Sunday, August 4, 2013

Value Investing traps

In this post I would like to introduce you one of the best Fund managers in the world, and a couple of interesting lessons we can learn from them.

Bestinver is one of the best asset managers in the world, as recognized by many experts and reports, like Morningstar, for example the return of two of their funds in last 10 years has been:

and, Spanish/Portugal stocks:

According to themselves, the three basic cornerstones of their management are:
   Investment philosophy based on "Value Investing".    Fully independent management.    Focus on returns, not AuM.

So, this is the first lesson to learn. Value Investing, good analysis of every company, hard work and good managers pay off. Its methods are similar to the analysis we made of Karelia, but, of course, more precise, during months and including many more variables..., and made by smarter people than me.

There are very good asset managers over there, and not all of them require exaggerated amounts of money or are inaccessible to the average small/medium investor. And you can see Bestinver among the best, along with Carmignac, Templeton, etc... but, if you are living and working in Spain, pay attention to Bestinver pension funds, to save taxes while getting good profit.

García Paramés, Bestinver CEO
 García Paramés

But in 2nd quarter letter to investors, García Paramés, CEO of Bestinver, commented the biggest lost in its Iberian portfolio, that was the company Pescanova. This was one of greatest fishing companies in the world, pioneer in fish treatement, washing, preparing and freezing fish directly in big factory ships in the coasts of Spain, South Africa, America, etc.., and, until now, one of the leaders in fish farming.

It happened that, according to balance data, deep analysis and, at that time, stock price, it looked like a good investment to Bestinver analysts, and so the bought some shares, around 1.5% of Iberian stock, Bestinver Bolsa (companies in Spain and Portugal).

Basically Pescanova went bankrupt last quarter, debt was too big and it is difficult now for companies to get credit, governments are eating it all, for our good..., so they could not continue and the company filed for bankruptcy. Basically Bestinver lost that investment, 1.5% of the fund completely... (well they may get something back after some years in court.., but they are realistic and they don't count on that).

And how did it come to great analysts as Bestinver's? Well,  it happened that numbers were not bad, but they were false!!!!, balance was false, there were simulated transactions, hidden debt, etc... so they had a good analysis with good results, but based on fake data!!! 

Of course former Pescanova managers, and its CEO, Manuel Fernández de Sousa-Faro, are now waiting for a trial and they may face prison, but the stock value has dropped, and has no practical value to a fund because trading is forbidden for now:

 Pescanova stock

Here you can read the sequence of news about this scandal.

Still, I must say, the fund, Bestinver Bolsa, is still profitable increasing its value 3.4% first half of this year.

So, here we have another lesson. Even best analysts, performing a good analysis and working on that plenty of ours per day can loose 100% of its investment in one stock. If so, what can a small investor do? What if the public data we used in the analysis of Karelia is not accurate enough.. (not to say false). We can not really know. And in most if cases, even if managers go to jail we don't care, that won't give our money back...

Some will recommend you to keep diversification in your investments, cover your positions with options, or trade indexes, ETF, etc.., already diversified by themselves but, if still you plan to invest long in one company, study it and, as a precaution, look at its price movement, no company went bankrupt if its price was in primary uptrend.

Disclaimer: Stocks, funds or strategies commented in this blog are just for informative and example use. They are not recommendations to buy or sell.