Here's an inspired stock I just bought. Plus here is a multicurrency sandwich update!
Cobbled archways of stoned history echo in the warmth of an Indian summer's day. Carnival excitement flows though the crowd, with its music, jugglers and fun.
If you walk along Copenhagen's waterfront, past the Admiral Hotel, you hit Nyhaven, a bustling canal street, lined with colorful wooden sailboats, restaurants, ice cream shops and pubs. People are everywhere. A little beyond is the huge central square fanning in many cobbled fingers throughout the town. The action is here. Shops of every sort, street musicians, cluttered fruit markets with fresh figs and tiny green pears and entertainers, amusements, magic and mystery. Couples walk arm in arm and lines of three and four shop, look, laugh and watch this cacophony of light. Merri and I joyously join in.
This is summer's street festival for the walkers (cars are banned on this famous walking street) in Copenhagen, spontaneous in its aura of liveliness and easily watched from one of the dozen charming cafes.
Merri and I were in Copenhagen where I spoke to 70 plus delegates at Jyske Bank's seminar. My speeches were about Inspired Investing and my thoughts as we sat in a sidewalk cafÈ were on the nine golden rules of inspired investing and how to look beyond the balance sheet when investing. This message shares a practical example of how these laws work and show what I believe is a great investment I just made. Though we shared these nine golden rules just two weeks ago…here they are again.
1. Money isn't everything
2. Work only with people you like
3. Buy businesses, not stocks
4. Invest only in what you understand
5. Don't over diversify
6. Keep looking for new opportunities
7. Buy businesses you plan to keep for life
8. Look for businesses that are available at a good price
9. Do what you like
Now let me share how these rules led me to recently buy shares in a bank now. Before I begin let me add that I am not a big equity investor, especially at this time. Less than 5% of our portfolio is in shares. Second, please keep in mind that our messages have recently and frequently pointed out that history suggests we are in the midst of a long term equity decline – see https://www.garyascott.com/market/606/. Finally remember that recent messages have also explained we are likely to see a shakeout in the banking industry within the next couple of years – see https://www.garyascott.com/market/608/
So if I am not keen on equities and especially concerned about the financial sector, why would I now invest in bank shares? Let's begin with Rule #4 of Inspired Investing, “Invest in what you understand”. Having been in the financial business for over 30 years I have a pretty good feel for what banks offer. I especially know what private banks offer and believe many are in for a big fall. Many huge international operations that have relied on privacy, a wink and a nod to attract customers are in for a nasty surprise. They just do not know what to do now that bank privacy is dead.
Many big international banks are so bad, and their services are rooted in the past.
Yet as I have worked with the bank I just invested in for more than a decade I have watched their services evolve and improve. This leads me to believe they are better now than most other banks and most likely to survive and prosper in any global, financial sector shakeout. Rule #3 is “Buy businesses and not stocks”. Frankly stock market movements do not matter to me in this case. The fact the market is depressed is probably good (Rule #8 says “Look for businesses that are available at a good price”.) The price paid is likely to be a bit lower than it should be. I do not care if the shares fall in value in the short term either because this is a long-term investment. (Rule #7 “Buy businesses you plan to keep for life”.) The return and dividend this bank has historically paid is more important to me. The long-term return on these shares from 1967 to 2001 was a whopping 14.3%. The last ten years the annual return was 12.9& and over the last five years an amazing 16.8%!
My belief is that by buying shares when the market is depressed in a bank that is prepared to be among the best during the shakeout, gives a phenomenal long-term value.
The bank is the Danish bank, Jsyke. I have never held their shares before but while visiting their headquarters in Silkeborg this recent trip, Merri and I saw the new improvements in their customer service and for their staff and traders. We were impressed.
We have always been impressed by Jyske's staff. The company has permeated the attitude amongst its people so they are super committed to giving good and unique customer service. I have been a client and have worked with the bank for over a decade and my experience is that everyone is efficient. The work almost always seems to get done on time. When errors are made they are corrected graciously and quickly. (This is so different from my experiences with my Swiss (soon to be ex) bankers who act as if they can never make an error!
I was especially impressed seeing the new management team at the international private banking section in Copenhagen and seeing that our friend Per Munkholm Poulsen, has been promoted to managing director of the bank.
Per was previously the head of the international private baking section and is very businesslike yet very modest. We saw that the bank has made some revolutionary changes to client service so customers sit on a round table with their bankers and share a computer screen, rather than facing across from the client. Also the workstations of traders and the eating area for the staff are wonderful.
We were also impressed that all the staff from the top boss down eat together and that the managing director has made sure his traders and other staff have offices as large and even larger than his. I love the idea that top management invests the bank's money in helping the customers and staff rather than on fancy accouterments of status. Per, for example, who is now managing director and on the management board walks to work rather than arrives in a fancy profit draining limousine.
I pay a lot of attention to details like this!
This is when Merri's and my inspired investing habits kicked in. We remembered the other rules (Rule #2, “Work only with people you like”, “Keep looking for new opportunities” (Rule #6) and #9, “Do what you like”). Merri and I looked at each other and didn't even have to say a word. When we both have the same thought at the same time we know it and this is a most important clue for us to act. I picked up a cell phone and immediately bought 2,000 shares (a little over $50,000).
What about Rule #5 on diversification? My entire equity portfolio only has five investments, one a mutual fund in Japan (long shot), second an equity fund managed by Nigel Stephens keeping us in U.S. shares, third a fund in Euro shares, plus two banks, a start-up bank (Citizens National Bank in Naples, Florida) and now Jyske. We only hold five shares. Four of those shares involve people we know well in places that I understand. These investments have nothing to do with market timing. They having nothing to do with sector allocation or with value markets or any of the multitude of ideas that many investment advisors espouse. I am investing for the long term in businesses I understand managed by people I know, like and trust, who have proven their integrity, wisdom, diligence and perseverance. This is inspired investing. For those interested in Jyske shares, the bank is the second largest in Denmark (and the most innovative and progressive in my opinion). Jyske has 430,000 domestic clients and 35,000 international clients, 200,000 shareholders (199,999 plus Merri and me!), 3,300 employees and a Moody's rating of A1. The company's performance in 2001 was core earnings of US$115 million, net income of US$110 million, US$16,500 million of total assets and US$762 million of shareholder funds. The bank's pre-tax return in 2001 was 15.1%.
May I point out that I have no financial interest in selling shares of Jyske Bank and I have no way of knowing if shares in Jyske make sense for you. I am sharing this knowledge only to let you know what I am doing to help explain the concepts and importance of inspired investing. While on the subject of Jyske Bank while at the seminar they updated their current currency sandwich recommendations which are as follows:
The bank recommends that investors use a minimum of US$30,000 to start as diversifying into several currencies and bonds is too expensive smaller amounts.
Then they suggest borrowing between two (US$60,000) on the US$30,000 minimum) to four times (US$120,000) the investment 50% in Japanese yen and 50% US dollar or 25% yen. 25% Czech kroner and 50% US dollar.
They feel that the yen loan makes sense because Japan's economy is still in a mess and the yen has begun to weaken marginally again.
In the Czech Republic, fundamentals are against the currency: Official rates are lower than in the Euro And the budget deficit is a problem as it will reach 9.1% of GDP in 2002.
The current account deficit is also high at 3.5% of GDP and the Czech Central Bank wishes a weaker currency. If something goes wrong with the European Union's process of adopting new countries in EU, the Czech currency is overvalued by 20%.
The US dollar loan makes sense because of the low interest rate.
The investments recommended are:
25% of the total (US$37,500 if there is a US$150,000 total from $30k original investment and $120k loan) in an Australian dollar bond issued by Transco yielding 6.75%.
US$37,500 or 25% in Norwegian government bonds yielding 6.50%.
US$37,500 or 25% in Hungarian government bonds yielding 8.85%.
US$37,500 or 25% in Rolls Royce PLC bonds issued in Euro and yielding 6.10%.
This is the English Rolls Royce company that builds turbines for ships and engines for airplane manufacturers including Boeing. This company has performed well and the turnover in 2001 was 6.3 billion pounds (US$9,5 billion)and a operating profit of US$225 million pounds (US$335 million).
The return with the two times leverage is projected at 14.50% if you choose the funding of 25% yen 25% Czech kroner and 50% US dollars (50%). The return with four times leverage is 22%.
Are there risks? Of course! Bond vales can drop, foreign currencies can change and interest rates can rise or fall. I consider this a speculative investment in my three layer PIEC financial plan, see https://www.garyascott.com/inspired/36/
Yet over the past decade the multicurrency sandwich, especially with yen loans has worked amazingly well.
For more details on interest rates and updates of this investment
contact Thomas Fisher at Telephone: +45 8989 6230
or Fax: +45 8989 6194
or email: FISCHER@jyskebank.dk
or Fax: +45 8989 6194
or email: FISCHER@jyskebank.dk
or email: FISCHER@jyskebank.dk
SPECIAL NOTE: My correspondence course, Borrow Low-Deposit High is almost sold out. The warehouse in England that holds these in stock just informed us that there are only six copies left. To clear this remaining balance the first six readers that order can have this $199 course for $99, plus shipping. To order our secure website
Until next message, may all your investing be inspired.