable greater freedom to focus on Solid’s core business.

They seem fairly shareholder focused with their management teams contact details freely available, and both Swedish and English versions of annual reports, news releases, etc…

They have 2 major shareholders, inherited from their parent company spin-off, and neither of them seem to be selling their position.

Nonetheless they still seem under the radar with supposedly only a single small Nordic investment bank following them. I tried looking up their research on the business, but I can’t find anything public, so I doubt anyone is seriously looking into the company.

Growth

This is a small niche insurer that is growing reasonably well through both organic growth and acquisitions of similar businesses.

For example in 2023 they acquired the Norwegian Car Protect AS, an insurance intermediary of car warranties with a lot of experience in the Norwegian market. This is effectively a bolt-on acquisition that fits well with their existing Swedish assistance business.

Despite 2024 just starting they bought another car warranty business, this time in Sweden.

Generally speaking they tend to acquire 2 of these types of bolt-on acquisitions per year, which combined with their organic growth provides a good growth trajectory.

Their recent growth has caused some issues though, so they are spending some cash building up their IT infrastructure to enable them to service all these new policies.

Shareholder Returns

The company started out with 20 million outstanding shares, and over the past 2 years they’ve reduced it to 18.6 million.

Additionally the company has a very clear dividend policy where they seek to pay out 50% of their net income on a yearly basis, which makes it fairly simple to project investor cash returns going forward.

Overall they’ve returned 144 million SEK since they became public, which is a little over the 50% payout ratio they aim at.

This is a common dividend policy for European insurers.

Assets

From 2022 to 2023 the company increased its exposure to unrated debtors from 280 million SEK to 618 million SEK, around a 340 million SEK increase.

This large increase means that substantially all increases in investment assets went to these unrated securities, and that even some capital that was invested in rated securities (notably all AAA, AA- and A+ rated bonds) was re-allocated to these unrated securities.

In total, the unrated portion of the company's investment portfolio went from 38% to 63% of the bond portfolio.

I’ve reached out to the CEO, CFO and the head of Investor relations about this issue, and this was their reply:

Thank you for your email. I will try to give you some additional information regarding the asset management but as you understand I can not give you any specific information that are not known in the market.

Solid has an Investment committee consisting of three external advisors, CEO and CFO, reporting to the board on a regular basis. The work of the Investment committee and the way the asset management is carried out is determined by the investment policy  stating risk appetites/tolerances, limitations regarding investments types, counterparties, markets we are allowed to invest in etc. The policy is approved by the board at least on a yearly basis and our risk control function ensures that investments and all the procedures related to this are made in accordance with the policy. Any incorrections are reported directly to the board.

The bond portfolio consists for the most part of bonds with relatively short maturities, 1-5 years, variable interest and mainly well known Swedish issuers.

This isn’t a very satisfying answer, and I would state that the quality of the assets owned by the company is a potential risk.

There are a lot of open questions here, namely:

• What are these Swedish issuers?

• Are there any governance issues regarding these bonds? ie: Do we have to worry that Solids management is giving their friends a good deal with Solid’s shareholders money?

• Is it just the bonds that are unrated, or are the issuers unrated?

• Why are the premiums over the Swedish risk free rate so low?

• etc…

The Swedish market is fairly deep so I’m struggling to understand this, and the answers I’ve got from management weren’t very illuminating.

This is the main risk that I see with the business, and there’s no real way to reduce it without deeper access to the company’s financials.

Key Indicators:

• Revenue Growth CAGR: 5%

• Net Margin: 10%

• Return on Assets: 6%

• Return on Operating Capital: 8%

• Return on Equity: 12%

• Debt to Assets: 47%

• Book Value per Share: 50.95 SEK

• Claims Ratio: 24%

• Expense Ratio: 64%

• Combined Ratio: 88%

• Cyclicality: Cyclical

• Expected State: Growth

Current Valuation:

• Price to Earnings: 7.8

• Price to Book: 1.4

• Price to Tangible Book: 1.4

• Price to Revenue: 1.2

Shade Research Valuation:

Assumptions:

• Discount Rate: 10.2%

• Nominal Revenue Growth: 5.8%

• Terminal Growth: 3%

• Expected Price to Earnings: 9

In my Discounted Cash Flow Model I assumed that revenues would increase at a nominal rate of 5.8%, which is 70% of the company’s sustainable growth rate, and in line with its historical performance.

The model ends in 2030, at which point I expect to sell my position at a multiple that is slightly above the current multiple, but below the industry norm.

I’m also accounting for a 50% dividend payout ratio, as per the company dividend policy, and a 20% buyback ratio which is lower than what the company has done in the past year.

As the price for the buybacks and the terminal value, I assume a simple average of the expected PE ratio (9 a slight increase over the current), and the current Price to Book, price to tangible net asset value and price to sales.

I discount all cash flows at a 10.2% rate. This accounts for a 4% risk free rate from the Swedish policy rate plus a 4.72% Swedish equity risk premium as reported by Damodaran.

We use these inputs and a Beta of 0.81 to calculate a CAPM discount rate of 7.82%, which we increase by 30% in order to get a margin of safety.

Results

Given my assumptions I estimate a net present value of an investment in Solid to be worth a net present value of 11.7 SEK, or a 17% premium.

The Present value of the company shares is expected to be around 81 SEK.

Since the net present value of this investment is positive I will Buy the company for my portfolio.

The way I see it the company is trading at similar multiples to the industry, while growing at rates above industry. Even if growth stalls, I’ll still be getting a decent deal in line with the insurance market.

If the company gets noticed in the next couple of years it may be re-rated to a multiple that is more in line with its growth prospects. If no such catalyst appears, I’ll still get a decent return from growing dividends and buybacks at below fair value levels.

Edit:

This post was originally written a couple of months ago when the company was trading at 68.5 SEK. Unfortunately as I was writing this post, the stock kept going up and I was unable to open a position. As of today i still don’t have an open position, and sadly i missed out on this return. Oh well.

Thesis

I think the company will likely be acquired by Nippon Steel because there is no significant issues regarding:

• Anti-Trust

• Geopolitical Threats

The main barriers are labor relations related and political:

• The Union prefers the Cleveland Cliffs offer

• The president has opposed the acquisition in support of the Union

I think that neither of those issues are insurmountable, and that the president will back down his opposition as long as this merger doesn’t become a political lightning rod.

Nippon Steel looks to be willing to negotiate with the union.

The upside is relatively high (around 40% given my cost basis) and the potential downside relatively low.

The Cleveland Cliffs offer provides another possible avenue which reduces the potential downside.

When assigning a 50% chance that the Nippon Steel offer goes through, and a 25% chance that it does not go through but Cleveland Cliffs goes through the offer, and a 25% that it does not go through and does not make another offer, I get an Expected Value of $43.13 per share.

Win condition

• The merger is approved and goes through before the end of the year

Loss Condition

• The merger is not approved and Nippon Steel gives up on it

• April 2025 comes around and the merger has still not occurred

I bought 50 shares at $39.09 per share for this, so expect to make about $800 if it goes through, or lose about $50 if the offer does instead. If neither go through I’ll probably lose around $700.

Not a great return, but I’m interested in seeing how this goes for future similar merger arbitrage plays.

Last time we spoke I had announced the fact that I was taking a break in order to pursue the level 1 CFA exam in February 2024.

That has now passed (though I don’t yet know if I passed or failed!), and while I’ve spent the past month or so catching up on things that had been left behind, I’ve also been busy considering the future of this newsletter.

The Future

Let’s get the elephant in the room out of the way.

I am rebranding the newsletter (and my future investment activities) as Shade Research

This is something that I had been considering for a long time, and I think it is now time to pull the trigger.

I will continue to use Substack to publish my research reports, though I will now use Shade Research’s domain, Shade-Research.com.

You will also be able to reach me directly via email at tdias@shade-research.com

Additionally I will be changing the frequency of the newsletter. Previously I released one newsletter entry a week. This was quite an elevated pace, and one which I feel has long since caused the quality of the newsletter to drop.

I mean to cut out the low quality blog spam out of the newsletter entirely, and I hope you will agree with me that this is a good move.

As for why I am making these changes?

At the beginning this investment newsletter was primarily for myself, as a hobby. I thought this was an interesting topic, and I thought I could learn something that would be useful to me.

I’ve certainly enjoyed it, and now I’m looking to professionalize my investment journey.

And so, this newsletter is going to become just that. A means for me to acquire experience, learn, and publicize investment opportunities that I find, and my own performance.

With that said, onward to the much delayed 2023 annual report!

2023 Annual Report

2023 was a good year for the market, and for my portfolio, and while I did not make many changes, I did close some positions and open others.

Beginning with the full portfolio, you can see a few changes:

We can see here the clear impact that my deposits into VWCE have had throughout 2023, moving the index from a 39% allocation to a 46% allocation.

This brought the allocation to 39%, and I have continued the investments into the index since, having reached my desired 60/40 split in February, though this has since slipped back down due to out-performance of my individual positions.

If we stick to only my actively managed portfolio:

This is where the big changes have come up.

You will notice a few things different, there are a handful of positions that I’ve completely sold out of, and there is one new major position that is now the second largest in the portfolio.

Positions I sold:

• Foot Locker

• Microsoft

• An call

Positions I bought:

• Western Union

I’ve discussed why I changed these positions on Twitter, and in prior articles, so I’ll keep it short here.

For Foot Locker this was always a temporary position, and one that i made a mistake in holding onto for too long, I should have sold earlier. I made a slight gain overall with this position.

Microsoft is simply too expensive right now. I sold it for a significant gain after having bought at what i thought was already a very expensive price.

The Intel call… This was a big failure, and one I discussed prior. I ended up selling it before expiration in order to do some tax loss harvesting. Good thing too, since it ended up expiring worthless. I won’t buy calls anymore, unless I have a serious plan.

Finally for Western Union, I simply think the company is cheap, and so I significantly increased my position in the company towards the end of the year. It is now one of my biggest positions.

In terms of dividends, here we see it broken down by Company and quarter:

Note the Intel dividend cut in the second quarter, and the Q3 Western Union dividend that I received on the last day of Q2!

And for the full year:

You can see that I did manage to reach my goal of 2000€ in dividends for 2023!

A lot of that came through the heavy lifting of Western Union in the last quarter, though I can assure you I wasn’t blindly chasing yield there, nor did my purchases of Western Union come about in an attempt to meet the goal.

If we check the capital gains as a result of buys/sells:

That’s a bit of a dip compared to 2021 and 2022! But that’s mostly the result of selling the Intel call I mentioned above, most of the value of which was lost in 2021 when I first bought it.

If we exclude it we get:

That’s much better, and most of this gain comes from the microsoft shares I sold, with about 20% coming from the Foot Locker shares.

When we add up the total cash received from both capital gains and dividends (including the Intel Call) we get this:

Overall, not a bad return, even with that Call screwing things up!

Of course none of this matters if I am not beating the market!

So how do I define “beating the market”?

Fundamentally I consider to have beaten the market if my total portfolio value is greater than if I had stuck that same investment into the index portfolio (VWCE).

In order to calculate this I made a model portfolio, and whenever I deposit cash into my brokerage, I “buy” VWCE at the current market price, and whenever I withdraw (which so far has been only once as a test) I “Sell” VWCE.

This effectively means that I can have a benchmark portfolio that I would have actually been able to invest in, versus my actual portfolio.

If my actual portfolio value is higher than the benchmark, then I “beat the market” otherwise, I under performed.

So how did I do?

Well I under performed at first, and then from October 2021 to march 2022 I significantly outperformed!

Since then I’ve more of less maintained the steady lead, while slightly increasing that lead from time to time.

If we check my total portfolio value, versus the benchmark portfolio over time, we see this:

Finally, if we check the usual VAMI that I get from the brokerage we see this for 2023:

So a slight under performance, though not significant enough to counterbalance the over performance since inception:

And if you’d like the full risk analysis since inception:

And that’s it in terms of key information!

My Goals

It’s (past) time to talk a bit about my goals for 2024.

First and foremost, I want to continue to focus on getting the indexes to 60% of my portfolio, so I’m going to take a 2/1 ratio when it comes to my deposits. 2 Go into VWCE, 1 goes to an individual position.

This should allow me to hit my goals:

• 2500€ of dividends received

• At least 60% of portfolio value should be in Indexes

• Continue the newsletter

I think all of these goals are attainable, and while they may seem small, that’s because I expect to be very busy in 2024 and 2025 on my personal life.

Conclusion

I’m happy with the way the portfolio performed in 2023, and while I think I made some mistakes before, namely with Foot Locker, I feel like I dealt with them appropriately.

I’m looking forward to restarting the newsletter, and to getting my CFA exam results!

See you on the next one!

A break

It’s been almost 3 years since I started this newsletter and a lot has changed.

One of the things that have changed is that I am now in the process of studying to achieve a CFA designation, and unfortunately that takes a lot of time. As do the changes in my personal life, and the time I must spend during the holidazs with the family.

Therefore, and in order to not burn myself out I’ve decided to take a break until the end of February 2024, when I should be done with the CFA exam (and hopefully will have that designation!).

If you’d like to be notified when I’m back, do feel free to remain subscribed, but don’t expect any new posts for the next couple of months!

With that said, have a Merry Christmas and a Happy New Year!

• Name: Japan Lifeline

• Ticker Symbol: 7575.T

• Price: ¥1124

• Market Cap: ¥85 Billion

• Forward Dividend: ¥42

• Dividend Yield: 3.7%

• Areas of Operation: Japan

• Sector: Healthcare - Medical Devices

Business

Japan Lifeline is a Japanese Medical devices company primarily dealing with cardiac devices.

The company primarily operates in Japan, with over 99% of its revenues coming from the sales, manufacture and distribution of medical devices.

An interesting characteristic of this type of business model is the both the relatively short expiration data of the products being sold, as well as the prevalence of a "consignment" business model.

What this means is as follows:

• The majority of products sold by Japan Lifeline come with built in expiration dates, this is due to the inherent need for sterilization of medical products and devices, and the difficulty in maintaining that sterilization to acceptable levels over long periods of time.

• In general the products sold by Japan Lifeline have a 2 year lifespan.

• This has serious impacts on the rate of depreciation that comes built-in to the Cost Of Goods Sold, and indeed when we check the income statement and cashflow statement we see that about 2/3rds of the depreciation comes built into the COGS, likely as a result of these devices "expiring" while waiting to be sold.

• While this wouldn't be much of an issue if the products were sold soon after being produced, the fact is that these types of products are more commonly handled on a consignment basis. That is, Japan Lifeline "deposits" the products in the hospitals and medical centers where they will be used, and sales are recognized once they are used.

• This is partly due to the intrinsically urgent nature of the products being sold, after all, patients can't exactly wait 2 weeks for the new heart valve they need to be manufactured and delivered to the hospital they were brought to.

The company's products are primarily essential medical devices, and their use is not optional on the part of the patients.

The majority of the revenue itself is generated by products with substantial market shares in the japanese market, and the company does possess some unique competitive advantages.

For example, in regards to their BeeAT product, which is one of their key products, they have an effective moat since the procedures for which it is used is a non-standard method international, but prevalent in Japan.

This means there is little demand for catheters with cardioversion functions outside of Japan, making international medical devices giants unlikely to want to invest in the R&D required to come up with their own versions, since they would only be able to sell it to the Japanese market.

In a way, the japanese market can only support one such product, and since no other markets are available, the first company to develop it (Japan Lifeline) gets an effective and highly profitable monopoly.

At the same time however this does limit the overseas sales strategy, since many of the devices developed in house are not able to be sold outside of japan.

This is not great for "explosive growth" coming in from overseas, since over half of sales is coming from in-house products which are not able to be sold outside of japan, but at the same time provides an effective moat, bordering on a monopoly in certain key products.

So what is their plan to grow the business?

In essence they are intending to expand into new areas and types of medical devices which they can use to augment their existing offerings.

In particular they want to increase the sales of their neurovascular and gastrointestinal segments, both of which are currently quite small.

In terms of sales on a per segment basis, here is what they expect between 2023 and 2028:

• Neuro-vascular - ¥230 Million -> ¥4500 Million

• Gastro-Intestinal - ¥650 Million -> ¥3500 Million

This is frankly huge growth, but there's a serious possibility that they can do it, since several of the products they mean to sell have recently been approved for sale by regulatory agencies.

Though of course, there are always risks, particularly when we are banking on growth!

Finally I would like to take a look at the company's shareholder returns, that is, the cash that they are directly or indirectly returning to shareholders, and what their policy is about this.

Fortunately the company has a very simple policy:

For reference the company's current market cap is ¥88 Billion, so they are planning to return almost 30% of their market cap within the next 5 years.

Of course this isn't guaranteed, the company has been very clear that these returns will only happen if they are able to generate cash over this period as they expect:

If we cannot deliver cash generation, we cannot return it to shareholders.

I think that the priority should be on capital investment and research, and if there are surplus funds, they are to be returned to shareholders. So, if we cannot generate enough cash, we can't just borrow money to return to shareholders as we said.

This is perfectly alright with me.

I like the fact that they are conservative with their leverage, and that they are unwilling to juice up returns by taking on additional debt just to return that cash to shareholders.

Which brings me to another topic, Japanese shareholder returns.

The fact is, Japanese companies (and other Asian companies, notably Korean banks) have historically suffered from poor corporate governance which resulted in management teams, and controlling shareholders keeping enormous amounts of cash in the business and refusing to issue any dividends, or other forms of capital returns.

This is a serious problem because for minority shareholders like me, those returns of capital are completely out of my control.

Fortunately the Japanese authorities have recognized this as the problem that it is, and particularly in the past few years have initiated a number of policies to enable some better incentives to be put in place.

I'm not going to go into detail on these policies, but Teddy Okuyama on his substack made a fantastic substack post where he discussed this.

Japan Investor Interface

Rising ROE: Japan's New Phase

The Japanese stock market is on the cusp of a significant shift, presenting a compelling opportunity for investors. Historically, low P/B ratios have plagued many Japanese companies, reflecting a market view that they were more likely to erode rather than enhance asset value. However, this perception is beginning to change…

Read more

2 years ago · 14 likes · Teddy Okuyama

I heavily recommend that you read it, and check out his twitter.

Financials

Income Statement

Over the past decade the company has grown substantially, particularly during the years between 2014 and 2019, when the company doubled its revenues. The most recent years have been different, with revenues being stagnant, and even decreasing as a result of a lackluster 2019, and the subsequent impacts of the COVID19 pandemic.

These impacts severely affected the company's plans, and resulted in the scrapping of their medium term plan.

Nonetheless there are a few things to note here, the company has generally maintained acceptable Margins, and while growth can be quite volatile, the underlying business itself is fairly reliable, with strong pre-tax margins and substantial stickiness.

I like high margins, and the fact that the company has managed to essentially double its revenues and increase its margins by developing, marketing and selling its in-house products indicates that they have come a long way from a low margin distributor.

Overall I'm satisfied with their business.

Balance Sheet

Over the past decade the company has taken advantage of the earnings they retained to expand the company without resorting to leverage.

While the company has had a positive Net Current Asset value per share throughout, that value has only increased over time while liabilities have remained more or less the same.

This is good, a company that can growth revenues at such rates, while simultaneously not increasing liabilities is a good business in my view.

Additionally the assets are all fairly liquid, with most assets being current assets, with a fairly even three-way split between Cash, Inventories and Receivables.

No company ever went bankrupt from having too much liquidity and not enough debt.

Cashflow Statement

Ultimately what we expect to see based on the progress of the company has happened:

We see significant expenditures of cash during the 2017, 2018 period that resulted in improved efficiencies which means operating cashflow in 2020 onwards has effectively doubled over 2016.

In essence we spent around 300 yen per share to purchase around 70 yen per share of free cashflow, that about a 23% return on cash.

Of course there are other expenses that don't show up on the cashflow statement, depreciation for one, so in reality I'd expect the actual returns were lower, but still within the companies expected Return On Invested Capital ratios.

Valuation

I've done a number of valuations in the past, and while I'm reasonably happy with all of them, for Japan Lifeline I decided to more or less scrap all of my previous standardized methods and simply build a Discounted Cashflow model from the ground up.

Estimated Fair Value

I'll cut to the chase, I've estimated the fair value of Japan Lifeline shares at ¥1124 per share, broken down in the following way:

• Dividends: ¥211

• Share Price: ¥913

• Total Return: ¥1124

In order to model this, I assumed that I would purchase the shares today, and would sell them at the end of the year in 2028.

I would sell them at an average of the following multiples:

• PE Ratio - 8

• Free Cashflow - 12

• Price to Book - 1.6

I used a 9% discount rate, and my default case assumes the company's mid term plan will go as expected.

I held the capital returns as follows:

• Dividend is the greater of the previous years dividend, 40% payout ratio or 5% of shareholders equity

• Buybacks are 35% of free cashflow after dividends have been paid.

  

Ultimately I expect dividend per share to be raised up to ¥60 by 2028, and EPS to be around ¥135 per share (slightly higher than management).

If i check against a perpetuity at 9%, I see that it gives me around the same value.

Stance: HOLD

With that done, I thought it was time for a review of my initial analysis and see what happened:

Tiago’s Newsletter

Activision Blizzard Inc.

What is Activision Blizzard? According to their annual report, Activision Blizzard is: Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers (“PCs”), and mobile devices. We also operate esports leag…

Read more

4 years ago · 3 likes · Tiago Dias

The Thesis

The first thing we need to take into consideration is to see what I thought about the company, and what my thesis for the investment was:

• Activision Blizzard is a growing company with consistent profits

• The company consistently returns capital to shareholders

• The management team has made some major errors and needs to go

• Some of their PR recently has been questionable

• The Microsoft merger provides a potentially attractive return in the near future with a clear end state

• Even if the merger falls through, I would still own a decent company with limited downside

How has this held up?

Let’s take it point by point:

The profits remained consistent, however net revenues have decreased in the past year, likely off the back of the poorly received games.

The company has continued paying dividends, up until the moment it was acquired.

Fortunately Microsoft has recognized this issue, and Bobby Kotick is set to leave in December, giving enough time for a smooth transition.

With luck, Microsoft will rub off on Activision Blizzard and fix some of the culture issues they have been getting criticized over.

This has continued, though they have been trying to fix it.

And it has done so!

While there were a few issues and objections to the merger, ultimately the merger occurred and shareholder were rewarded with $95 per share, a 25% return since i first reviewed the business.

It didn’t fall though, but it’s still a decent company.

The future

I’m a bit unhappy that I didn’t go in on the play, but at the same time, hindsight is 20/20.

I can’t see the future, so it’s normal for me to lose out on some deals.

At the end of the day though, this was a classic arbitrage opportunity and worked out quite well to investors.

Congratulations!

I get surprised at the stock price dropping almost 15%:

What happened?

The Earnings

The company’s revenues were up 1% compared to 2022, which is quite unexpected. Indeed the year to date revenues, which I originally expect would be down 10% in 2023, are only down 2%!

The company’s year to date EPS are down 22% compared to 2022, however it’s already at $1.33 per share, when I actually expected the full years earnings to be $1.44 per share!

As long as the business can generate 11 cents per share over the next quarter, then my prediction will happen… Though I fully expect them to generate anywhere between $0.40 and $0.55 per share!

So why the drop? Has there been any worsened guidance?

No, they actually revised their guidance upward!

Some dividend cut?

Not really, the company has has returned slightly less cash this year than they did last year, but there has been no dividend cut, and the difference in Buybacks is more than made up by the increased value generated by those buybacks given the substantially lower share price.

Has their balance sheet meaningfully deteriorated over the past year?

Not really.

Their asset base has decreased, but so have their liabilities, and even more than their assets!

Over all their shareholders equity is substantially higher than it was last year! Not that it matters much, since isn’t an asset play.

Frankly I don’t know why the stock dropped, and I don’t care.

The company is profitable, returning profits to shareholders, and cheap. That’s all that really matters to me.

Do you have any idea? Let me know down below.

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The Merger

On October 11th, 2023, the companies announced an all-stock merger where shareholders of would receive 2.3234 shares of .

At the time of the announcement this would be worth around $253, though since then the stock prices of both companies have fluctuated since.

So what is the offer now?

Current Prices:

• - $234.17

• - $103.87

This means that the merger value would be:

But wait!

We can buy for $234.17, so thats some premium available to us!

But wait!

We don’t get cash! We get shares! Which means we’re exposed to share price fluctuations!

So how do we do this?

So then we can expect our returns to be:

Which brings up the cost of shorting.

The transaction is expected to close in the second half of 2024, so I suppose the easiest way to hedge the possibility of from going down is by buying a Put option.

The easiest one is the 2025, 17th January Put, either the $100 or $105:

Unfortunately the cost of that Put, plus any fees, makes it so that this play is more or less dead in the water.

Theoretically the dividends we’d get from might make up for it? But it’s a bit of a risk, particularly when we are still taking on the risk that the merger won’t go through.

It’s too bad, but I won’t be moving forward with this play.

Let’s see how I’ve performed!

How my portfolio performed

Like always, we will be using Time Weighted Returns since they take out the impact of additional deposits and let us compare on a one to one match with indexes.

The indexes we will be comparing against will be VWRL and SXR8.

VWRL is the distributing version of VWCE (unfortunately Interactive Brokers won’t let me assign VWCE as the index). This distribution makes it slightly under-perform VWCE which makes no distributions.

This is the Vanguard FTSE All-World UCITS ETF, and is a whole world market cap weighted index. This is the European equivalent to VT.

SXR8 is a accumulative S&P500 index. It tracks the S&P500 including any reinvested dividends.

Overall my portfolio has outperformed the S&P500 index and is neck and neck with VWRL. This makes sense given my current portfolio allocation, with the individual issues having little impact in my overall performance.

If we check the year to date performance:

Much like last quarter I am still underperforming the index on a year to date metric, though once again since inception I am still in line with the S&P500:

As usual, I made 3 deposits during the quarter, and the bulk of the cash from those deposits (and the dividends received) went to the following equities:

BUYS:

• VWCE

• 5911.T

SELLS:

No sells.

I put 2 of my deposits into VWCE, with the remaining one going towards 5911.T in order to open a new position in this Japanese Bridge builder. You can read more about why I purchased the company here:

Tiago’s Newsletter

Yokogawa Bridge Holdings

Key Data Ticker Symbol: $5911 Price: ¥2662 Market Cap: ¥109 Billion Forward Dividend: ¥85.00 Dividend Yield: 3.2% Payout Ratio: 30% Areas of operation: Worldwide - Japan Focus Sector: Industrials - Engineering & Construction Thanks for reading Tiago’s Newsletter! Subscribe for free to receive new posts and support my work…

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3 years ago · Tiago Dias

I also purchased 25 shares of using the dividends I received during the quarter.

I terms of options I sold:

• MSFT  230929P00280000

• TROW  230929P00100000

• WU    230818P00011000

• TROW  230825P00099000

All of these expired worthless, as did the options I had outstanding at the start of the quarter.

I continue to hold my worthless Jan. 19th 2024 Intel 50 Call.

In terms of dividends this quarter is in line with the dividends I received in the same quarter 2022, and significantly lower than the previous quarter.

The reason for this is simply due to timing in regards to the day that I actually received the dividends, due to weekends. To be more precise, my WU dividend was paid on Monday, October 2nd, which resulted in a shortfall of around $53.

There was a dividend cut for during the quarter, so I don’t expect that the company will pay any more dividends for the foreseeable future.

I have not yet decided what to do with though it’s clear I screwed up and should have sold them at $45 per share. Oh well.

In terms of portfolio distribution, here it is excluding options:

If we’re only interested in seeing the individual issues, here it is:

continues to outperform, and I remain a happy owner. They have consistently raised dividends, and I am not concerned with the quality of the business.

The newish positions, 5911.T and also are visible and in particular has been performing quite well.

In terms of concerns, I have the following:

• - I don’t like the dividend cut, and I’m unclear what my play here is. I held it for too long compared to my original plan.

• - I’m concerned with the companys debt profile.

• - I’ve been wanting to sell it for a while. It’s not clear to me what the company is doing.

Conclusion

I’m satisfied with my portfolios performance, and I look forward to bringing my index position to my desired 60% so I can continue building up my individual issues and increase my dividends.

How about you? How did you deal with the quarter?

Did your dividend payments increase?

Let me know in the comments below!

Leave a comment

What’s the problem?

The company, is a Real Estate Investment Trust dealing primarily in the Triple Net Lease commercial real estate market.

By all accounts the underlying operations of the company are fine, but the problem I see is this:

The company has significant portions of their capital stack maturing over the next 5 years… But do they have the cashflow to pay for it?

If we assume a “steady state” of the business, where there is no accretive dillution to the shareholders (ie: they issue no more share because the current valuation is not attractive), then we can see that over the next 5 years they will need to issue around $5 to $6 Billion in debt to refinance their current outstanding loans.

Their interest rates on that much debt will be going up from 4.5% to what I would expect to be around 7%, which will have major impacts in the cashflow they will have available to distribute to shareholders.

That’s an additional expense that must be made up by either reducing dividends… Or issuing additional shares at what are currently 6% yields.

Neither of those things are attractive to shareholders…

Tiago’s Newsletter

Jungfraubahn Holding AG

Key Data Ticker Symbol: $JNF.SW Price: 158 CHF Market Cap: $924 Million Forward Dividend: $3.60 Dividend Yield: 2.2% Payout Ratio: 48% Areas of operation: Switzerland Sector: Industrials - Railroads / Consumer Cyclicals - Hotels & Entertainment Services…

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3 years ago · 1 like · 2 comments · Tiago Dias

This is a railway company that has been transforming itself into a fully integrated tourism business.

With an insurmountable moat, and effectively zero local competition, the company does have favorable economics, though the low returns on assets combined with a lack of leverage may disenchant some investors.

Let me know what you think!

Key Data

• Ticker Symbol: $JNF.SW

• Price: 158 CHF

• Market Cap: $924 Million

• Forward Dividend: $3.60

• Dividend Yield: 2.2%

• Payout Ratio: 48%

• Areas of operation: Switzerland

• Sector: Industrials - Railroads / Consumer Cyclicals - Hotels & Entertainment Services

Business

JungfrauBahn Holding Ag is a Swiss holding company dedicated primarily to operating a number of railways, cableways, restaurants, and other leisure and transportation services in the Jungfrau Mountain and surrounding valleys.

With over 120 years of history, this holding company, through its subsidiaries, is a leading Swiss tourism business and the largest mountain railway group, that has in more recent years expanded into an integrated recreation and service company.

As a holding company, Jungfraubahn holding AG operates through 11 separate subsidiaries, the majority of which are wholly owned, with a handful being operated as joint ventures with its partners.

Each subsidiary deals with a separate line of business, and together they operate an integrated recreation and service company:

• Jungfraubahnen Management AG

  • A joint venture with the Berner Oberland-Bahnen AG that deals with managing the Jungfrau Railway Group and other affiliated companies in the Jungfrrau Ski Region, including the Berner Overland-Bahnen AG. This operating consortium benefits from synergies of scale and in particular creates a scenario where a single collective and integrated offer can be provided to clients, that includes other railways in the region.

• Jungfraubahn AG

  • A wholly owned subsidiary that operates the world-famous cogwheel railway from Kleine Scheidegg to Jungfrau-joch – Top of Europe. Moreover, it operates the Top of Europe shops, which offer a wide range of souvenirs. As of 1 January 2023, it handed over this business area to Jungfrau Shopping AG. The restaurants on Jungfrau-joch and Eigergletscher have been rented to the affiliate Jungfrau Gastronomie AG. The hydroelectric power plant in Lütschental, which is managed by Jungfraubahn AG, produces electricity and performs services in the field of energy supply.

• Wengernalpbahn AG

  • A wholly owned subsidiary responsible for operating the Wengeralpbahn, the longest cogwheel railway in the world which serves as a gateway to the excursion and winter sports area of Kleine Scheidegg. Additionally the railway supplies the car-free residential and holiday resort of Wengen, and owns the winter sports facilities around Kleine Scheidegg, including chairlifts, gondola, etc…

• Firstbahn AG

  • A wholly owned subsidiary that operates the gondola lift from Grindelwald to First – Top of Adventure. With its five winter sports facilities, half-pipe and the Grindelwald-First Snowpark, the sunniest ski area of the Jungfrau region is popular in winter with locals, freestylers and holidaymakers from all over the world. Firstbahn AG rents out the mountain house with catering offerings and a tour-ist accommodation centre.

• Parkhaus Lauterbrunnen AG

  • A wholly owned subsidiary that operates two multi-storey car parks. Thanks to its location at the railway station, the Lauterbrunnen multi-storey car park with its 940 parking spaces and bus terminal is the central transfer point between family-owned transport and the car-free resorts of Mürren and Wengen.

• Jungfrau Shopping AG

  • A wholly owned subsidiary that beginning in 2023 it will operate the business area of the Top of Europe shops from Jungfraubahn AG.

• Jungfrau Gastronomie AG

  • A wholly owned subsidiary that operates catering businesses along the main traffic axis to the Jungfraujoch – Top of Europe.The production kitchen and all restaurants are rented by Jungfrau Gastronomie AG via its sister companies and run under central management based on a holistic concept.

• Bergbahn Lauterbrunnen-Mürren AG

  • A 95% owned subsidiary that operates an aerial cableway from Lauterbrunnen to Grütschalp and an adhesion railway from Grütschalp to Mürren. The cableway and railway are part of the public transport network ordered by the Canton of Berne and financed by compensation. They connect the car-free health resort of Mürren, the Winteregg – Top of Family excursion destination and the Mürren-Schilthorn winter sports area. On Winteregg, the company also leases a restaurant of the same name.

• Harderbahn AG

  • An 89% owned subsidiary that operates a cable car from Interlaken to the local mountain Harder Kulm – Top of Interlaken.

• Grindelwald Grund Infrastruktur AG

  • An 80% owned subsidiary that is the owner of infrastructure built for the V-Cableway project in Grindel-wald Grund (terminal and multi-storey car park). It maintains, manages and rents out these facilities.  In addi-tion, it has a mandate to provide services for Gondelbahn Grindelwald-Männlichen AG and Wengernalpbahn AG. It is also responsible for the care of the station facilities at the terminal of Berner Oberland-Bahnen AG and for controlling private traffic with respect to parking at Grindelwald Grund.

• Sphinx AG Jungfraujoch

  • A 57% owned subsidiary that owns the plot with the sphinx building and the passenger lift in this building. It intends to have this property used for research purposes by High Altitude Research Station Jung-fraujoch and for tourism purposes by Jungfraubahn AG.

Taken together the Jungfrau Railway Group has been able to develop itself from a pure transportation company, into a fully integrated leisure and service company.

The one-stop combination of offerings enables attractive pricing and services/products offered. In this way, the integrated company can make the most of the potential of its customer base. 

Moreover, the company can independently ensure customer satisfaction and optimize customer benefits more effectively on the basis of a defined quality standard.

The brand “Jungfrau – Top of Europe” forms the core of the brand strategy. This brand has developed over generations, is known around the globe, and enjoys an excellent reputation in connection with its Swissness.

As such, more than a simple transportation company, or a local tourist operator, the Jungfrau brand is strong, and has a global reach allowing mountain enthusiasts to become aware of, and subsequently visit the region.

In many ways, the brand is self-sustaining, with visitors regularly sharing their experience on social media, providing a separate, ongoing, and free source of direct marketing that directly converts into additional visitors and repeat visits.

Finally, on strategic and financial goals, the company operates in a conservative manner, with low levels of debt on their balance sheet. This makes some of the usual valuation metrics difficult to justify, particularly given the highly capital intensive nature of their business.

For example, their returns on Equity are quite small, largely under 6%, mostly due to the lack of debt.

The enormous capital investments required, and subsequent depreciation expense, makes the business unappealing at first, but a deeper look indicates that this expense has built a significant moat that is insurmountable to any new competitors in the region.

On a fundamental basis, the company owns and operates railways, cableways, and associated properties in a premium and highly visible and well known tourist hub. There is essentially zero chance of the business being under threat by a direct competitor that wants to come in and build similar infrastructure in the region.

Not only would the initial capital expenditures to begin the project be extremely high, but in many cases such infrastructure would not even be legal to build in the first place. 

And even if someone were to come around and build it, it would take decades to have such infrastructure up and running, and all for what is a relatively low return on assets, that would likely only get lower when competing with Jungfraubahn holdings.

There is little chance of such a competitor succeeding, even if they had 20 years and the full support of the local governments to do it.

The greatest risk here is not outside competition, but sovereign risk.

As an effective monopoly in the region, the chances that the swiss government will interfere may increase, but at the same time, the existence of this risk, and the deep integration of the company in the local economy make any such interference risky given the potential impacts on tourism.

In many ways, so long as the minority of local residents are given a good deal by the company, it's likely that the political will to crackdown on this tourism monopoly will not be realized. 

And even if such a political will to break up the company comes about… Switzerland is a country with fairly reliable rule of law, and so any nationalization of the business would likely come with some amount of compensation.

Management

The CEO of the company is Urs Kessler, who has been with the company for 36 years, as its CEO for 15 years, and has driven some of its major expansion initiatives.

However Mr. Kessler will be stepping down in June 2025, and the search for a new CEO is currently ongoing.

“I wanted the company to be debt-free again, which has been the case since the end of 2022. What is more, we have outperformed the highest half-yearly profit to date from the record year of 2019. Thus, I will be able to hand over my operational leadership responsibilities with a clear conscience in June 2025, and there is enough time left to arrange for an orderly succession.”

By all accounts Mr. Kessler has been a good CEO for the business, and I will be sad to see him go. Nonetheless I have full confidence that the company will be able to find a suitable successor for him.

Key Risks and Opportunities

Risks:

• Substantial amount of fixed costs and capital requirements

• Highly dependent on global tourism

• Potentially at risk of government intervention.

Opportunities:

• Substantial branding power

• Extremely pricing and monopoly power for substantial parts of the business

• Impossible to replicate and compete with locally

Financial Data:

Shareholder Returns:

• Dividends

  • The company pays a 3.60 CHF dividend.

  • The company paused dividends during the pandemic, but has resumed them at a higher level since

  • The company has a policy of paying out between 35% and 60% of earnings

• Share Buybacks

  • The company conducts share buybacks but only in small amounts

Income Statement:

• Revenue Growth Rate

  • Long Term - 4% 

  • 3 Year - 70%

  • Revenues are reasonably solid and stable, with the exception of the pandemic which meaningfully impacted revenues (resulting in the 70% growth rate over the past 3 years).

• Pre-Tax Profit Margins

  • Long Term - 9%

  • These values are negatively impacted by the pandemic. Normalized margins are around 20%

• Return on Assets

  • Last Year - 5%

  • Very low returns on assets due to enormous amounts of capital requirements. Railroads aren’t cheap!

• EPS Growth Rate

  • Long Term - 6%

  • Have net losses in recent years

• Cyclicality

  • Non-Cyclical

  • Except maybe as a global economy cyclicality? Not traditional cyclicality at least.

Cash Flow Statement:

• Operational Cash Flow Growth Rate

  • Long Term - 6%

  • Highly dependent on number of visitors

• Investing Cash Flows Growth Rate

  • There have been recent major CAPEX expenses in expanding Cableways

• Financing Cash Flows Growth Rate

  • Debt has been fully repaid recently

Balance Sheet:

• Assets:

  • Main Assets are the railways and other infrastructure that form the core of the company's offerings.

  • Most of the assets are tangible fixed assets with little liquidity, but little chance of disruption or competition

• Liabilities:

  • The main liabilities are operating liabilities, and small amounts of non-current financial liabilities (interest free loans from government that might not require repayment) and non-current provisions (mostly disassembly and disposal costs, and pension obligations)

• Debt:

  • No substantial debt

  • No Debt Cliffs

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Valuation:

Key Metrics:

Bullish

• Discounted Earnings - 127 CHF 

• Discounted Cash Flow - 102 CHF

• Margin to PE - 223 CHF

• Market Multiple - 156 CHF

• Cash Multiple - 156 CHF

• NCAV - 112 CHF

Bearish

• Discounted Earnings - 27 CHF

• Discounted Cash Flow - 21 CHF

• Margin to PE - 14 CHF

• Market Multiple - 0 CHF

• Cash Multiple - 0 CHF

• NCAV - 0 CHF

Average

• Discounted Earnings - 48 CHF

• Discounted Cash Flow - 38 CHF

• Margin to PE - 10 CHF

• Market Multiple - 29 CHF

• Cash Multiple - 0 CHF

• NCAV - 0 CHF

Expected Value:

To be frank I don’t think any of my standard valuation metrics meaningfully apply to this company, and so I made a more detailed discounted earnings model that took into consideration the number of visitors, the revenue per visitor, margins, etc…

Ultimately this is a business where revenues and earnings are directly related to the number of visitors that come, and the propensity of those visitors to spend money, and so it makes sense to look into that, rather than these standard models.

In 2022 the company saw around 650K visitors, still down from the 1 million visitors in 2019, but the last quarter of the year was already in line with the 2019 numbers, so I think it’s fairly reasonable to assume that visitors will go back up to 1 million shortly, and possibly even higher given the new offerings available.

At a per visitor transport revenue of 210 CHF, and with 1.2 million visitors, I would expect that in 2025 the company will earn around 73 million CHF in earnings, or around 12.66 CHF per share.

Given a 8% discount rate, that gives me a per share valuation of 158 CHF, which is around what the company is trading.

If I consider the monopoly-like structure of the business, the relatively stable low inflation currency, the significant branding power, and the irreplaceability of the infrastructure the business owns, It’s easy to be willing to provide a lower discount rate than the usual 11% I use.

I think the company is actually fairly valued right now, when considering its earnings-generating potential, and the high value assets it owns.

The question is really, are my visitor growth assumptions accurate?

Investment Thesis

• This is a solid monopoly like business, with little in the way of local competition

• The company has some serious branding and pricing power it can use to generate substantial revenues

• It is vulnerable to large scale international shifts in tourism

• The valuation is more or less what I would expect with a quality company with substantial pricing power.

• I like the high profit margins, and the conservative balance sheet.

Decision

Current Stance: HOLD

I don’t currently own $JNF.SW, but if I did I would be a happy owner. Ultimately the company is in no danger of bankruptcy, it has a clear path forward to raising revenues and it has demonstrated a commitment to returning capital to shareholders.

While there may be better options out there, the growth in the business, alongside the deep moat means that selling out of the company wouldn’t be a good idea.

The company is fairly valued, and due to the lack of bandwidth I currently have, I’m not in a position to open a new position. I may do so in the future if the share price falls further, or if my index allocation reaches my desired level.

Do you have a different view on the company? Are you buying, selling or holding?

Let me know down below!

Leave a comment

It seems that to many people the old motto no longer appeals to them:

Where we are, and where we were

According to Reuters the average holding period has been decreasing to record lows and now stands at less than 6 months!

If we look at it over a longer timeline this change is astounding:

To go from as high as 8 years in the 1960s to less than 6 months today is a gigantic shift, and one that honestly confuses me

Are we not long term investors?

Do we genuinely expect to get any meaningful returns in less than 6 months?

What exactly is going on?

To me, I generally approach any investment with the idea that I will never sell it. Yes, occasionally there are exceptions, but by and large I try to approach it with the view that I am not able to exit my positions at will.

This should theoretically lead me to consider companies that have solid fundamentals and that will be able to provide me with decent long term returns.

But is that actually the case?

Have I actually “beaten” the average holding period?

Let’s take a look!

Please note a few things:

• I’m counting all assets I purchased for the long term, which means I’m not counting the options i sell and expect to expire

• I’m merging together the same stocks that I purchased in bought IBKR and Degiro. This means that a company like I’m using the degiro opening position date, despite the fact that’s since sold all of those shares as a result of my transfer over to IBKR.

• When it comes to funds, some of them track the same index, but since they are different funds I’m tracking them separately.

  • For example $VUSA and $CSPX both track the S&P500, but one is accumulative and the other distributive. I’m tracking them seperately with CUSA having a holding period of 468 days and CSPX at 937 days.

Overall my average holding period is 606 days, with my shortest holding period at 26 days (Yokogawa Bridge Holdings which I’ve just recently purchased), followed by VUTY (a treasury bond ETF) at 128 days. The last entry under 6 months us KHC which stands at 182 days.

The longest held shares are and all of which have been held for over 1000 days each.

If we consider only the positions that I’ve already closed then my average holding period is quite a bit shorter at only 378 days, with my shortest holdings being $VUTY , and at 128, 182 and 285 days respectively.

Overall, I’d say i’ve been keeping to the old maxim of “my preferred holding period is forever”.

How about you? Do you keep track of your holding periods?

Let me know below!

I’m not going to put exact numbers because frankly they don’t matter. I’m going to split things off into percentages of income, and see where we go from there.

The Expected Budget

The first thing I do is set up my “Expected Budget” for the month that’s coming up, so this Expected Budget was originally created in July.

This expected budget is actually fairly simple, and generally doesn’t change much month to month.

I consider it more or less a perennial budget and I make heavy use of sinking funds, that is, items on my expense list where i set money aside to pay for non-monthly expenses like vacations, medical expenses, etc…

Here it is, a fairly simple budget with Savings & Investments taking the front set followed by rent.

This is a zero based budget (or very close to it), which means every cent that comes in, has a destination to it.

I’m very focused on saving and investing, so I’m making some serious compromises in order to maintain that high savings percentage, but ones that I hope will pay dividends in the future.

The “baseline income” that I use as the basis for this is my regular day job salary, which I receive once per month.

This means that my Side-Gig income isn’t counting towards this, and isn’t used to allocate my budget. In practice over the past year I’ve used that income to pay taxes, so it’s not a big deal.

That said nowadays I have to make tax pre-payments so I’ve recently added that new “Side-Gig Taxes Fund” expense. This is a fund to which I add money every month, and which I will withdraw from in order to make my tax prepayments.

Theoretically this should mean that when I file my taxes I will not have a significant amount of tax to pay.

These prepayments were a pain to do, since effectively I’ve had to “shift forward” a significant expense, but hopefully that won’t be an issue going forward.

The Actual Budget

Of course, there’s a big difference between the Expected Budget and the Actual Budget:

As you can see, I didn’t really stick to my budget, and not in a good way!

I actually spent more than my regular day job brought in, which is not a good thing at all and is unsustainable! I have to fix this!

So what were the unexpected expenses?

There were a few categories, but they can basically be summed up as follows:

• Recurring

  • Cellphone - I only charge my cellphone every few months and it happened that it landed on this month. This cash came from my miscellaneous sinking fund

  • Subscriptions - I have an office 365 subscription and it landed on this month. Also comes from a sinking fund

  • Food and Groceries - I had an extra person in the house for most of the month, so my grocery expense went up even with their contribution. This will be re-evaluated.

  • Healthcare - I had a couple of health exams done for the first time in a few years. They too came from a sinking fund

• Non-Recurring

  • Bars & Restaurants - I had a few unexpected visitors which resulted in going to restaurants a bit more often than expected

  • Shopping - I made some purchases for my vacation in September.

All those together seriously blew up my budget, and so some reflection is needed.

Final Thoughts

The first thing to do is to realize that my vacation fund is simply inadequate. Those shopping expenses were significant, and frankly my fund for that has been insuficient. Going forward I will need to increase that fund significantly.

The recurring expenses were ok, but they too revealed that perhaps i’ve been setting too little aside each month for these eventualities.

In general though, while I think I spent a bit too much money than I should have, having reviewed every expense I had shows that I haven’t been wasting too much money on worthless things.

Could I save more? Maybe.

Could I do with spending a bit more, and slightly reducing my savings rate? Maybe.

It’s something to think about.

That said, please keep in mind that I haven’t accounted for the income from the side-gig. If I account for that, I actually did manage a zero-based budget!

Though I like to think of that as a bit of an “extra” rather than something to rely on.

In sum, going forward I will:

• Increase the amount I’m setting aside for my sinking funds

• Cut down on the shopping and eating out

• Consider whether I need to reduce my savings rate to face up the expenses.

What about you? What does your budget look like?

Let me know down below!

Now that I’m back, I’ve had some time to reflect on some of the little moats and competitive advantages that the businesses in this tourist haven have.

Chamonix

If you’re not familiar with the location, Chamonix is a french commune in the department of Haute-Savoye, the home of around 8600 people. Its permanent residents are dwarfed by the 5 million tourists that the town hosts every year.

It is a well known tourism location, popular with skiers and mountain enthusiasts, and it was the site of the first Winter Olympics in 1924.

This tourism boom has made the town very expensive, and highly reliant on tourist revenue to survive.

The town itself is in a small valley and is almost entirely surrounded by high, almost impassable mountains. There is no significant amounts of good agricultural land, little in the way of natural resources, and accesses to the outside are severely limited, even after the construction of one of the longest tunnels in Europe.

In many places the inacessibility is a constraint on the growth and prospects of a business, but at the same time it provides a significant moat to established businesses.

The same is happening in Chamonix.

The hard to reach location, small permanent population and existing variety of choice makes it an unattractive prospect for one of the big supermarket chains to come in and do business.

The town does have a number of supermarkets, but they are all expensive, with seemingly high margins.

Survival there relies not on the traditional “locals” but instead on how well these businesses can supply a transient customer base of tourists.

These tourists tend to be less price sensitive, not just due to having higher than normal incomes, but the context of their visit too makes low prices a less compelling advantage in the region.

This means shops, markets, etc… can sustain higher margins than they otherwise would have.

The Refuge

These factors are magnified even more in the Lac Blanc refuge.

At 2352 meters above sea level, this refuge can be accessed in 2 ways:

• By Foot

• By Helicopter

This wonderful private business in the middle of a protected area is the only business within kilometers.

It has the following features:

• No potable running water

• No heating

• No internet

• No choice of food

• No individual rooms

• No way to receive supplies without a helicopter

And yet, exclusively as a result of its isolation and lack of competition it is able to charge 6€ per bottle of water, roughly 3 times the price in Chamonix, and 12 times what you would find in a large city supermarket.

What would ordinarily be a terrible business, selling low margin products in a location with huge transportations costs becomes a fantastic business with great margins operating in a location with no competitors by virtue of its isolation.

The question I now have is…

Can I find a publicly traded business with these economics?

I don’t know, but maybe you can point me in the right direction.

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