Hey, thanks for the mention and I enjoyed this piece a lot. I had a few of these on my watchlist already and have added a couple more.
You have captured the current market very nicely. It's not just Germany or the UK, most non-US stocks (especially value) are down and have been struggling for a long time.
I wonder if this is how the great value investors felt in 1999, when they ignored large tech, but were able to find very cheap stocks elsewhere? Except this time the opportunity is in Germany, the UK, Brazil, Hong Kong, PGMs and Nat Gas etc.
Thanks for comenting Guy. In my view, the vibes really feel like do feel like the 1999/2000 era. Money can be made in AI / crypto very quickly and seemingly easily. Jensen Huang is signing on breasts, Saylor (MSTR) is giving investment advice to Buffett. As it feels like MSTR is doubling every week or so and money can be made easily there, why should one bother to research "old economy" companies in places like Germany and the UK which have returned zero for the last five years?
Great post! I share much of your general sentiment, although I'm a bit concerned how deep a recession might cut. There are some German companies whose business seems stable or growing and that are investing right now, which I find particularly attractive. This would be e.g. Alzchem, PVA TePla or KSB. Villeroy&Boch and Basler could also be interesting titles right now.
I went in on Mercedes, which is probably just because I own one and like it, but I couldn't really make much of a distinction with BMW which is also a bargain, I think.
Bayer is doomed, debt is too high. People have said that German small caps are cheap end of 2022, end of 2023 and now again. It reminds me of Chinese equities. Party goes on in US, esp. with Trump now. You will regret not investing there.
Thanks for sharing your view. Bayer has issues and I do not like their debt load. My point is that they have slowly and painfully started to reduce it and will continue to do so as therir primary use of funds. Also, the yield on their Jan-2030 benchmark bonds in EUR stands at 3.6%. This is a ~150 bps spread vs riskfree Bunds, not nothing but it means they still have access to the market at a reasonable cost. It is still a risky situation.
For me, the US is a prime location for investing, but not at any price and the market has become comparatively expensive. I am not looking for a party, but rather for neglected places nobody cares about or even those which everbody hates. Trump's announced economic policies (in my view) are a mixed bag. The deregulation part holds some promise but the DOGE is a joke IMHO and tariffs and mass deportations are clearly inflationary. Let's see what really gets done.
Great write up. Thank you. Agreed on VW, the government hand is too heavy there. Leadership in SIXT is a turn off for me. Bayer I think has a shot of making it through. I have also been looking at German real estate co’s that have been beaten up. VIB Vermögen? The catalyst could be the Feb election, but regional elections are showing how challenging it will be to form a coalition. Someone will have to work with the AfD and who knows whether they could because capable of running the economy any better…
Thank you for commenting. I have routinely stayed away from German real estate companies as I do not understand real estate very well (though I like to own the house my family lives in).
The elections will be interesting indeed and I hope there will be a clear mandate for economic reform. Without getting too much into politics, I am confident the AFD will not be part of the next government and they also have no convincing policies for the economy (they just want to limit migration and stop supporting Ukraine). However, there is a perspective that economic policies might change from centerleft/social democratic to centerright/conservative, led by the CDU which is running on a very different platform compared to the Merkel years. FDP and to some extent the Greens have also understood the urge to improve incentives to work and cut red tape.
Thank you for the feedback. I enjoyed this video. To be clear, I do think that there are big issued for the German economy, but I think they can and will be addressed. This will equire work and potentially some sacrifice, but it is doable. MTU is an interesting name I have not looked at for some time but might well refresh.
This is a very convincing case. Moat is the key imo in times of crisis… are product irreplacable? No real alternatives? Which one of those names can we state this? I bought hermle not irreplecable - grob and mikro competes well - but high switching cost - can be a pain to train on another precision machine. Which name of the list do you feel irremplaçable or real pain to replace thus pricing power?
Thank you Govro. I believe all of them are strong names because it can be seen in the numbers (high returns on capital for an extended period). But they are to some extent cyclical, meaning that they will not just add year after year but there will be a down-quarter or year. Bayer is very hated because it is down the most and many people got burned, and everybody focuses on the risks (legal cases). BMW has high brand value, it has some after-sale business and in my view pricing power. It also has a sizeable China risk. Amadeus Fire will swing with the German labour market and some people say it may become replace by AI. Funkwerk is overall a stable business with nice margins and I believe there will be infrastructe spending (including for trains) for many years to come. It has a majority owner so a potential takeunder is the biggest risk in my view.
Hey, thanks for the mention and I enjoyed this piece a lot. I had a few of these on my watchlist already and have added a couple more.
You have captured the current market very nicely. It's not just Germany or the UK, most non-US stocks (especially value) are down and have been struggling for a long time.
I wonder if this is how the great value investors felt in 1999, when they ignored large tech, but were able to find very cheap stocks elsewhere? Except this time the opportunity is in Germany, the UK, Brazil, Hong Kong, PGMs and Nat Gas etc.
Thanks for comenting Guy. In my view, the vibes really feel like do feel like the 1999/2000 era. Money can be made in AI / crypto very quickly and seemingly easily. Jensen Huang is signing on breasts, Saylor (MSTR) is giving investment advice to Buffett. As it feels like MSTR is doubling every week or so and money can be made easily there, why should one bother to research "old economy" companies in places like Germany and the UK which have returned zero for the last five years?
Great post! I share much of your general sentiment, although I'm a bit concerned how deep a recession might cut. There are some German companies whose business seems stable or growing and that are investing right now, which I find particularly attractive. This would be e.g. Alzchem, PVA TePla or KSB. Villeroy&Boch and Basler could also be interesting titles right now.
I went in on Mercedes, which is probably just because I own one and like it, but I couldn't really make much of a distinction with BMW which is also a bargain, I think.
Bayer is doomed, debt is too high. People have said that German small caps are cheap end of 2022, end of 2023 and now again. It reminds me of Chinese equities. Party goes on in US, esp. with Trump now. You will regret not investing there.
Thanks for sharing your view. Bayer has issues and I do not like their debt load. My point is that they have slowly and painfully started to reduce it and will continue to do so as therir primary use of funds. Also, the yield on their Jan-2030 benchmark bonds in EUR stands at 3.6%. This is a ~150 bps spread vs riskfree Bunds, not nothing but it means they still have access to the market at a reasonable cost. It is still a risky situation.
For me, the US is a prime location for investing, but not at any price and the market has become comparatively expensive. I am not looking for a party, but rather for neglected places nobody cares about or even those which everbody hates. Trump's announced economic policies (in my view) are a mixed bag. The deregulation part holds some promise but the DOGE is a joke IMHO and tariffs and mass deportations are clearly inflationary. Let's see what really gets done.
Great write up. Thank you. Agreed on VW, the government hand is too heavy there. Leadership in SIXT is a turn off for me. Bayer I think has a shot of making it through. I have also been looking at German real estate co’s that have been beaten up. VIB Vermögen? The catalyst could be the Feb election, but regional elections are showing how challenging it will be to form a coalition. Someone will have to work with the AfD and who knows whether they could because capable of running the economy any better…
Thank you for commenting. I have routinely stayed away from German real estate companies as I do not understand real estate very well (though I like to own the house my family lives in).
The elections will be interesting indeed and I hope there will be a clear mandate for economic reform. Without getting too much into politics, I am confident the AFD will not be part of the next government and they also have no convincing policies for the economy (they just want to limit migration and stop supporting Ukraine). However, there is a perspective that economic policies might change from centerleft/social democratic to centerright/conservative, led by the CDU which is running on a very different platform compared to the Merkel years. FDP and to some extent the Greens have also understood the urge to improve incentives to work and cut red tape.
That was a great read!
one of my favorite interweb economists just posted on this topic :
https://www.youtube.com/watch?v=cg43s4PkPX0
of course, the catch is that macro catalysts are more unpredictable, other than they take longer than even value investors can tolerate.
so as a longterm holder of MTU aero, have been looking for for something more on the larger mittelstand side with sufficient u.s. liquidity. help!
Thank you for the feedback. I enjoyed this video. To be clear, I do think that there are big issued for the German economy, but I think they can and will be addressed. This will equire work and potentially some sacrifice, but it is doable. MTU is an interesting name I have not looked at for some time but might well refresh.
This is a very convincing case. Moat is the key imo in times of crisis… are product irreplacable? No real alternatives? Which one of those names can we state this? I bought hermle not irreplecable - grob and mikro competes well - but high switching cost - can be a pain to train on another precision machine. Which name of the list do you feel irremplaçable or real pain to replace thus pricing power?
Thank you Govro. I believe all of them are strong names because it can be seen in the numbers (high returns on capital for an extended period). But they are to some extent cyclical, meaning that they will not just add year after year but there will be a down-quarter or year. Bayer is very hated because it is down the most and many people got burned, and everybody focuses on the risks (legal cases). BMW has high brand value, it has some after-sale business and in my view pricing power. It also has a sizeable China risk. Amadeus Fire will swing with the German labour market and some people say it may become replace by AI. Funkwerk is overall a stable business with nice margins and I believe there will be infrastructe spending (including for trains) for many years to come. It has a majority owner so a potential takeunder is the biggest risk in my view.
I would say BMW3 is very tempting. Moat it has. Bayer is outside my circle… pharma agri