When looking for growth, China and Asia are often the first that are mentioned. And for good reason. However, looking from a demographic perspective and in terms of possible improvement in quality of life, the African continent may have even more potential.
I will look back at the portfolio in about a year and see how things went. If everything went great, I’ll keep the portfolio and use the formula that I used to create an up-to-date one. If things went south, I may update the rules that created the portfolio and see if I can do better.
And that’s what it is all about: creating a good set of rules that will automatically select stocks for us. No picking of individual stocks and no tracking just the indices.
For this portfolio, I wanted to select companies that operate in Africa. Turns out it’s actually quite hard to find a list of invest-worthy African companies.
I did find the FTSE Pan Africa Index which sounds promising, but it contains companies that trade on African stock exchanges which may be hard and expensive to trade on. If you like the index, you will probably want an ETF based on that index (which I could not find, but I’m sure it’s bound to appear soon).
So eventually, I just went back to my favorite stock screening app and entered “Africa” as search term. The results were not perfect, but they returned companies which were either based in Africa or have a big part of their business over there.
This month, I’m using Joel Greenblatt’s magic formula to select the top 10.
If you want all the details on the how and why of the magic formula, I strongly suggest the book in which it is presented: The Little Book That (Still) Beats the Market. It’s a short and whimsically written book that you can’t go wrong with.
The formula takes into account two factors:
With that in mind, here are the criteria for this month’s selection:
I hope, in the future, I can figure out a better way to find companies that operate in Africa. Please let me know if you have any ideas.
|Symbol||Name||Current price||Enterprise Value||Earnings yield||Return on capital||Greenblatt score|
|EQX||Equatorial Resources Ltd||0.29 AUD||-2.73M USD||N/A||−24.86%||208%|
|MLBAT||Batla Minerals SA||0.50 EUR||−2.78M USD||N/A||35.43%||208%|
|TBG||Tiso Blackstar Group SE||3.83 ZAR||968.97M USD||354%||6,24%||208%|
|AEE||African Equity Empowerment Investments Ltd||1.90 ZAR||−178.69M USD||N/A||N/A||139%|
|BUI||Barbara Bui SA||8.00 EUR||2.46M USD||133%||110%||139%|
|CMB||Cambria Africa plc||0.0070 GBP||2.02M USD||197%||143%||139%|
|ERBOS||Erbosan Erciyas Boru Sanayii ve Ticaret A.S.||14.59 TRY||40.60M USD||97.85%||144%||138%|
|IEC||Intra Energy Corporation Ltd||0.012 AUD||2.18M USD||179%||47.68%||123%|
|LON||Lonmin Plc||14.70 ZAR||−328.41M USD||N/A||2.56%||114%|
|SVB||SilverBridge Holdings Ltd||0.55 ZAR||718.89K USD||80.48%||48.91%||115%|
Some things worth noting:
A backtest of this portfolio selection returns wildly swinging results. Going from -13% in 2011 to +88% in 2016. I guess this is to be expected from this type of portfolio. Only buy this if you are highly stress resistant.
My philosophy: If you want to invest and your goal is to try to beat the market, you need a system. You need a system that can decide for you what to buy, when to sell and not to panic when things go down. Everything starts with selecting stock. You should not just select random stock here and there based on whims or things you read. No, create a system that suites your style and follow it. These posts give you example of what such a stock selection could look like.Unless otherwise noted, I do all my research through the Uncle Stock screener. It's a great tool to have in your belt. (note: this is an affiliate link, if you sign up, I get a commision)
Disclaimer: Don't believe anything I say or write. Always do your own research before making any investment decisions.