It’s time. Accountability day.
All the analysis, data, models, and insights.
Did it make money?
Turns out we’ve had a good 9 months. We give thanks.
Our two big themes, Dirty Dividends and the Cash Dragons are working with Dirty Div’s +56% and the Cash Dragons +60% year to date.
Remember Dirty Div’s started out with us buying all the ‘untouchable’ European sectors in late 2022; Banks, Energy, Tobacco and Mining.
Then in 2024 we did it again and launched the Cash Dragons. The strategy was to load the boat on ‘uninvestable’ Chinese stocks, especially tech. The view was we were buying Chinese stocks on the lows of their Great Financial Crash, and the HK/China market was going to evolve from depression into full blown stock market mania by 2026.
That mania is still to come. The Hang Seng is going to make new all time highs. By a lot.
Now let’s review each theme.
Dirty Dividends
Q3 wasn't as explosive as earlier in the year, but Unicredit, Banco Santander and Barclays, our biggest positions, continue to drive performance.
Santander +26%
Unicredit +14%
Barclays +11%
It’s interesting Santander is doing so well even though the EUR 10bn buyback hasn’t even started. They are still working through the previously announced EUR 1.7bn buyback.
Barclays had a stand out 1H and should get to GBp 500/share. BarCap which had been the low ROE sector dragging down the group, really kicked into gear as capital markets activity improved from low levels. 2H should be great too.
We need to talk about Jackson Financial more. It’s a silent killer (+14%), and still cheap. Just paying divs, buying back massive amounts of shares (another $1bn approved) and benefiting from this massive ramp in asset prices (A Friday $$$ Maker)
It’s not a big position but Korea… +14%.. we love Korea(Who am I ETF?).
And our Dirty Dividend imposter, Tesla, was +37% in Q3, which makes sense. We added Tesla to Dirty Div’s as an exercise in trying to have imagination, think beyond P/E’s and be more like John Burbank (The Magic of John Burbank).
Below is the Dirty Dividends portfolio allocation. There was no turnover during the quarter. Just dividend reinvestment.
The strong European Bank performance means they dominate the portfolio mix at 62% That’s fine.
Now on to the Cash Dragons.
Cash Dragons
An amazing thing happened in Q3. Alibaba and Baidu went vertical despite crappy Q3 earnings (Good and Bad of Chinese Earnings). Instead there was a complete narrative shift. The market didn’t care about the intense competition and falling margins in Alibaba’s traditional online retail business, and where they make all their money. Nope. All that mattered was Alibaba was going to build an AI chip and that datacenter revenues grew +26% yoy.
EBITDA -14% yoy… E-Commerce declines HK 10.3bn and stock launches.
Baidu was the same. Crappy Q3 earnings, massive negative pressure in the online search business, big downgrades to my estimates, and yet the stock went vertical. If you remember I was right on the edge of selling it. But didn’t.
The big stock price moves in Alibaba and Baidu, while the EPS estimates are moving down means these stocks have quickly become quite expensive. I’m going to keep them for now.
HK Exchange and SGX are riding the China market FOMO upwards, as is their job and why we bought them. Volumes are booming and analysts are can’t keep up.
Ping An is making money, but has been a relative under performer. I’m sticking around though. Meanwhile, they just paid the 1H dividend.
Overall Asset Allocation
It’s great that the themes are doing well, but I like to show how everything is weighted across all my liquid positions.
The big Q3 for the Cash Dragons means they are now 29% of the portfolio, up from 21% at the beginning of the year.
The big trade was when we added the AI theme in July. We bought NVDA, AMZN and META in July (10 Nvidia Takeaways - why not owning Nvidia makes me uncomfortable).
The total return for the overall portfolio is +41% ytd.
In summary no cash, all in on risk.
No we bow our heads in prayer to the market gods.
Dear Market God we thank you for your generosity.
Keep us humble, for you are the source of all returns.
We thank you for the gift of compounding.
We thank you for the gift of share buybacks.
We thank you for the gift of fiat money.
Bless us with the strength to be brave while others are fearful.
Bless us with patience when others lose hope.
This day and every day.
Amen.
Well done, Erik. Outstanding performance and so appreciate your insights and analysis. I was wondering if you would consider doing a look back on “the ones that got away”. The stocks you may have mentioned that you never bought, such as COIN for example. Might it be time to reconsider some of those names? Thank you!
Fantastic returns YTD Erik! I wonder your thoughts about (i) rebalancing portfolio and (ii) capital preservation after large returns... Do you have a target allocation bucket for each geography you would like to go back to periodically or anything like it that would drive rebalancing? And on capital preservation - would you increase cash position to give flexibility when opportunities arise and take profit? Or the fiat money debasement theory keeps you invested 100% and if you like something new just add dividend reinvestments or switch assets? Thanks for the insights