Monday, April 13, 2099

Valuation of all stocks listed in Holland AEX All Share AAX: Benjamin Graham Defensive Investor method

Warren Buffett: "Well, start with the A’s." Click on the companies below for Graham Evaluation:

Aalberts Industries 2019
ABN AMRO 2019 
Accell Group 2019 
Ahold Delhaize Koninklijke 2019
Accsys Technologies 2019
Adyen 2019
Aedifica 2019
Aegon 2019
AFC AJAX 2019
Air France-KLM 2019 
Akzo Nobel 2019 
Alfen 2019
Altice 2019
Alumexx 2019 (voorheen Phelix, Inverko, Newconomy)
AMG Advanced Metallurgical Group NV 2019
Amsterdam Commodities ACOMO 2019
AND International Publishers 2019
Apollo Alternative Assets 2019 
Aperam 2019
Arcadis 2019
ArcelorMittal 2019 
ASM International 2019
ASML 2019
ASR Nederland 2019
Avantium 2019
BAM Koninklijke Groep 2019
Basic Fit 2019
BE Semiconductor AEX:BESI 2019
Beter Bed Holding 2019
B&S Group 2019

Berkshire Hathway 2019 run by Warren Buffett

Bever Holding 2019
Boskalis Westminster Koninklijke 2019
Boussard & Gavaudan Holding Ltd. An expensive hedge fund.
Brill, Koninklijke 2019
Brunel 2019
Coca-Cola European Partners 2019
Corbion 2019
Core Laboratories 2019
Ctac 2019
Curetis 2019
DGB Group 2019 check May 2020 
DPA Groep N.V. 2019
DSM Koninklijke 2019
Dutch Star One 2019
Ease2pay 2019
Envipco 2019
Eurocastle 2019
Eurocommercial Properties 2019
Euronext 2019
Fagron 2019
Fastned 2019
Flow Traders 2019 
FNG 2019
ForFarmers 2019
Fugro 2019
Galapagos 2019
GrandVision 2019 EUR 28 offer
HAL Trust 2019 buy at EUR 143
Heijmans 2018 jaarresultaat 20 feb 2020
Heineken 2019
Holland Colours 2019 buy under €100
Hunter Douglas 2019
Hydratec 2019
ICT Group NV 2018 buy under 9 Euros
IEX Group 2018 Sales 3m, losses 600k, not for the defensive investor
IMCD 2018
ING Bank 2019
Intertrust 2018
Kardan 2018
Kendrion 2019
Kiadis Pharma 2019
Klepierre cheap at €29? 2018
KPN 2018
Porceleyne Fles Koninklijke 2018
K. VOPAK 2018
K. Wessanen 2019 buy out?
K. VolkerWessels 2019
Lavide sold childcare company oct 2018 1 Euro 
Lucas Bols 2019
Marel 2019
Nedap 2018
MKB Nedsense 2018
Morefield Group 2019 (voorheen Headfirst)
New Sources Energy 2018 fraud
Neways 2019
NIBC 2019
NN Group  2019
Novisource 2018
NSI Nieuwe Steen Investments HNK = Het Nieuwe Kantoor 2018
OCI 2018
Oranjewoud 2018 
Ordina 2019
Pershing Square 2018
Pharming back of the envelope math 2018
Philips 2018
PostNL 2018
Probiodrug 2018
Randstad 2019
Real Estates 2018
RELX 2018
RoodMicrotec 2018
Royal Dutch Shell 2019
SBM Offshore 2018
Sif Holding 2018
Signify Philips Lighting 2019
Sligro 2019
SnowWorld 2018
Stern Groep 2018 a buy?
Takeaway.com 2018
Tetragon 2018
Thunderbird Resorts 2018
TIE Kinetix 2018
TKH Group 2018
TomTom 2018
Unibail Rodamco 2018 a buy?
Unilever 2018
Value8 2019
Van Lanschot 2018
Vastned Retail 2018

Volta Finance fund including CLO (Collateralized Loan Obligations)
WDP 2019
Wereldhave, buy! 2020
Wolters Kluwer 2018

Yatra Capital Indian Real Estate, 2017: losing money, stopping? Book 7,5 E, Price 5,75 E.
2018 "As the Company has exited or is in the process of exiting all of its investments the shareholders passed a special resolution at its Annual General Meeting on September 17, 2018 to put the Company into liquidation and is in the process of realising its assets, settling liabilities and distributing the assets. Price EUR 3,5 cash payout Eur 4 to 4,40 in 2019? but not for people who buy the shares today (December 18th 2018)?

R.I.P.
Batenburg Techniek: Taken off the stock exchange for 46 Euros by van Puijenbroek family. Good price for investors:  http://sinaas.blogspot.com/2018/08/batenburg-techniek-graham-valuation.html
BinckBank 2019 Saxobank
Esperite: 2018 Stem Cell Bank losing money, selling shares. Price recently fell from 3 to 0,25
oktober 2019 falliet, koers: 0,046 geen handel.
Gemalto Thales offer 2018
Groothandelsgebouwen N.V. bought for EUR 56,92
KAS BANK 2019



Other countries:
Starbucks

Wednesday, February 19, 2020

Hydratec stock price and Graham value


SECTOR: [PASS]  Hydratec is a small conglomerate of industrial systems and components companies. 


SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Hydratec's sales of €208 million, based on 2018 sales estimates, just fails this test.

CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Hydratec's current ratio €85m/€78m of 1,1 is too low.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Hydratec is €30 million, while the net current assets are €7 million. Hydratec fails this test.

LONG-TERM EPS GROWTH[PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. Hydratec's earnings per share have increased by 150% since 2006. 

Earnings Yield: [PASS] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. Hydratec's E/P of 8% (using last years Earnings) passes this test.

Graham Number value: [PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Hydratec has a Graham number of (15 x €6 EPS x 1,5 x €43 Book Value) = €77 

Dividend: €2,7/€69 = 4% 


Conclusion: Hydratec is growing organically and through acquiring companies partly by selling shares, debt is increasing. Business in 2018 was especially good. 69 EUR is sensible price at which to buy.

Tuesday, February 18, 2020

ING stock price lower than Benjamin Graham Defensive Value


Dutch compliance costs seem to have hit ING lees than I would have expected. 

SECTOR: [FAIL]

ING is in the Financial sector, which is one sector that this methodology avoids. Technology and financial stocks are considered too risky to invest in. Several of Graham's criteria, like the Current Ratio and Debt to Current Assets, do not apply to financial companies. As a result, the company will not be able to pass this methodology, although we will include the remainder of the analysis for informational purposes.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. ING's sales of €17 773 million, based on 2017 sales, pass this test.

LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for ING have increased 45% in the last 10 years the company passes this criterion.

EARNINGS YIELD: [PASS] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. ING's E/P of 12% using earning per share estimate of €1,20.

Graham Number value: [PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. ING has a Graham number of √(15 x €1,2 EPS x 1,5 x €12,6 Book Value) = €19

Dividend: EUR 0,69 / EUR 10,45 = 7%

Conclusion: Now at a stock price of EUR 10,5 seems like a good time to buy ING.

Warren Buffett's Rules Nr. 1,2 & 3? In the light of the “THE ERGODICITY PROBLEM IN ECONOMICS"


Summary of the article by Ole Peters in Nature, December 2019

Ole Peters is a Fellow at the London Mathematical Laboratory. In December 2019 he wrote a paper in Nature (TheErgodicity Problem in Economics) that sheds light on human behavior that deviated starkly from model predictions. Scientists assumed that the models were correct, and people were irrational, but it turns out the “experts” themselves had been making a relatively simple mistake for centuries. You can argue they had a “bias bias”.

You might have heard of The Loss Aversion bias?
“Loss aversion is a tendency in behavioral finance. It also includes the subsequent effects on the markets. It focuses on the fact that investors are not always rational where investors are so fearful of losses that they focus on trying to avoid a loss more so than on making gains.” Source https://corporatefinanceinstitute.com/

Ole Peters argues that people aren’t as irrational as many psychologists, behavioral economists and the Corporate Finance Institute think. That has to do with the fact that scientists have overlooked the importance of time when calculating the expected values of decisions.

In business, investing and things like farming, what you own today and how that changes has an effect on how much money you can make tomorrow. There can exponential growth, but not if you regularly lose a large percentage of your wealth. Recall what Warren Buffett and Charlie Munger teach: Buffett’s Rule Nr. 1 “Don’t lose money intrinsic value.” (Rule Nr. 2 Don’t forget Rule Nr. 1).  Charlie Munger: If you don’t get elementary probability into your repertoire... you go through life like a one-legged man in an ass-kicking contest.”

Some background:

Since the 17th-century models of probability have been heavily influenced by The Unfinished Game played by Fermat and Pascal. Before their time people assumed you couldn’t predict the future in any manner, it was basically in God’s hands. Once you believe you can calculate the future probability of something happening it becomes relatively simple to calculate the “expected value” of taking a gamble. You can predict outcomes with some certainty. Christiaan Huygens, for example, applied probability theory to calculate life expectancies and helped his compatriot Johan de Witt, the leader of the Dutch government, to sell the first life insurance.

(This leads to a possible Warren Buffett Rule Nr. 3 “Own insurance companies.”  😉)

Based on Fermat and Pascal’s work, we can calculate the “expected value” of taking a risk. For example, if you wager $10 and toss a coin where you have a fifty percent chance of winning an extra 50% ($5) and a have a fifty percent chance of only losing 40% (- $4), then tossing the coin gives you an expected value of $5 - $4 divided by 2 possible outcomes = 50 cents extra wealth. In other words, the “expected value” every time you do this coin toss is 5% of the wagered amount. 

Theoretically, if you want more money, you would be an idiot if you could wager most of your wealth on a bet like this and decided not to. Every time you flip, your “expected value” is a 5% increase. In practice most people wouldn’t. This failure of the expected wealth model to describe actual human behavior was called the “St. Petersburg Paradox”. 

In the 18th century Daniel Bernoulli came up with a reason in his book “Exposition of a New Theory on the Measurement of Risk”: when people decide whether to take part in a gamble, they don’t consider the expected changes in wealth, x in $s, but the expected change in the usefulness of wealth;  (u)x utility.



If you already have wealth, gaining 50% extra is considered less valuable than losing 40%. Flipping the coin has an expected positive monetary value but because of risk aversion and the decreasing usefulness (utility) of more wealth, the flip has a negative “expected utility”.

Almost two centuries later, in 2019 Ole Peters pointed out that Bernoulli and others hadn’t thought about the effect of time and repeated decisions. In an “non-ergodic” system the outcome of today depends on what happened yesterday. If you wager all your money repeatedly on this coin toss (that has a positive “expected value” every time) you will lose money over time instead of earning it.
  
Consider starting with $10 and then Winning, Losing, Winning, Losing, Winning and Losing:
$10 x 1,5 = $15 x 0,6 = $9 x 1,5 = $13,5 x 0,6 = $8,1 x 1,5 = $12,15 x 0,6 = $7,29
This is a “multiplicative” result. Yesterday’s output is today’s input. It is obviously not growth optimal even though the “expected value” of a single toss is positive. Peters argues that if your result is “multiplicative” (as it is in investing) then risk aversion is a lot more logical than most psychologists and economists think.

Figure made by Ole Peters
The blue line x = theoretical “expected value” of 5% per toss which leads to exponential growth. (Note the logarithmic scale of Wealth in $.)  The red line is the actual multiplicative ergodic result for the process over time. 150 individual trajectories are shown, each consists of 1,000 repetitions.

Another way of taking the bet is “additive”. Instead of betting all your wealth you bet a small fixed amount say $1 instead of all $10 and then add up the results: This will increase your wealth (slowly not exponentially).

($1 x 1,5 = $1,5) + ($1 x 0,6 = $0,60) = $2,10

Every time, you decide not to take this bet you incur an Opportunity Cost of 5 cents “expected value”.  (See also Kelly Formula in further reading below).


A third way to take the bet is as an “ensemble”, you bet small amounts in parallel:

$1 -> $ 0,60
$1 -> $1,50
$1 -> $0,60            $4 becomes $4,20 this is what insurance companies and casino’s do.
$1 ->$1,50

Peters conclusion: “In the early days of probability theory there was a firm belief that things should be expressed in terms of expectation values. For that to make any sense in the context of individuals making financial decisions, something had to be created. Expected utility theory – unknowingly, because ergodicity hadn’t been invented – did just that. But because of the lack of conceptual clarity, the entire field of economics drifted in a direction that places too much emphasis on psychology (irrationality and biases).”

In practice, Buffett has avoided “Catastrophic Risks” in investing, that is anything that entailed a significant risk of losing all the money invested in it (such as startups). His “multiplicative” perspective shines through in quotes like this “Over the years, a number of very smart people have learned the hard way that a long string of impressive numbers multiplied by a single zero always equals zero.”

Note from Ansgar John Brenninkmeijer (who wrote this memo): I believe you should distinguish between “intrinsic value” and “quoted value” when saying “Don’t lose money.” It might be better expressed as Don’t lose intrinsic value. Both Buffett and Munger have said they are not concerned about dips in “quoted value” i.e. what most people would consider losing money. A 50% fall in Berkshire Hathaway’s share price in the future is something Buffett says you should expect. For an outsider, it might seem like Buffett and Munger don’t suffer from a risk aversion bias because they aren’t worried about share price crashes, but I believe their perspective is different and more along the lines of Ole Peters. They keep score by trying to limit losses of intrinsic value and keeping opportunity costs as low as possible. 

Further reading:
“The ergodicity problem in economics” Peters, 2019 https://www.nature.com/articles/s41567-019-0732-0
“Fortune’s Formula” by William Poundstone (about John Kelly’s Formula, Claude Shannon’s Demon, etc)
“The Dhando Investor” Mohnish Pabrai, pages 80,81,82 Kelly in practice
“The Tao of the Turtle” by Turtle Creek Canada: Portfolio Construction (Sizing)  http://www.turtlecreek.ca/uploads/pdf/thoughtpiece/Thought_Piece_Investment_Edge_3.pdf
“Leer Beleggen als Warren Buffett” Hendrik Oude Nijhuis, Björn Kijl

Monday, February 17, 2020

Samen Is Niet Alleen, Altijd Samen

NZS Capital writes "Why do we cooperate in a competitive world? This week I re-read a paper (PDF) by Ole Peters and Alexander Adamou titled “An Evolutionary Advantage of Cooperation.” The paper explains the evolutionary advantage to cooperation as a result of noisy and multiplicative dynamics. To put it simply, compounding growth and benefits can take place in an unpredictable world at a greater rate if people cooperate, even if it means losing something in the short term. And, cooperation supports risk mitigation, as the paper shows. I think of this as the math behind reciprocal altruism, which is at the heart of non-zero-sum game theory, which is, in turn, at the heart of NZS Capital. A critical strategy for companies operating in the Information Age is creating non-zero-sum, or win-win outcomes for not just shareholders, but every constituent possible including employees, customers, society and the planet."

Wednesday, February 12, 2020

Heineken stock price and Benjamin Graham value


2019 was a very long hot summer in a lot of places in the world. Heineken sold very well. Note that Benjamin Graham value places an emphasis on book value which is less important for Heineken than earnings and beer flow.

Heineken Benjamin Graham Defensive Analysis 2019:



SECTOR: [PASS] HEINEKEN is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. HEINEKEN's sales of €28 521million, based on 2019 sales, pass this test.

CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. HEINEKEN's current ratio €8 419m/€12 037m of 0.7 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for HEINEKEN is €16 886 million and increasing, while the net current assets are €-3 888 million. HEINEKEN fails this test.

LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. HEINEKEN's EPS growth over that period of 70% passes the EPS growth test.

Earnings Yield: [FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. HEINEKEN's E/P of 4% (using last year's earnings) fails this test.

Graham Number value: [FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. HEINEKEN has a Graham number of (15 x €3,6 EPS x 1,5 x €30 Book Value) = €50 and fails this test.

Dividend (increasing): 1,68 EUR / 104 EUR = 1,6% 

Tuesday, February 11, 2020

Randstad Benjamin Graham Defensive Analysis


This is the current analysis using the criteria from Chapter 14 Defensive Investing from "The Intelligent Investor":

Note: Graham talked about Earnings in The Intelligent Investor, Randstad seems to be focussed on Free Cash Flow and Gross Margins currently.  Dividends (not included in the graph above) have increased significantly and are now 8% of the share price. 

SECTOR: [PASS]  Randstad is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Randstad's sales of €23,676 million, based on 2018 sales, pass this test.

CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Randstad's current ratio €5 066m/€4 994m of 1.0 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL]  For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Randstad is €691 million (and decreasing), while the net current assets are €72 million. Randstad fails this test.

LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. Randstad's EPS growth was 90% over the past 10 years, Randstad fails this test.

Earnings Yield: [FAIL]  [PASS] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. Randstad's E/P of 6,5% (using the last 3 years Earnings) passes this test.

Graham Number value: [FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Randstad has a Graham number of (15 x €3,5 EPS x €24,4 Book Value) = €44 

Dividend: €4,32/€52 = 8%

Frits Goldschmeding owns 32% of the 183 million shares, so he will receive EUR 4,32 x 183m x 0,32 = EUR 252m in dividend payouts this year. 

Hunter Douglas Stock Price and Value



In October 2018, I wrote " today the share price is EUR 63,41 and the company seems like a buy. Debt has been increasing (as a result of acquisitions?), so it is not a stock for the Graham Defensive Investor."

SECTOR: [PASS] Hunter Douglas is in manufacturing (of window coverings). Technology and financial stocks were considered too risky to invest in when this methodology was published. 

SALES: 
[PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Hunter Douglas' sales of €3 739 million, based on 2018 sales, passes this test.

CURRENT RATIO: 
[FAIL] [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Hunter Douglas' current ratio €1 541m/€823m of 1,9 just fails this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: 
[FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Hunter Douglas is €1 112 million, while the net current assets are €486 million. Hunter Douglas fails this test.

LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. 
Hunter Douglas' earnings have increased during the past 10 years by more than 50%.

Earnings Yield:  
[PASS] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. Hunter Douglas' E/P of 13% (using last years Earnings) passes this test.

Graham Number value: 
[PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Hunter Douglas has a Graham number of (15 x €7,5 EPS x 1,5 x €41 Book Value) = €84 

Dividend: €2/€61= 3% 

Conclusion: February 2020 still a buy.