Why I Sold Installux

In my earlier Installux post, I said I was on the fence about my Installux holdings and I would wait until annual earnings report before doing anything. Three weeks later I got cold feet and decided to dump all my shares.

My rationale was mainly the price support. The following chart shows that the current price is at a recent high. But I found that the company in 2020 bought back 5452 shares and the entire year's volume of trading was only 8534. Therefore, the company bought back 64% of the total shares traded in 2020! In 2019, the company began its buyback program with a cap of € 410. I just sold all at € 390 because I figured that's as high as it will get. There isn't enough support from the open market to ever go above the € 410 cap. As I have shown in an earlier post, the company's revenue and income numbers have shown mediocre growth in the last several years. And the stock price has justifiably never surpassed the 2017 high.

Installux was one of the first stocks I bought since writing this blog. In 8 years the stock has returned 14.5% including dividends. In USD, my functional currency, the stock has returned 13.5%. My gut says that's a resounding success. But after pondering about it for a while, I am a bit disturbed. If 13.5% is a resounding success, then I am expecting most of my other holdings to perform worse. What is average? Maybe 9-10%. What is bad? Less than 4%? Then by my admission, my methodology may only be able to get about 10% total returns. Now I have never disclosed my overall returns, because I simply don't know. But when I started this blog the back of my mind was saying I could do 12%. I am kind of disappointed that I clearly cannot.

Why I Bought Grigeo AB

For much of my investing career, my approach has been based on some basic value investing principles. Firstly, I look for cheap, well managed companies in good industries. This has been called GARP (growth at a reasonable price). Secondly, I would concentrate in relatively few companies — around 20. I would eschew investing in multiple companies in the same industry and geographical location. This avoids diversification, which Buffett has often called di-worsification. Thirdly, I would focus my investments mostly in the US. As this where the most famous and successful investors all focus on. The US has been by far the best market for the average investor in the past decades. Plus, its laws and regulations are very shareholder friendly. And fourthly, I would focus on small caps, the purpose is to avoid the space of the better and more knowledgeable professional investors.

But the investing environment is changing all the time. One reason for this is that others are learning the same lessons as me. I always want to maximize my gains by increasing my edge. As a result, in the last few years, I have begun to modify my investment strategy in some major ways.

Looking for good companies that fit some greatness critieria and holding for a long time is one of Munger's favourite advice. That's great and all if you are one of the smartest and most experienced investors on earth. But what about us little guys, I do not have an accounting or finance background. I am not as worldly as Munger, and I am not a great reader. If I want to outperform, I cannot rely on more insight on well-known large or mid-sized great companies. And looking around in the small cap newsletters, blogs, and internet forums, I see some global markets with very little coverage. For small developing regions in the world with unique cultures, the biggest companies there may not be anything but small cap. This is my experience with South Africa. The companies that I invest there are well known by the local consumers. But their market cap may "only" be USD $100 M. But I consider this still small cap because it would be overlooked by large global investors with deep pockets. This fact is also very convenient at a time when the US market is simply too crowded with professionals and Robinhood investors. At this point, no rationale is strong enough to justify the valuation for US equities, it cannot go up much farther.

From my experience in the last few years, I have learned it is too hard to predict the unknowable. It is much better to take positions in decent profitable undervalued overlooked companies, and wait for something good to happen. To do this consistently to improve my results, I would need to expand the number of stocks I own, and pay less attention to each, and also be very patient.

So recently, I have been digging deeper to find more stocks from hidden away markets. One I just started buying is Grigeo AB from the Vilnius stock exchange. Vilnius is the capital of Lithuania. Lithuania is a Baltic country that used to be part of the Soviet Union. The other Baltic countries are Estonia and Lativa. All the Baltic states are part of the EU and therefore use the Euro. They are also part of NATO, which is very important since they share a border with Russia.

I consider the Baltic countries as part of a developing region. From my past experience investing in Japan, I've realized that demographics is a very important factor. Countries with rising populations and therefore a rising consumer market will have a strong economic tailwind. Companies in countries that do not, like Japan, are discounted. Unfortunately, the Baltic countries have a dwindling population because of a declining birth rate and a restrictive immigration policy. The three Baltic states have a total population of 6 million but it is expected to decline by 10% in ten years. Japan's population is only expected to decline by 4% over the same period.

Therefore, I am careful not to invest too much in the area, and I am also more focused on companies that don't just cater to the local markets.

Grigeo AB (TLX:GRG1L) is a vertically integrated pulp and paper producer. The company makes toilet paper, cardboard and other paper and wood products for Lithuania and other European countries. It sells 30% to its local market, and 45% to the Baltics including Lithuania.

The company has a long history. The company originally started in the current form as the Gregiskes factory in 1923 making paper and cardboard. Through the years it was nationalized by the Soviets and then became private again in 1990. In the years since then it has modernized and also acquired other paper and cardboard companies. The following shows the chart of the stock price in the years against the backdrop of the US dollar against the Euro. As one can see the stock price growth has been respectable and somewhat consistent.

	GRG
Price (Apr 6)	€ 1.34
Marketcap (M)	€ 88.04 $ 103.8
ROE (%)	14.70
PE	6.67
PTBV	1.02
Div Yield (%)	4.48 (2019) 0 (2020)

Grigeo also has great valuation metrics. It has tremendous return on equity and has negligible debt. The company didn't pay divdends this year due to covid, but has regularly done so in the past. The following chart shows this. The chart also shows how well revenue has climbed. It has steadily risen by 10% per year! And the earnings and dividends have grown even faster. This is a reflection of greater profitability over time. Please note that I have multiplied the dividend and income by ten to better illustrate. The company has a few commercial or promotional videos on youtube, and they show extremely modern and automaticed plants. I think this confirms why the results have been so good. So given the company has grown steadily and is so cheap at present, this is a serious mispricing. Imagine in the US a company performs like this. The PE would be 20x instead of 6.7x.

I think it really is true when many investing gurus mention opportunities in the developing markets. I have noticed quite a number of good ones just with the tools I have. This is the second one I have written up in as many months. I have bought several others actually and hopefully will get to write them all. So, stay tuned......