2016 performance review

With another year behind us it’s time to make up the balance for 2016. The year started somewhat challenging with global indices and my portfolio going down roughly 10% in February. If you would have told me that this would be followed by a Brexit and Trump winning the US presidency I would have predicted disaster, but instead the MSCI All Country World Index is up double digits and thanks to a truly phenomenal second half my portfolio finished the year up 43.6%. In some ways this is my best result ever. Because the amount of capital I’m working with has been growing it’s for sure my biggest year measured in euro’s, and because of some conservative accounting choices I think my performance is somewhat under-reported and in reality I’m beating the index with a (slightly) wider margin than in 2013.

Year Return* Benchmark** Difference
2012 18.53% 14.34% 4.19%
2013 53.04% 17.49% 35.55%
2014 27.72% 18.61% 9.11%
2015 20.23% 8.76% 11.47%
2016 43.58% 11.09% 32.49%
Cumulative 299.94% 92.51% 207.43%
CAGR 31.95% 14.00% 17.95%

* Return in euro’s after transaction costs, dividend withholding taxes and other expenses
** Benchmark is the MSCI ACWI (All Country World Index) net total return index in euro’s

When I started this blog I thought that roughly 5 years would be enough to build up a track record. I’m either extremely lucky to outperform the index like this for 5 years in a row, or I’m creating some true alpha. Of course, concluding that I’m adding alpha isn’t the same as estimating how big my edge is, and I think a 5 year track record is not even close to enough to answer that question. I wish I could confidently claim that I’m expected to continue to perform like this, but that’s probably not true. I don’t know what I can realistically expect going forward, but I doubt it’s the CAGR of more than 30% like the past five years. But I would be more than happy with just half of that, and perhaps that is possible :).

When you start investing you think that one of the easiest things to do is precisely tracking your performance, but since I started accumulating weird stuff that is non-tradable it isn’t that straightforward anymore. This year I spend money acquiring Alexza Pharmaceuticals CVRs, Dyax CVRs, shares in DNIB Unwind (liquidation trust), and Primo Water shares (in escrow) and warrants. They are all non-tradable and being marked to market at zero by my broker. Since some of these were big positions I couldn’t simply do the same in good conscience. That’s why I marked DNIB Unwind at cost while I marked the Primo Water shares held in escrow at market value. I believe this is still very conservative, but a bit more correct:

  • I sold the DNIB Unwind shares after acquiring them since all liquidation payments are only for record holders as of 30 Aug 2016. Even though the shares were worthless after that date they continued to trade at a meaningful price. In a more aggressive valuation I could take credit for these proceeds which would increase the result by 157bps.
  • I took full credit for the value of the Primo Water shares even though they are still hold in escrow, but I marked the warrants at zero. Valued with 30% implied volatility they are worth another 108bps.
  • I valued the DYAX and ALXA CVRs at zero while valuing them at cost would add 70bps.

In addition to these choices, I also included the value of the Beximco cash and stock dividend in my result for this year. The stock is trading ex-div for both, but my broker doesn’t recognize the dividends. Including these dividends increased my performance with 84bps.

As you can see in the above graph almost everything I owned managed to end up in positive territory this year with the exception of Conduril. I’m not quite sure why the stock has been performing so poorly. The company is expected to receive a large amount of cash from Angola this year, and the recovery in oil prices should also be a positive for business in Angola. Because I think the stock is now very cheap again I have added to my position multiple times last year around current prices, and this morning I bought a few hundred shares more.

There is also a big loser hiding in the special situations basket. I had a position in Aixtron, a German company (with an US subsidiary) that was being acquired by a Chinese company, but unfortunately the deal was blocked by Obama because of national security concerns.

Beximco Pharmaceuticals has been by far the best performer of the year. The business itself managed to generate some nice numbers, but most importantly the discount between the shares in Bangladesh and the GDRs that trade in London has shrunk significantly. At the moment the discount is still sizable at roughly 35%, but that’s a lot less than the 60% earlier this year. I sold some shares of the company in the past months, but because of its strong performance it remains one of my biggest positions.

If you remember my previous post with an overview of my portfolio you will recognize that my current portfolio composition is fairly typical. I have a decent chuck of money allocated to special situations, and there is plenty of cash available for new positions. I’ve got some promising ideas already, so I expect that I’ll be able to spend some of the cash soon :).


Author is long everything in the portfolio overview

44 thoughts on “2016 performance review

      1. Don

        Thanks. A follow up… besides tender offers what other kind of special situation investments would u recommend?

  1. W&M 86

    Fantastic 2016! Thank you for sharing via all your posts. How do you keep up with Conduril between annual reports? Do they ever issue press releases? Is there a place to see semi-annual filings for Portuguese companies? Hoping 2017 is just as good.

  2. al

    take a peek at novo nordisk, to profit from the market over-reaction to some FDA rules changes implemented first part of 2016, leading to a share price collapse from $57 to now $30-ish. Novo is now executing a 4.5 Billion share buyback program since November 2016. Expect to double my recent investment in a few years of calm patience. main line of business is as Insulin manufacturer, against diabetes, still an incurable disease that is expected to double in size given peoples changing food and lifestyle habits. Novo is the global market leader in insulin preparation (50% by volume and 30% by sales $), so not dependent on one jurisdiction or govmint support. It has 10 Billion plus in spare cash on the sideline, and less than 1 Billion in short term debts, while net operating profits above 30% and ROE above 70% means a fast grower with sturdy financial balance sheet to boot. What can go wrong?


  3. Herring

    Outstanding performance. While I agree to your statement that it is difficult to separate luck from skill, I would still attribute your outperformance to the skill.

    Some comment regarding Conduril. Yes, it looks cheap, but Angola is in a very tough situation, just check this one for quick summary: http://www.wsj.com/articles/its-economy-in-crisis-angola-readies-for-a-new-leader-1483353000

    So I would say Conduril is speculation that Angola will NOT default. Of course, emerging market defaults often mean just restructuring, but still it is tough to assess value of debt owned.

    1. Alpha Vulture Post author

      Yeah, I know Angola isn’t doing very well, but with oil at $55 now versus $35 in the beginning of the year I would think that at least the situation is improving (almost all their exports are oil). If you look at the Conduril stock price it would seem that it’s the other way around. At current prices I think you can give the Angolan receivables a very big haircut, and still end up at the current valuation of Conduril (especially if they indeed managed to receive that 83M they talked about in the latest interim report).

  4. Don

    Just looking at your performance attribution and your exited position page. You only mention two exited special situations. I’m guessing the exited position page hasn’t been updated?

  5. Eridon

    Congratulations on your stellar performance!!
    How would you describe your investment strategy.Do you allocate most of your money in special situations and workouts during rising or overvalued markets and invest in beaten down established companies during periods of market downturns ?? (WB emplyed this strategy during his partnership years ).I am not sure if you even invest consider moats in a part of your allocated funds !!
    P.s. I would like to play poker with you !!

      1. Eridon

        What percentage of your money do you usually invest in special situations?
        You may be interested to take a look in Cemtrex !!
        PS.You are a professional poker player and i always like playing with people who know more about me in the game ,although sometimes my opponent may not be liking the game as much as i do.!

  6. MAT

    Hi AV,

    it is very good, congrats!

    As I have written in the past, I think your blog would be much more effective if you disclosed all your holdings. To say that 23% of the portfolio is allocated to special situations is a bit vague, don’t you think so? Especially at the end of such a brilliant year.

    I say this because I really appreciate your work and I think that a full disclosure would make what you do really transparent.

    As we have been sharing some holdings in the past, a full disclosure would also give us more opportunity to share and compound information.

    Happy new year and best wishes,


    1. Alpha Vulture Post author

      Thanks :), and I can understand that you would like to know more, but I think that I already provide a huge amount of info, and providing more might hurt my results. I don’t want more competition in some kinds of special situations.

  7. Maitri

    This is great news and well deserved. I am not at all surprised by the performance results. Thanks for writing the blog.

  8. David Lim

    Dear Sir,
    Happy New Year.
    Thank you for sharing all the under-valued stocks globally.

    In Singapore, tt seems the only stock is PNE.
    I don’t have any experience in trading oversea stock.
    But have benefited from your postings.
    Will try to explore them if I have the chance.

    Thank you

  9. Browseman855

    Here is a gem Alpha Vulture: Zamano PLC. great growth in UK although UK business operates with slim margins,net cash position is approximately as market,trading at 2.4 times earnings,minimal to no debt,regulatory changes have not allowed the company to seek growth initiatives through acquisitions and instead the company is focused in either exit their business lines or return a significant part of their cash position in shareholders.If regulatory changes regarding Payforit are not implemented and delayed for a couple of years the company will continue to grow although the majority of its growth is low margin growth.


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