Well, well… If we wanted some action to shake the financial world in October we might have just got that!
At the time of writing we are still in the middle of a correction, technically speaking. Second time that it happens this year, the first was right at the beginning in February/March, and now we have another “situation” in October, possibly running till the beginning of November.
Catalysts this time are the woes that we are living in Europe with Brexit and the Italian budget “scandal”, plus an “entry fever” towards mid term elections in the US, garnished with the first results of the tariff wars that Trump and his administration triggered some months before.
In macroeconomic terms I still don’t see a cycle heading towards recession, there are more uncertainties but numbers seem still ok. Surely the EU is probably creating the biggest amount of fears with Brexit on one side and now Italy on the other side.
Europe is at a turning point, it seems to me that policies enforced so far have been proven to be quite unsuccessful, and it might be time for a change of philosophy. What and how that philosophy will be it’s likely to come out of the urns in May 2019, but there are signs of countries (one being Italy) that are taking a more critical stance towards the EU and the priorities given so far.
In the short run we have this budget approval story. I keep hearing about how terrible the debt in Italy is, true, it’s quite high, but it’s also evident that Greece-like policies are not working all that much. I do not think that the EU and Italy will draw swords on this, I believe that a political solution will be found, there is no gain on both sides to go to war.
Investing wise all this noise resulted in a lot of Volatility (great for options) and market collapses. Everyone reading this blog must have heard the famous phrase “when there’s blood on the streets…”. I am a true believer that when people are selling the best opportunities come out, my problem is that I mistake a cut finger “blood” with mass carnage “blood”, and I always enter the market when there’s more drama to be had… Oh well, I know I am useless when I try to time the market!! 🙂
Opportunities in Italy are up and running, there are a lot of quality businesses that do not rely on internal demand and are grossly undervalued (for the economic period in which we are now), so my attention has moved towards the home market both for valuations and dividend efficiency/yield.
Explanation of terminology and graphs is HERE.
Let’s see the numbers:
Net Yearly YoC is decreasing (vs. previous month) – What happened here? To this beautiful ever growing number? Well, reality is that option trades have really notched a dent in my results these month, as I cannot afford big swings in monthly results, which is what happened this month, hence the decrease…
TR is decreasing (vs. previous month) – October was NOT a good month for the markets, I am actually quite happy to have walked out of it with just a 1% loss…
Forex is getting better (vs. previous month) – Great news here, the pound is waking up apparently and the dollar is getting to new highs, both these currency effects helped not losing much in Total Return terms.
October has been probably one of the worst months since I have started. a collapse of -71.56% vs. last year October, says it all. Put in a terrible month for markets in the US and especially Europe and you’ve got the picture for me!
October closed with a 388 Euro result.
Dividends accounted 795 Euro (-5.78% vs.2017) and Options ended up with a -408 Euro (-178% vs 2017).
Let’s try to understand what happened in October…
Options apparently underperformed majorly, and actually it was just one trade that created a huge hole in the balance sheet. CISCO options were deep in the money and I have decided to roll (extend their duration) in 2019, this created a loss of 1000 euro to start the month. Under this aspect reporting “only” 408 Euro of losses from my option trades is a major victory, though it fell short in bringing the balance of option trades back to parity.
On the other side Dividends for the first time “ever” did not report any growth. Ok the difference is minimal, we are talking 50 euro, but it’s there. (June drop was due to a bond that I no longer hold that was paying that month. De-facto dividends were higher than previous years). Is this cause for alarm? Well not quite. There is a point where the growth need to stop, although I am reinvesting all dividends into the “machine” the rate of growth will suffer some major slowdown.
Bought 100 T @30.80 USD
What do I have to say about AT&T that you cannot find online? It’s a bond proxy, touched the -10% threshold and by my strategy rules it’s in buy territory. I like this stock, I like the very bold move with Time Warner, I believe that telecoms can find better earnings only offering content, the actual speed of the line, and service itself it’s secondary because nowadays it’s considered like a utility. Who can survive with NO TELEPHONE at all? In practical terms we can certainly survive without telephones, but our society is not really going that way right now… So contents can give AT&T an extra hedge, not immediately but I am ok with waiting. In the meantime I have a 6% dividend to play around with and hopefully some covered calls too…
Bought 500 BIT:MB @7.50 EUR
Mediobanca is a merchant bank in Italy. I’d have to say “THE” merchant bank in Italy. Anything remotely interesting, economically speaking, that happens in Italy has Mediobanca in it. I have decided to move on this institute because of the decrease in share price, the nice 6% dividend that gets paid in November (and not in May like most of the italian companies seem to do) and prospect of growth that have been confirmed by the recent earning release. Yes of course it’s under fire for the Italian budget situation, but fundamentals seem good to me and do not excuse a 30% share price loss in 2 months… It’s a good opportunity for dividend and share price growth.
Bought 100 BIT:BRE @10.30 EUR
Brembo is one of the leaders in braking systems in the automotive world. Top quality brakes used in all major sport competitions and on expensive cars. The company is managed marvellously, pays a very low dividend but also here I think that there will be space for a good recovery once all the political situation gets a bit more easy.
Bought 100 BIT:SRI @3.70 EUR
Servizi Italia is another SMB from Italy, this one specialises in cleaning and sanitising of linens and textiles from hospitals and generally healthcare related institutions. I am not sure why the value has gone down so much, I have tried to understand reading earning releases and so on, but I could only see positive news from the numbers I saw. It’s a niche market of course, no competitors, decent margins (for a service industry) now expanding in Asia too… I am in for dividend (4%) and potential share growth once all this Italian selling madness is over.
New Positions – Sold Positions
Sold 50 EPA:SAN @ 75.64 EUR
One of my starting investments, Sanofi. Long history of dividend payments, but too much pain in these 4 years under the share price point of view. It’s one of the biggest pharma out there, a giant for sure in Europe, but it also seems that it’s going nowhere and with the double tax on the dividend yield was just too low. I needed cash to switch to some other stocks (see above) and let it go. Might buy in again when/if it falls in the mid 60’s as it was for the past 2 years, who knows…
The Portfolio took a bit of a beating, dropping to 106.71 Euro in the third week of October, going as low as it went in February. The loftier evaluation was 111.67 Euro, a 4% drawdown in a month it’s quite severe. Compared to some indexes DAX lost 8%, FTSE MIB lost 10% and Dow Jones was down 8% in October, so I guess I can’t complain too much.
The reality is that this fund is a substitute for the pension that I have serious doubt to have from the state, so the slow rate of growth is accounted for. Clearly adding options to the mix increases chances to report losses a certain month, but again I am not too much concerned about it because the money management side of them is always positive, so I will get back that paper loss when I decide to close the position.
2018 will post a lower total result vs. 2017, but that was accounted for because of option trades, while dividends in the same period are likely to be higher and this is the great result that I have to concentrate on. On the Net Yearly Yield side on the contrary I believe that it’s not going to be easy to hit the 3% mark that I am aiming at, I guess 2019 might be the candidate there! 🙂