check.markets

check.markets is my first coding project aiming to optimize my trading algorithm in python. My ultimate goal is to introduce automatic trading on a daily basis with it. The purpose of this blog is to document the trading results, learnings and to discuss coding ideas that I struggle with. check.markets has 3 major subprojects which it consists of: CHECK.MARKETS: Analysis of the current trend of the worldwide market indices tracked with check.markets index and the check.markets market indicator. CHECK.INDUSTRIES: Selecting the strongest trending sectors and industries to offer the optimal setup for stock selection. CHECK.ENTERPRISES: Stock screener mainly focussing on strong cashflow generating stocks with low debt levels and modest valuation; implemented via the scoring matrix with 5 focus areas: margins, growth, quality, valuation and shareholder return. I would love you to join me on this journey. Your contribution is greatly appreciated. I'm looking forward to great conversations.

It's all about the Fed currently

Throughout recent days, there has been a heavy sell-off of beneficiaries of the Corona crisis as well as tech stocks. Wall Street connaisseurs conclude that there is a shift from tech and growth stocks to "value" stocks. Almost forgotten stocks like British American Tobacco, Dow and BASF have gained in these times. Can the Fed's interest hike be the main reason for this? We'll try to investigate this issue.

Our Wikifolio was rather strongly hit by this shift. 30% of its portfolio value are invested in the 3x Nasdaq 100 ETF that leverages the Nasdaq 100 long by 3. With this position we had our maximum drawdown at 20.9 %. Fortunately, when markets started to recover yesterday, the heavy minus decreased. Berkshire Hathaway is the main reason why our Wikifolio is still navigated strongly in these difficult times. Warren Buffett's holding is the master captain of this portfolio since Jan 2021. So we are at a portfolio performance of -0.78% in 2022 so far. So we perform stronger than Dow (-0.82%), MSCI World (-1.48%), S&P 500 (-2.02%) and Nasdaq 100 (-4.51%). 

Many market participants were surprised by the sell-off. So were we. There are two key topics being discussed currently - they all come from America and are all related to the Federal Reserve.

The first topic is skyrocketing inflation (at 6.8% in Nov 2021). Jerome Powell is now additionally pressured by democrats as the main victims are lower income people. So, one important issue to analyze here is the main sectors that are affected by inflation. Let's check them:

Items

Growth in  2021

compared to 2020

in %

Used Cars29.7%
Food8.3%
Healthcare6.0%
Clothing5.6%
Energy4.6%


But the highest and most worrying inflation takes place at commodities.

  • The WTI oil prices have doubled since Dec 2020,
  • coffee prices have climbed by 81.9%,
  • cotton by 49.4%,
  • wood by 43.3%
  • corn by 29.9% and
  • sugar by 26.7%.

(Source: teletrader.com on 12 Jan 2022)

These are comparisons to the prior year. Growth rates at this size are really worrying - for housebuilders, people living on the rural area, textile manufacturers or agriculture. American politicians now try to find ways to decrease prices and also search for help by the Federal Reserve. What's setting them under additional pressure will be highlighted by the second topic:

Interest rate hikes have a tremendous affect on consumption in America. In the United States many households are deeply indebted and heavily rely on their income of labour. The financial life in Anglo-American countries is very different to Western European countries. Payments are usually executed via credit cards, student loans have to be repaid, real estate prices weigh heavily on the fixed cost tables of families and health-related costs are much higher than in Western European countries. So, the key thing that has to be kept in mind here is the following: The higher the federal interest rates are risen, the less money can be spent on products as the debt and fixed cost share of many family's household income rises strongly. 

Jerome Powell is in a very difficult situation. It's not surprising at all. Keeping interest at such low levels for such a long time must have an affect on inflation at some point of time. Now, it has. And the American dream of affording everything you can on credit or loan starts to crumble. Especially in case of rising interest rates.


The conclusion check.markets draws from this situation is to stay with our strategy.

We invest in

  • low-indebted companies
  • generating high operating and
  • free cash-flow.

Inflation should be a chance for (tech) companies to raise (low subscription) prices by double-digit figures. This could have an affect on earnings and revenues that companies could profit from in upcoming quarters. Let's see where this hick-hack on this topic leads us to. 

check.markets' market indicator is LONG. We stay invested and are optimistic about the upcoming weeks.

Learnings from: Jesse Livermore (I)

retrieved from the book:

Lefèvre, E. (2019). Reminiscences of a Stock Operator (English Edition) 

(the figures stated between the brackets are the page numbers I retrieved the quotes from)


Whatever happens in the stock market today has happened before and will happen again. (2)

I was playing a system and not a favorite stock or backing opinions. (4)

I kept my business to myself. It was a one-man business. (5)

What beat me was not having brains enough to stick to my own game (12)

There is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily. (13)

They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. (26) And I am only right when I make money. (28)

A man must believe in himself and his judgement if he expects to make a living at this game. (27)

And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn. (49)

(...) I often took profits and waited for a reaction that never came And I saw my stock go kiting up 10 points more and I sitting there with my 4-point profit safe in my conservative pocket. They say you never grow poor taking profits. No, you don't. But neither do you grow rich taking a 4-point profit in a bull market. (53)

Disregarding the big swing and trying to jump in and out was fatal to me. (...) In a bull market your game is to buy and hold until you believe that the bull market is near its end. (58)

One of the most helpful things that anybody can learn is to give up trying to catch the last eighth - or the first. These two are the most expensive eighths in the world. (58)

Without faith in his judgement no man ca go very far in this game. That is about all I have learned - to study general conditions, to take a position and stick to it. (58)

It is the big swing that makes the big money for you. (59)

From then on I began to think of basic conditions instead of individual stocks. I promoted myself to a higher grade in the hard school of speculation. (71)

But after the initial transaction, don't make a second unless the first shows you a profit. (77)

In bull markets bear items are ignored and bull news exaggerated, and vice versa. (110)

I remember very clearly how every day I would buy cotton, more cotton. And why do you think I bought it? To keep the price from going down! If that isn't a supersucker play, what is? (139)

It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind. (140)

What does a man do when he sets out to make the stock market pay for a sudden need? He therefore runs much greater risks than he would if he were speculating intelligently, in accordance with opinions or beliefs logically arrived at after a dispassionate study of underlying conditions. (142)

A man has to have experience and he has to pay for it. (153)

I convinced myself that whatever was wrong was wrong with me and not with the market. (157)

As I studied the problem I saw t wasn't a case that called for reading the tape but for reading my own self. (...) "I must go through bankruptcy." What else could relieve my mind? (157)

(...) I cannot tell you how intense was my feeling of relief to know that I wasn't going to be harried any more by people who didn't understand how a man must give his entire mind to his business - if he wishes to succeed in stock speculation. (160)

It has been my experience that whenever a stock crosses 100 or 200 or 300 for the first time, it nearly always keeps going up for 30 to 50 points - and after 300 faster than after 100 or 200. (161)

After years at the game it becomes a habit to keep posted. He acts almost automatically. (...) This difference between the professional and the amateur or occasional trader cannot be overemphasised. (196)

An old broker once said to me: "If I am along along a railroad track and I see a train coming toward me at sixty miles an hour, do I keep on walking on the ties? Friend, I sidestep. And I don't even pat myself on the back for being so wise and prudent. (199)

Experiences had taught me to beware of buying a stock that refuses to follow the group-leader. (200)

Sometimes a stock gets waterlogged, as it were; it doesn't go up. That is the time to sell. (228)

Well, when the price line of leas resistance is established I follow it. (228)

When the stock you are manipulating doesn't act as it should, quit. Don't argue with the tape. Do not seek to lure the profit back. Quit while the quitting is good - and cheap. (228)

Performance 2021: + 33.9 %

What a fantastic year! What we hoped for in our last post became true: We close an intense year 2021 with the Wikifolio performance of 33.9 %. This is by far the highest annual performance that we have ever had. And this is the net performance after all fees (performance fees of 5% and certificate fee of 0.95 % p. a. were deducted). Let's have a look back on this year and try to learn as much as possible from mistakes that we've made.

Our wikifolio's performance



Being naturally happy and proud about this chart, we need to also reflect on this year. 

  • This stock market year is certainly among the best performing and least volatile ones that have ever occurred in history. The S&P 500 Total Return ETF in EUR closed with +40 %, the Nasdaq 100 Total Return ETF in EUR with 39 %. What I would like to stress here is that it is unprobable to have another year like 2022. This does not mean that our performance will be negative or that market performance will be negative. But returns like these ones are not common. The best strategies are shown in difficult and bad market cycles. We have to prove in bad times that check.markets is a superior investment strategy.
  • Our investment strategy for our Wikifolio is offensive with 50 % of the Wikifolio capital being invested in stocks, 30 % in our check.markets signals (if there is a buy signal, we buy the 3x leveraged Nasdaq 100 ETF; if there is a sell signal, we are long on the VIX), and 20 % in a sector ETF (most probably, this will either be MSCI World Healthcare or MSCI World Information Technology in 2022)). Our leveraged 30 % ETF investment brings a lot of volatility in our certificate. We can't set any stop loss marks as we have experienced some wrong selling action on Wikifolio's side. For this year, this strategy offered huge gains. For next year, it will be important to follow our check.markets signals exactly on a daily basis.


So, let's be proud of the strategy to have worked out this way in 2021. We optimistically look into a bright 2022. Nevertheless, we stay focussed and do not expect such a wonderful and "easy" year for 2022 like we've had in 2021.


What have we learned from last year for our check.markets strategy?

We could lay back and be proud and happy about last year's performance without reflecting on the things we've learned and the things that had a negative impact on our performance this year. We should ignore all our emotions on the stock market to make reasonable and wise decisions. All the successful investors on the stock market are long-term investors that focus on what's happening, analyze these circumstances and then act on them. This is what we should do as well to become successful money managers. So, let's list the things that we've learned in 2021:

  1. We've learned that it's incredibly important to check the volume of the pivotal (news) point through which the stock breaks out on its new ATH. Stocks that had been bought without having checked the volume could hardly hold their favourable position for a long time and mostly became losers within the following weeks. 
  2. We've learned that it's best if companies offer something new. This can either be a new product or a new management team.
  3. What's more is that we profit most from boards that consist of entrepreneurial minds and that own high company stakes.
  4. We've learned that we sell stocks much too early. Growth stocks usually tumble in a stronger way than market indices. We usually set the stop loss mark at 10 % or higher so that we don't lose any profit. Unfortunately, we lost most profit by doing that. Examples are Arista Networks or Extreme Networks. As long as the market stays in a continuous upward trend, there is no reason to sell blockbuster companies. Still we did.
  5. We have to decide: (A) Do we want to go for the small or mid-sized (O'Neill like) growth stocks or (B) do we want to focus on the saturated, more established companies in our stock selection? This decision could also imply possible changes to further stock selection criteria. 
  6. What we've also learned is that our algorithm has especially focussed on two combinations of EMA for the check.markets market indicator to give us buying and selling signals. We haven't yet found out whether this is helpful for us or not.


We've also learned a lot from literature. In the beginning, our buying signals for stocks were not well enough analyzed, so we had to find a new concept. With the help of great books, such as:

we could find our strategy approved and validated with the exception of stock selection. So, we still have to work on the selection of stocks (which has run great, but could be more efficient). As Mark Minervini and William O'Neil both suggested: We need to focus on the very, very best stocks to earn a fantastic living. This is our task for 2022. For this reason we will do our best to make this happen. 


Stay with us and enjoy another great new year 2022!




30% performance in 2021! Will check.markets' Wikifolio really manage it?

We couldn't be more excited! Currently, our wikifolio that has taken check.markets' buying and selling signals into consideration since 7 May, 2021, is currently trading 30% ahead of last year's closing price. This means that you could make EUR 3,000 out of EUR 10,000.




This year gave us a unique chance to outperform any recent annual performances

  • The strengthening US Dollar (which lead to higher market prices in EUR as the value of the EUR has decreased) as well as
  • the huge effort of the central banks of printing as much money and purchasing as many bonds and securities as they could

could be used to make an incredible performance happen this year. Under this link, you can check for the current price of our Wikifolio certificate: https://www.teletrader.com/l-s-shndex-partizip-zert-lus-wikifolio-shndex-wonderfolio/derivatives/details/tts-95981461/name/asc


Name:                wonderfolio

WKN:                 LS9GXR

ISIN:                   DE000LS9GXR8

Listed since:     13 Octobre, 2015

Market Price:    142.22 (retrieved on 22 Dec, 21 at 9.05 pm from the link stated above)


If you would be interested in investing in this wikifolio, you have to take the WKN or ISIN and type them into the search field of your broker after you've logged in. Then this security will appear and you can buy it. Of course we cannot promise you any profits. But as we've got our own money invested in there, we should better perform well ;-)


With the current market price of EUR 142.22, we reach a performance of 30.2 % YTD. This is INCREDIBLE! Honestly speaking, I would have never thought that my own portfolio concept could make such a huge return within a year. So I have to check the market prices every 30 minutes to be assured that wonderfolio closes this year above a performance of 30%. Sounds surreal but it makes me so proud and happy to see that. There are 9 days left in which everything can change. Volume is thin which is the reason why also small news can make a big impact on market moves. But we trust in our fate that this big dream becomes true and we can set a huge milestone with this incredible year.

What to do about sharp declines? Invest like check.markets

It hasn't been long ago when we saw the first hopes arising among investors that the market would build a clear upward trend again. check.markets' algorithm saw this tendency, too, and also created a (weak) buy signal. One knew you had to be cautious about the next few days as many news could instantly crash all plans that had been made before. And unfortunately the market found reasons to sell off. check.markets fled at the right point of time.


The probably best weeks we've had on the American stock exchanges since check.markets has started was the beginning of October, 2021. Boy! These are the weeks we are looking for - there are hardly any other signals we invest so strongly than in such periods. What was the background behind that move? It was the big turnaround of the tech stocks in uptrending and future oriented sectors like Broadcom, Arista Networks, Datadog or others. As we published in our trade list, you could see that, within weeks, we could buy and sell stocks with a plus of 10% or more. 


Since then, fear has gained momentum:

  • The Federal Reserve (Fed) proclaimed to raise the federal interest rates 3 times during 2022 and to stop bond purchases by March, 2022. As experienced investors know, the Fed spending was a key reason for this bull market to sustain since 2009. 
  • Market multiples have skyrocketed and have reached levels that haven't been seen before. The famous Buffet indicator, dividing the total market capitalization of US stocks by the US Gross Domestic Product (GDP), has topped its 2000 all-time high. The valuation of tech stocks has reached levels that investors are willing to pay 20 times last year's total revenue. What's more is that there is a lot of dumb money in the stock market: Start-ups and stock-listed companies that produce negative operating cash-flows or negative net incomes (Uber, Lyft, ...) boom like high-flyers on the stock exchanges. And the higher the expectations of analysts and Wall Street, the higher the volatility of the stock in unstable market situations like we have now.
  • The C-word has again gained influence on the market atmosphere. Omicron currently does not only worry the British, but other countries, too, owing to the high spreading probability of infected people. Are countries planning to shut down again? What's the measures countries will take in order to get in control of the situation again?
  • And as if these factors weren't enough reason to worry, there is also the situation in the Ukraine that starts to catch more and more attention. Russia positions its soldiers in a way that the Ukraine feels endangered remembering the Russian annexation of the Eastern Ukraine of 2014. An alarming signal for the European continent that has enjoyed several years of peace and harmony since the creation of the European associations.


So, what to do in situations as such as an investor searching for rather stable portfolio returns?

The answer is easy: Throughout the last days, one could see which sectors and which companies were searched for

  • Consumer Staples stocks (food and beverage, household)
  • Tobacco stocks
  • reasonable valued Tech stocks


Or let's put it differently: Which stocks should one avoid (in my opinion, you should generally avoid those!):

  • Stocks with negative net incomes or negative operating cash-flows and stocks that have durable negative free cash-flows (no matter which sector, these stocks are not sustainable for your stock portfolio if you want to sleep tight and invest long-term)
  • Stocks with high debt ratios (especially financial debt ratios!)
  • Consumer Discretionary stocks from the automotive or the steel industry (OEM builders and its suppliers)
  • Financial stocks (especially big banks combining the investment banking and the original bank services or insurance companies that offer insurance securities covering fields or countries that can hardly be controlled or that are likely to be hit regularly by negative scenarios)
  • Stocks with multiples that one would never pay if one had to purchase that company personally as an entrepreneur to run it


Additionally, check.markets uses its check.markets indicator to buy 3x leveraged long ETFs on the Nasdaq 100 in case of a buy signal and to buy VIX longs in case of sell signals. One or the other might ask why we don't short. Well, because an unstable situation does not directly mean that stocks crash. It rather means that the instability leads to higher volatility in the upper or lower direction.  You could do this, too. But most of the people following us are among novices that would either like to become rich within weeks or to invest long-term without any hassle. And especially for the second group of people we strongly recommend to avoid the stocks with the attributes listed to start a successful investor career. 


If you have any further questions or you would like to have further information, please don't hesitate to make a guestbook entry. Every entry is valuable! 


check.markets wishes a wonderful christmas to everyone and a great financial year 2022. 



Scoring matrix reflection

Today, I would like to reflect on the factors used to determine the quality of stocks that have reached their ATH. The background behind this reflection is that I fear that the influence of my most important factors becomes diluted in the vast number of factors that I include in the Scoring matrix.  


Currently, the Scoring Matrix is based on the following factors:


Margins

  • Earnings before tax (EBT) margin
  • Net income margin
  • OCF margin
  • FFO margin
  • FCF margin


Growth

  • Revenue growth in 1 yr and in 3yrs
  • Net income growth in 1 yr and in 3 yrs
  • OCF growth in 1 yr and in 3 yrs
  • FFO growth in 1 yr and in 3 yrs
  • Dividend growth in 1 yr and in 3 yrs
  • Adj Dividend growth in 1 yr and in 3 yrs


Quality

  • Equity ratio
  • Intangibles ratio
  • Net tangibles ratio
  • Growth of financial debt within 1 yr
  • Working capital multiple (Current ratio)
  • Buyback ratio


Valuation

  • Revenue multiple
  • Net tangibles multiple
  • OCF multiple
  • FFO multiple
  • FCF multiple


ROI (Return to Shareholder)

  • EBT
  • Net Income
  • OCF
  • FFO
  • FCF
  • Dividend
  • Adj dividend


When I am looking at every single variable, I feel that suitable variables are deciding the ranking of the stock. But, still, not all components I find as satisfactory as others. Let's start with Quality. It's worth noting that the factors Quality and Valuation have to be distinguished. Quality does not automatically mean that the stock is adequately priced and vice versa. So, which factors definitely show the quality of enterprises? I would say that the most important ones are as follows:

  • Intangibles ratio
  • Net tangibles ratio
  • Working capital multiple
  • Buyback ratio

Why didn't I choose the equity ratio? Well, the net tangibles ratio is calculated much more conservatively: It's the

total assets

- total liabilities

- total intangibles.

But there's one problem caused by excluding the equity ratio, too. For tech companies it's usual to own a high rate of intangible assets due to patents, know-how and what so else. These are "good" intangible assets. But unfortunately Goodwill also belongs to intangible assets. Goodwill, in my defintion, is nothing but air. It's not worth a penny. That's the reason why I am a big supporter of avoiding companies with high Goodwill ratios. So - to do that -, if we want to have a higher weighing on the most important factors stated above, we should exclude the equity ratio. As this variable is about the quality of a business, we'll do exactly that.


The second component that should be changed is the Margin component. As this algorithm runs for international companies, I should exclude the tax part completely as no company can rely on equivalent tax policies. A fair international comparison is only possible by ignoring any tax effect. So, the variable that should be excluded here is net income.


Another component I would like to change is Growth. In my view, cashflow figures do not reach the importance that I would like to have for them at, especially the two factors OCF and FCF. A company state I would like to support with the change are mature companies with stable rising FCF like Microsoft, Apple or Alphabet or Cisco Systems. These companies are idols in perfect cashflow generation. This is definitely a factor that should be emphasized more in these calculations. If we had worked for the project 10 years ago, we'd definitely have invested in companies as such. Additionally, as previously discussed, I would also like to exclude net income here. We'll take EBT growth instead.


What's more is that the stability of the business is currently not evaluated. Ben Graham as well as Buffet both regard the stability of a business as essential. So do I. The more you can count on a strong fundamental and stable basis, the better you can make expectations for the future. This factor also enhances the reliability of valuation figures. So, we should definitely include a stability variable in future versions. It would be a great thing to have stability included in v5 of check.markets.


Being precise in the definition of immediate shareholder return, we must only include variables that are directly connected to the shareholder. What I mean by this is that if the company was your own business and you would like to have an assessment of your business' performance, you would need these numbers to see what you as a shareholder buying this company at the price really get for your investment. Let's take a suitable example of a growth company.

Let's say ABC Inc has a net income margin of 20%. This figure is incredible. We get interested in this business. We see that it generates revenues of 100 and a net income of 20. So in this case we think that in 5 years' time we will have all the capital invested back on our account. But keep in mind: The number we compare net income with is the revenue. We don't pay the revenue as a price for the business but the market cap. We have to compare the net income with the market cap of the company to see when our investment amortizes. We check the company's market cap and see that it is 1,000. So the actual time we need to amortize our investment is not 5 years but 50(!) years. The result is that the business doesn't look undervalued at all. To avoid such misunderstandings and misreadings, we calculate the real return in our ROI section. And in our current Score matrix earnings before tax (EBT) is included. This is a variable that is not paid out to use. So, we have to exclude it from our calculation.


The Bottom Line

To sum up, what should be changed now? Our future Scoring matrix will look this way:


Margins

  • Net income margin
  • Earnings before tax (EBT) margin
  • OCF margin
  • FFO margin
  • FCF margin


Growth

  • Revenue growth in 1 yr and in 3yrs
  • EBT growth in 1 yr and in 3 yrs
  • Net income growth in 1 yr and in 3 yrs
  • OCF growth in 1 yr and in 3 yrs
  • FFO growth in 1 yr and in 3 yrs
  • FCF growth in 1 yr and in 3 yrs
  • Dividend growth in 1 yr and in 3 yrs
  • Adj Dividend growth in 1 yr and in 3 yrs


Quality

  • Equity ratio
  • Intangibles ratio
  • Net tangibles ratio
  • Growth of financial debt within 1 yr
  • Working capital multiple (Current ratio)
  • Buyback ratio
  • EBT stability
  • OCF stability
  • FCF stability


Valuation

  • Revenue multiple
  • Net tangibles multiple
  • OCF multiple
  • FFO multiple
  • FCF multiple

ROI (Return to Shareholder)

  • EBT
  • Net Income
  • OCF
  • FFO
  • FCF
  • Dividend
  • Adj dividend


check.markets-Trades (07.05.-10.12.)

As check.markets has been online since 7 May, it is time to check the performance table of this trading system. It is important to note that after v1 caused two loss trades there was a long break until the end of September in which no trades were executed.



check.markets v1 (7 May '21- 16 July '21)


StockPurchPriceSellPriceChg%
Siemens AG145,09131,08-9,6%
BMW St AG94,2285,00-9,8%



check.markets v2/v3 (1 Sept '21 - 10 Dec '21)


stockNamePurchPriceSellPriceChg%
Nasdaq 100 3x Daily Lev179,19222,18+24,0%
Arista Networks87,40110,00+25,9%
Datadog144,14154,96+7,5%
EssilorLuxottica179,83182,48+1,7%
Microsoft281,30296,00+5,2%
Napco Securitiy Technologies40,4038,40-5,0%
Republic Services115,90119,80+3,4%
Kroger38,0338,14+0,2%
Pfizer42,0038,00-9,5%
Cloudflare107,50152,00+41,4%
Qualcomm139,40156,12+12,0%

Investor Relations Inquiry to Mayr-Melnhof (AT)

There is one Austrian stock that seems to be especially attractive as a long-term investment -  and this is Mayr-Melnhof (MM). The reason being is that the business field of packaging of several products is not only a business field of change due to more customer and political awareness but also a field of reliable and stable development. MM is the European market leader in this area. With the opportunity of recycling, Mayr-Melnhof qualifies to belong to every ESG portfolios. This circumstance as well as its product portfolio and its modest valuation raised the question if this stock should be purchased or not. So I analyzed recent company presentations and annual reports to get an impression of the company's state. But when reading through the reports, many fields of improvement were found which I wanted to discuss with the Head of Investor Relations, Stephan Sweerts-Sporck.
Below you can find our e-mail exchange as of 9 Dec, 2021:



Dear Mr. XXX,

Thank you for your inquiry and your interest in our company.
I would like to inform you about your questions as follows:


(1) Online business has been booming for several years. Packaging, especially cardboard packaging, is the essential packaging material for online purchases, regardless of the product ordered. How can it be that MM does not benefit from it in the context of sales growth?

The packaging products from MM are not the brown transport boxes (corrugated cardboard), but primarily the primary packaging directly around the consumer goods (food, household, hygiene products, pharmaceuticals ...). This market is very solid and growing more slowly.

Comment to SSS' reply: I didn't get this in the company presentation. This explanation is very important to understand the current business conditions.


(2) From your Company Presentation in November, I gather that you intend to grow the company (a) organically and (b) through acquisitions. On what (financial) basis do you plan to make these acquisitions?

- Should be core business: cardboard, cardboard packaging, kraft papers (e.g. paper bags)

-Focus on Europe, if attractive beyond that

-No dilution EV / EBITDA (last acquisitions ~ 7.5x)

-Group net debt <2.5 x EBITDA

-After the major acquisitions in the Board & Paper area, more projects in the Packaging area are now being evaluated

Comment to SSS' reply: Honestly saying, I'm not that happy with the acquisition plans of the company. Check the next questions below highlighting the reasons for it.

Here the question arises again for me, what is behind the fact that organic growth is only 1% p. a. is accepted, although, in my interpretation, the market environment would speak massively for sales growth (corona lockdown, development of online marketplaces, food deliveries, online deliveries to supermarkets, ...)

In the outlook after Q3 2021 we write: "In view of the existing capacity restrictions, the sales volume can currently only increase slightly."

However, the expansions recently undertaken in several MM Packaging plants will gradually enable more business from the beginning of next year. At MM Board &

Paper, where the investment focus is on increasing efficiency and optimizing the product portfolio, the expansionary effects will only gradually come to bear from 2023.

In short: there will be further growth and capacities will increase. Not a big boost from online trading, however; therefore more in the direction of 3-4% organic ...

 Comment to SSS' reply: SSS brought up an essential point here: The short-term sales growth will be flat. This is not very convincing as this doesn't support the investment thesis that the company can expand or raise its prices thanks to its market position.  


(3) I can see from your fundamental data since 2014 that the (free) cash flow conversion from sales is relatively low (2014-2020: on average around 4%). What measures is MM using to improve the FCF margin, as this figure will be particularly important for the future disbursement and loan servicing policy?

Primarily through margin improvement in the course of several ongoing structural optimizations / expansions in production and sales. However, as reported in 21-23, these require even higher investment expenditure. Therefore, the FCF margin improved in the medium term.

Comment to SSS' reply: Is this a solid reason for margins to expand, to acquire other businesses? I don't like this argument. In my view, a strong company that succeeds through every crises should not endanger its financial position or rely on the acquisition of other businesses to improve its own position.


(4) MM stands for continuous dividend policy. Investors welcome that and for me it is a decisive criterion when choosing an investment. What are MM's future plans regarding dividend distribution policy? Does the company - contrary to the past - also plan to buy back shares?

As a company with a familiar core shareholder, dividends are very important to us. After 25 years of upward movement, these should continue to grow with recent acquisitions and ongoing optimizations (absolute payout is expected to increase). Due to the acquisition and investment price, share buybacks are currently less of a priority.

Comment to SSS' reply: As an investor that is willing to maximize the shareholder returns of every company, this answer is not appreciated. Certainly, the major owners of this business decide where the business should head to. Due to their long-term experience, they definitely know why this must be the best way for the company's future. But if I had to decide between two stocks, one disbursing every cent possible and the other one trying to expand with acquisitions, I'd rather take stock no 1. 


Hope this helped you. 

Sincerely / Best regards

Stephan Sweerts-Sporck

Head of Investor Relations



So what's my conclusion?
To sum up, I would say that the company is too expensive taking the future (especially short-term) plans into consideration. Flat sales growth, hardly any FCF margin improvement efforts and no interest in buying back shares to increase the adjusted dividend - this is not a package that sounds attractive to me. Let's see what happens throughout the upcoming months and years. At proper valuation, I will consider buying this stock.

check.markets v4 takes the project to the next level

After having watched a really great video of Algovibes, I gained a sudden motivation to quality review my code updated per November 1, 2021. With new infrastructural equipment, I would have the chance to deploy my code on a NAS server to run it 24/7. What I could improve throughout the last two days and what I struggled with, I would like to share with you in this blog entry.


On November 1, I had the impression that check.markets v3 could be one of the highest level improvements that I could implement throughout the whole project. With such a great simplification and optimization of code structures, I could reach a script processing time lower than 1/10 of the previous version. This was insane for me as my amateur status usually causes very, very complex thought structure for code that could be implemented so much easier. But due to my lack of experience, I sometimes have to solve issues the "hard" way. Other things that were introduced or improved are as follows:

- The stock selection universe was increased from 60 to 1395 stocks. With this increase, now every stock of the following indices is covered by the check.markets code:

  • DAX 40 (Germany)
  • MDAX 50 (Germany)
  • SDAX 60 (Germany)
  • CAC 40 (France)
  • IBEX 35 (Spain)
  • FTSE MIB 40 (Italy)
  • SMI 20 (Switzerland)
  • AEX 25 (Netherlands)
  • OMX Helsinki 25 (Finland)
  • OBX 25 (Norway)
  • OMX Copenhagen 25 (Denmark)
  • Russell 1000 (USA)


- Daily Schedule at 10 pm: Thanks to special support of my colleague and mentor David Lemke, the code is now started daily at 10 pm on-premises.

- Scheduled purchase and selling recommendation via mail and text message: Following that incredible move forward, the results of the daily recommendation system are now sent via e-mail and text message to people subscribed to my trading strategy. Why I chose 10 pm? Well, at this point of time, the American and European markets are closed so that the closing data can be reliably retrieved from my API.

- ATH is the new prime stock selection basis: check.enterprises has now fundamentally changed its strategy for stock selection. The reason being is that the former stock selection strategy had big potential to cause losses in direction-less market phases. Our research has shown proof to the theory that there is no stronger purchase signal than the all-time high of a stock as there are no further resistance lines hindering the stocks' way up to the moon. The stock purchase criteria would be further extended with v4.


 _____


After publishing this article about v3 on check.markets, I could hardly imagine that there were any major improvements that I could work on soon. I was wrong about that. There is a lot to do. A lot to improve. And this is the good thing about coding: the more you get into it, the bigger your horizon becomes, the more you get to know and the more you develop yourself.

So, after having watched Algovibe's video, two sudden fields of improvement jumped into my head:

  1. 24/7 availability by deployment of the check.markets code on a suitable cloud, NAS or web server
  2. The code for the check.enterprises stock analysis is not stable and efficient enough; on many days, I have to correct it manually so that it delivers correct results.
  3. After changing the stock selection basis to ATH, the check.industries subproject was devalued immensly. So, there has to be a new way to embed this analysis to increase the probability of successful trades.
  4. The stock selection has to be enriched by a volume screener and the Minervini template that heavily lays its foundation on one of the greatest traders of all time and my personal idol - Jesse Livermore.


So, after the last two days of further code improvement, how can I conclude the improvements?

With the help of the mergers of the Volume screener, the ATH screener and the Minervini template, the number of stocks that are analyzed with the check.enterprises algorithm has decreased in quantity, but immensly increased in quality. With the volume screener, I want to make sure that there is high purchase and upward pressure in the stocks analyzed. Moreover, I want to let my analysis focus only on stocks that are not part of the selection basis due to one-off effects that will quickly be sold off the following days. Analyzing the stocks recommended yesterday, I have to say that the stock selection criteria did its job perfectly. That's why I today bought the stocks of

  • Hornbach Holding
  • The Hershey Company and
  • Toll Brothers (what an incredible stock!!!)

Additionally, I could improve the text and style of the mails that are sent to the followers, including me. Now, the mail looks very professional, although there is still one major issue to be solved. 

What's more is that the number of RSL combinations has been drastically reduced as there are only a few combinations among which the algorithm jumps from one to the other. I introduced 19 new combinations which is the division of the current closing price by the EMA(5), EMA(10 and so on.

The check.industries screener now analyzes every stock that manages to meet the Minervini criteria. This helps to make the sector and industry selection much stronger and reliable. To give you an example: Today, the check.industries screener had more than 400 stocks (so about 1/3 of the total stocks in our selection) on its watchlist. So whatever the result of the screening is, it can be estimated to be reliable (to be right) and probable.


After having analyzed the code on and on again, I feel very confident that the progress to check.markets v4 has brought necessarily and essentially improved the stock selection. The list of stocks, sectors and industries that are now recommended seems to be much more reliable than in v3. So, now we can be very confident about good trading results throughout the next months.