It really is true, you can become independently wealthy as an investor.
And to prove it this week’s newsletter is an interview with someone who has done just that.
His name is Swen Lorenz and here is a bit of background information on him from his website.
Swen Lorenz is a published book author, private investor, entrepreneur, passionate traveller and funder of several charity projects.
He primarily divides his time between London, the Galapagos Islands, the Channel Islands, Zurich, New York City, as well as a number of other locations.
In between, he researches undervalued, overlooked and complex investment opportunities. He has written for more than 40 commercial publications, and besides publishing his own blog also writes several magazine columns and regularly appears on TV. He is a trustee of the Galapagos Conservation Trust in London.
On to the interview…
How did you get started in investing?
Swen Lorenz: When I was 15 I read the German business and finance magazine “Capital”, and they recommended investing into a Hamburg-based electricity company.
I had actually already bought some shares when I was 13 – Fiat, so as to be “co-owner” of Ferrari (which seemed terribly exciting for a 13 year old). But the investment into Fiat was literally only pocket money, my total investment was just 27,70 Deutschmarks.
By age 15 I had been working in a mail-order company during the summer holidays so I invested something like 3,000 Deutschmarks. It went up some 20% and I simply loved how easy it seemed to make money on the stock market, as opposed to working in a mail-order company.
My interest developed from there and a year later I visited a number of shareholders meetings.
Tell me about your time writing newsletters?
Swen Lorenz: When visiting shareholders meetings, I became known for asking the CEOs all sorts of nagging questions. Think of a 16 year old shareholder grabbing the microphone and becoming a nuisance!
The editor in chief of an old, very established newsletter happened to be at one of the meetings, and he liked my way of investigating companies by going straight to the best source of information – the management.
He paid me to become a freelance contributor.
The first couple of months my articles weren’t particularly well-written, but he kept paying me regardless, so he probably saw me as a bit of an investment too.
I got 400 Deutschmarks a month, which was a small fortune at the time and which I was able to get it tax free.
His investment paid off as I eventually started producing useful copy and he then got it for a relative pittance.
What are the good and bad sides of the investment newsletter business?
Swen Lorenz: The greatest part is that you have much more freedom what you want to write about, much more so than if you worked for a newspaper. Newsletters live off the fact that they are different.
The bad part is that newsletters also face commercial pressures, and unfortunately they sell the most subscriptions if they peddle pro-cyclical investment themes to their readers.
This then inevitably leads to disaster.
The churn rates of newsletters are extremely high, if you are speaking about subscription based newsletters.
Developing a paid-for newsletter with a stable subscriber base is an art form, and it can be done by a committed individual.
But large commercial newsletter operators put short-term profits before long-term investment success, and this is why I left the business.
Can you talk about your investment approach and how it has developed over time?
Swen Lorenz: Rule number one, don’t lose any money!
Basically, I like looking for investments that don’t have much downside.
A classic example was the Societe des Bains de Mer, the company that owns a lot of the AAA property in Monte-Carlo.
When I first researched it the company was trading at EUR240 per share. The net cash reserves alone were EUR188 per share, the properties were essentially debt-free and worth anywhere between EUR1,000 and EUR2,000 per share (some of them are admittedly quite hard to value, e.g. should one include a trophy factor in the value or simply stick to current earnings which in some cases include properties with ancient rental contracts?).
It was clear that this share wasn’t going to get much cheaper, but had huge upside. This is what I am looking for, and this kind of exceptional opportunity can most often be found among under-researched small and mid caps.
How did you weather 2008 and the first part of 2009?
Swen Lorenz: In 2008, everything plummeted.
There wasn’t an asset class that wasn’t affected, so my portfolio lost value too. And I made too little use of the opportunities that were present in the early part of 2009, because I was busy restructuring two private equity investments that I had become involved with.
I essentially had to step in as a director and help sort things out.
This was a huge lesson in life!
Private equity seems tempting, but if something goes wrong then you can’t sell – unlike with shares that are listed!
I think in the future I will have a HUGE preference for anything that is listed and can be traded every single business day….
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How do you typically find ideas and what is your selection process before an idea gets added to your portfolio?
Swen Lorenz: It’s really all down to reading and mingling with other investors. It’s as simple as that.
Over the years, you develop a bit of a radar screen for things and you simply pick up ideas along the way.
I never use Bloomberg or any of these databases, first of all because a lot of the information in there is erroneous or outdated and secondly because information that everyone else can access through terminals that are installed in banks around the globe is probably not going to give you much of an advantage over other investors.
After that, it’s really down to analyzing the fundamentals, checking if there are any catalysts that could lead to a higher valuation (e.g. I love insider purchases and situations where a major shareholder wants to take a company private), and then also seeing what kind of gut-feeling I develop about a share.
How many positions do you typically have in your portfolio?
Swen Lorenz: No more than 10, and usually less. I like focus.
What are some of the mistakes you have made and what did you learn from it?
Swen Lorenz: Never buy into private equity!
My life was hell when I had to go and become a director of two failing businesses that I had invested into. I would have much rather sold the lot at a loss, but this option didn’t exist.
Long live the public markets with their daily price quotations!
The other one is, one should have a good understanding of balance sheets and develop a feeling for whether a company is accounting in an aggressive or a conservative way.
There are enough random risks in life, I’d much rather stick to those who account for matters in a conservative way.
What are your ideas concerning portfolio composition and the value of individual holdings in relation to the portfolio?
Swen Lorenz: If you have a strong feeling about something, put 30-50% of your money into it! Else you won’t ever get anywhere.
Obviously, if you are super wealthy already this formula won’t work.
But if I remember correctly, Buffett also once did this (and had he not sold this investment in time, he would have been wiped out).
You can read more about Swen, and get some good investment ideas on his web site
Swen Lorenz – Undervalued Shares
Also if you liked what Swen had to say be sure to sign up for his free email update service at the top right corner of his website.