Dynastic European Companies

[Dalal.Holdings]

Last year the Euro Stoxx 50 was up about 35% in USD terms (or 20% in EUR terms) while "Dynastic European Companies" like BOL.PA were down 20% in EUR terms. Oh, and I didn't count dividends which push the Euro Stoxx up to near 40% in USD terms...

 

Looks like these companies are the type of value trap investment that value investoooors love. Glad I kept my BOL.PA size very small.

 

Edited January 6 by Dalal.Holdings

[thepupil]

10 minutes ago, Dalal.Holdings said:

Last year the Euro Stoxx 50 was up about 35% in USD terms (or 20% in EUR terms) while "Dynastic European Companies" like BOL.PA were down 20% in EUR terms. Oh, and I didn't count dividends which push the Euro Stoxx up to near 40% in USD terms...

 

Looks like these companies are the type of value trap investment that value investoooors love. Glad I kept my BOL.PA size very small.

 

 

sounds like a bull case to me. valuations better and index flows recovering. US no longer only stock game in town. 

[Dalal.Holdings]

25 minutes ago, thepupil said:

 

sounds like a bull case to me. valuations better and index flows recovering. US no longer only stock game in town. 

Are there index flows to these types of companies? Look at the U.S. market the past 15 years. The index went up a lot while value investor turds like land banks did mostly nothing.

[John Hjorth]

37 minutes ago, Dalal.Holdings said:

Last year the Euro Stoxx 50 was up about 35% in USD terms (or 20% in EUR terms) while "Dynastic European Companies" like BOL.PA were down 20% in EUR terms. Oh, and I didn't count dividends which push the Euro Stoxx up to near 40% in USD terms...

 

Looks like these companies are the type of value trap investment that value investoooors love. Glad I kept my BOL.PA size very small.

 

27 minutes ago, thepupil said:

sounds like a bull case to me. valuations better and index flows recovering. US no longer only stock game in town. 

 

That's just because you gents [ @Dalal.Holdings & @thepupil ],

 

may confuse ROI, ROE, cash flow generation, and capital allocation with [value investing<-?] 'SOTP cheapness' on group level.

 

It's a so weird phenomen to observe, it's like 'brain turned off ' at some, perhaps likely by listening to or reading old Buffett stuff.

[thepupil]

24 minutes ago, Dalal.Holdings said:

Are there index flows to these types of companies? Look at the U.S. market the past 15 years. The index went up a lot while value investor turds like land banks did mostly nothing.

 

no, family controlled low float companies directly benefit to a lesser degree from index flows (as i understand it). 

 

But, if I owned something like Exor / Bollore (I don't but am strongly considering), then i'd certainly prefer to own cheap capital returning "value trap" holdco's when currencies and stock markets are going up than the opposite. 

 

I've made money in value trap Asian companies lately and they definitely did better when macro good vs when macro bad. prosus price to NAV increased as Tencent stock increased. a holdco discount is a form of perpetual non-recourse leverage that amplifies outcomes. 

 

i think context and valuation for any specific security matter, of course. if you tell me the index and currency appreciated a lot, intrinsic value grew, but the stocks were flat or down, that would make me incrementally MORE excited. 

 

 

 

 

Edited January 6 by thepupil

[thepupil]

alas, the underlyings of these two holdco's also generally underperformed...

 

(I recognize each of these own more things, just saying it makes sense they underperform if the underlyings underperform. I think both are very interesting). 

 

@John Hjorth not really sure what you're trying to say. If you think my brain is turned off, i guess I can only look forward to be turned on one day. 

 

Edited January 6 by thepupil

[TwoCitiesCapital]

29 minutes ago, thepupil said:

A holdco discount is a form of perpetual non-recourse leverage that amplifies outcomes. 

 

 

This is an excellent observation and perspective. 

 

+1

[John Hjorth]

5 minutes ago, thepupil said:

alas, the underlyings of these two holdco's also generally underperformed...

 

(I recognize each of these own more things, just saying it makes sense they underperform if the underlyings underperform. I think both are very interesting). 

 

@John Hjorth not really sure what you're trying to say. If you think my brain is turned off, i guess I can only look forward to be turned on one day. 

 

 

@thepupil,

 

I now realize, that that particular comment from me was not only condesending, but also insulting. I apologize, and hereby take it back.

 

Then again : Why even look at such holdcos with mediocre performing controlled ownership stakes, if such stakes are long term?

 

I especially mean, what's the implied investment horizon behind it?

[John Hjorth]

 

30 minutes ago, TwoCitiesCapital said:

This is an excellent observation and perspective. 

 

+1

 

I simply don't get it. How can something imaginary, out of your own personal control, be a personal lever for you, a form of perpetual non-recourse leverage that amplifies outcomes for you personally?

 

-Math, please!

 

Are you gents reporting yearly returns here on CofB&F based on that?

[TwoCitiesCapital]

45 minutes ago, John Hjorth said:

 

 

I simply don't get it. How can something imaginary, out of your own personal control, be a personal lever for you, a form of perpetual non-recourse leverage that amplifies outcomes for you personally?

 

-Math, please!

 

Are you gents reporting yearly returns here on CofB&F based on that?

 

HoldCo owns stock A and trades at a 30% discount to its holdings in Stock A. 

 

As long as the discount remains consistent, you get the same return as stock A. 

 

But if it DOESN'T remain consistent, it's optionality and potentially additional return to you.

 

If the discount grows, company can sell stock A and buyback stock to improve returns beyond stock A. If discount narrows, you outperform stock A. I.e. it's costless leverage as there is a ton of optionality to outperform stock A even if it's the only asset the company owns. 

 

As has been pointed out, the discount tends to be sentiment based and highly dependent on the performance of the underlying stocks. I.e. it'll tend to narrow when those stocks do well and wide. When they do poorly. Buying in around that inflection can give you superior returns to stocks A without having the downside risks of leverage. 

Edited January 6 by TwoCitiesCapital

[Dalal.Holdings]

1 hour ago, thepupil said:

alas, the underlyings of these two holdco's also generally underperformed...

 

(I recognize each of these own more things, just saying it makes sense they underperform if the underlyings underperform. I think both are very interesting). 

 

@John Hjorth not really sure what you're trying to say. If you think my brain is turned off, i guess I can only look forward to be turned on one day. 

 

 

The underlying asset to BOL.PA and VIV.PA is really just UMG probably 80% or more. Nothing else really matters that much.

 

UMG, despite being a european large cap, has underperformed. I don't think macro situation in Europe affects UMG's business. Rather, I think of UMG as a mostly American business that's listed in Europe.

[Cod Liver Oil]

I like these as counterweights to big positions in GOOG, Nintendo and Joe.  They are slow motion arbs which may behave more like special situations. They have a place in portfolio construction for me even if it’s like watching snails race. I like the underlying assets regardless. 

Edited January 7 by Cod Liver Oil

[Dalal.Holdings]

From UMG annual report 2024:

 

 

The business is mostly American. The currency is mostly USD. If USD devalues, that's worse for UMG which trades in Euros, particularly more so versus listed businesses that do all their business in Europe

[Dalal.Holdings]

The S&P 500 has been more than a 7-bagger since 2010 as the U.S. has had strong tailwinds since then. Buying value investor favorites has not panned out nearly as well.

 

If you truly believe macro is turning around in Europe for many years to come, I think there are plenty of businesses that will give you better returns than some dynastic hold co that looks cheap today on a P/NAV basis.

 

In fact, if you *truly* believe there is a turnaround in Europe, you should buy the most cyclical European companies because they will rip the hardest.

[thepupil]

34 minutes ago, Dalal.Holdings said:

From UMG annual report 2024:

 

 

The business is mostly American. The currency is mostly USD. If USD devalues, that's worse for UMG which trades in Euros, particularly more so versus listed businesses that do all their business in Europe

 

Yes, a reasonable explanation for non participation in the European rally.

 

 

 

[Spekulatius]

3 hours ago, thepupil said:

alas, the underlyings of these two holdco's also generally underperformed...

 

(I recognize each of these own more things, just saying it makes sense they underperform if the underlyings underperform. I think both are very interesting). 

 

@John Hjorth not really sure what you're trying to say. If you think my brain is turned off, i guess I can only look forward to be turned on one day. 

 

UMG drives the stock price for. Bollore and RACE the stock price for Exor and the sentiment and momentum on those hasn’t been great. They are both pretty good business and should do OK operationally.

[thepupil]

18 hours ago, TwoCitiesCapital said:

 

HoldCo owns stock A and trades at a 30% discount to its holdings in Stock A. 

 

As long as the discount remains consistent, you get the same return as stock A. 

 

But if it DOESN'T remain consistent, it's optionality and potentially additional return to you.

 

If the discount grows, company can sell stock A and buyback stock to improve returns beyond stock A. If discount narrows, you outperform stock A. I.e. it's costless leverage as there is a ton of optionality to outperform stock A even if it's the only asset the company owns. 

 

As has been pointed out, the discount tends to be sentiment based and highly dependent on the performance of the underlying stocks. I.e. it'll tend to narrow when those stocks do well and wide. When they do poorly. Buying in around that inflection can give you superior returns to stocks A without having the downside risks of leverage. 

 

 

if i were to attempt to quantify this, I might point to the long term (small) outperformance of the AVI Trust (sadly renamed...it used to be called the British Empire Trust...it's been around since 1889!). It owns a bunch of holdco's, CEFs, asset based companies. Despite being incredibly diversified in terms of underlying holdings and paying two layers of fees (the mgt fee to AVI and mgt fee/corp overhead to underlying CEF's and holdco's it owns), it manages to outperform global stocks over long stretches (though w/ only 15% in North America certainly hasn't done better than SPY recently). 

 

Quantitatively, it has higher upside capture and higher beta and higher volatility than its best benchmark (Stocks ex USA), which is not dissimilar to...leverage...Lower downside capture though which is not in line w/ leverage (suggest some value add by the mgr and not just more "risk" (using "risk" as quantitative finance people might, not value investors) .

 

AVI does have actual financial leverage but only 3% of NAV so not material. 

 

In addition to some value add on the part of the team at AVI, I'd suggest that owning discounted holdco's has provided AVI shareholders with a favorable form of leverage (increases return and volatility/beta) over long periods of time. I would argue it has not increased the risk of ruin (which actual financial leverage does) and does not have explicit cost (other than increased vol), hence my characterization as favorable. 

 

I'm sure there's some academic papers that could provide more rigorous thoughts on the matter but my idea that a discount is leverage is not at all original and gleaned from years of reading  about them (and investing / trading in the vehicles). 

 

as an aside, I think one could do far worse than investing in AGT and East 72's stuff and they both provide great info for the asset oriented investor. these are of course most suited to UK / Aussies (I am neither) and not someone subject to the US's regulatory / PFIC regime....though you can own UK CEF's in an IRA without issue I believe. 

 

 

 

 

 

Edited January 7 by thepupil

[Cod Liver Oil]

@thepupil I love the East 72 vibe,  a great cabinet of collectible curiosities. It's not that different from owning rare cars, baseball cards, sports teams, unique venues, art etc..... Weird asset classes without predictable cash flows but  Elkann, Bollore,  Dolan and Wallenberg have made good soup from what's in the refrigerator. 

Edited January 7 by Cod Liver Oil

[John Hjorth]

3 hours ago, thepupil said:

... as an aside, I think one could do far worse than investing in AGT and East 72's stuff and  ...

 

17 minutes ago, Cod Liver Oil said:

... I love East 72,  ...

 

You gents @thepupil and @Cod Liver Oil,

 

I have a hard time believing you're serious here. -Are yoy trying to be kidding? - Haven't you pulled the East 72 financials, and studied them, over time?

[anshulp]

Will second that ! I really like what East 72 holds. Good letters produced by them too. 

[thepupil]

30 minutes ago, John Hjorth said:

 

 

You gents @thepupil and @Cod Liver Oil,

 

I have a hard time believing you're serious here. -Are yoy trying to be kidding? - Haven't you pulled the East 72 financials, and studied them, over time?

 

they've been around 3 years, no? have underperformed over that time frame, I believe (37% in AUD and ACWI is +82%, ACWI ex US 61%, SPY was +90 in AUD over this time frime). do you see differently?

 

I find their writeups very high quality and think their approach will do well over time. based on what i can glean from website, the strategy has underperformed. Starting in late 2022 is hard for most folks if they did well in 2022. I know it is for me at least. Since 12/31/2022, I've underperformed SPY by a cumulative 20% or so. Since 12/31/2021, I've outperformed by 25%. Track records can be very start and end point sensitive. I am the same me, but if I started a fund on 12/31/2021 people would think I'm smarter than if i did on 12/31/2022.

 

I don't judge East 72 too harshly for underperforming over that time frame and the investment approach and writing very much resonate with me. 

 

i am not kidding. What do you find objectionable?

Edited January 7 by thepupil

[John Hjorth]

1 hour ago, thepupil said:

they've been around 3 years, no? have underperformed over that time frame, I believe (37% in AUD and ACWI is +82%, ACWI ex US 61%, SPY was +90 in AUD over this time frime). do you see differently?

 

I find their writeups very high quality and think their approach will do well over time. based on what i can glean from website, the strategy has underperformed. Starting in late 2022 is hard for most folks if they did well in 2022. I know it is for me at least. Since 12/31/2022, I've underperformed SPY by a cumulative 20% or so. Since 12/31/2021, I've outperformed by 25%. Track records can be very start and end point sensitive. I am the same me, but if I started a fund on 12/31/2021 people would think I'm smarter than if i did on 12/31/2022.

 

I don't judge East 72 too harshly for underperforming over that time frame and the investment approach and writing very much resonate with me. 

 

i am not kidding. What do you find objectionable?

 

@thepupil,

 

Thank you for meeting my above  post so to say in eye heigth, at par. Perhaps I was much [likely!] too short-phrased here.

 

I personally really hate to post negative stuff about money managers stuff and doings, in most cases I leave that to others, unless it's about self-promotional stuff - I leave that kind of bashing to others.

 

So, to approach your reply taking it seriously [, which it to me personally deserved] I looked on 72 East website again today, for the first time in quite some years.

 

What is there today is information about a new legal entity, the former one simply imploded, ceased to exist. I simply can't imagine a better 'NOT-how-to' recommendation than that.

 

I can't document & prove what I've just wrote above, because I've nothing of it downloaded. You just ask the right place about it.

 

- - - o 0 o - - -

 

There exists this particular joke in Danish about the Danisk company legal entity called ApS [Anpartsselskab] [a limited liability company, without look-though taxation, but with separate Danish corporation taxation, that 'ApS' is an abbreviation for Danish 'Jeg prøver sgu', translates to English by 'I'm gonna try, dammit', and when everything goes totally wrong, downhill and bust, you just try again with an imaginary legal entity called ApSI, meaning 'Jeg prøver sgu igen', translates to 'I'm gonna try again, dammit'.

 

- - - o 0 o - - -

 

Be careful out there.

 

 

 

Edited January 7 by John Hjorth

[thepupil]

Interesting. Must have been running a different strategy because can’t imagine how his current one would “implode”. I’ll try to find more info.

 

i nevertheless find their letters to be quite helpful. 

[thepupil]

For the benefit of the crowd, from what I could gather 

 

- Andrew Brown ran a private investment partnership called Stilleto from 2010 to 2016. this appears to have done well.

 

-Stilletto merged with what became East 72 Holdings Limited. this was a very highly levered long/short fund that was “long value / short growth” and appears to have indeed imploded in 2018-2020. The issued capital on NSX website is $6-7mm and the accumulated losses are $6mm

 

-They now manage an unlevered long only called the East72 Dynasty Trust which in the view of your truly offers in depth analysis of family controlled conglomerates and which I find to be a coherent and compelling investment strategy 

 

so @John Hjorth is correct, he appears to have blown up a fund. I speculate being short the likes of Tesla and Amazon against a portfolio of stodgy value stuff proved that strategy’s undoing…along with the very unusual gross and net exposure mgt. from 2017-9/2022 Holdings saw an 88% decline in per share value. I can’t quite tell if dividends were paid, but the picture seems pretty bleak. The gross a net exposures shown here are crazy to me…

 

 the Dynasty Trust strategy is far more boring. 

 

 

https://www.nsx.com.au/marketdata/company-directory/financials/E72/

 

https://hotcopper.com.au/nsxa/e72/announcements/

 

Edited January 8 by thepupil

[John Hjorth]

I personally think @thepupils comments above on the East72 write ups on ideas are right, The have been referred to in several separate topics in the Investment Ideas forum, of which I only remember a few, but they were actually very good reads, working as teasers and primers on the covered companies, a good way to quick get out of the starting block.

 

I remember I simply lost interest in them, because of the direction [downhill] was clearly visible in the financials, all while I don't recall understanding why it was so.

 

I think @thepupil filled us all in on that  above in a good way.