Sources for information about the German market (and general thoughts cycles)

[perulv]

Hi,

 

I'm currently reading the book "Mastering the Market Cycle" by Howard Marks. One of the key points (as I read it) is that while we cannot predict where the market will go, we should try to understand where we are in the cycle. This includes the emotions of the market participants, the general "tone" of the news, etc.

 

I own stocks in a couple of german companies (on DAX), but I now realize that I really don't know much about the market conditions in Germany. Or perhaps more important, the opinions and feelings of/on "the market".

 

Does anyone have tips for sources for information like this? A problem of course is that I don't read much German. I live in Norway, we had it a couple of years at school, but in practice I would end up using Google Translate on a german site.

 

In general, I've ignored "the market" and macro conditions in general, focusing on individual companies, on the basis of knowing that I cannot predict the market. But after reading this book, I'm starting to see value in having some opinion on where we are in the cycle(s).

 

What are your thoughts on this? If you find an interesting company in a market / region that you are not familiar with, do you have some favorite way of researching the market / region?

[John Hjorth]

Hi Per,

 

Welcome to CoBF! [ : - ) ] From my recollection, I think you're the first active Norwegian board member [, however I may be wrong about that, though].

 

Personally, when I have "entered a new country" [about a potential investment not already covered here on CoBF] I have found value in reading the country reports from IMF. To me, they provide a fast overview of "the temp." of that particular country, and economic situations vary among European countries.

 

Then there is the possibility of starting a topic on a particular investment in the Investment Ideas forum for discussion - like you have already done with Covestro AG.

 

There is a minority of European board members here on CoBF - the majority of the members are North American, but some of them actually have interest in European stocks, and also actively share their thoughts here CoBF on European investments.

[Guest ajc]

 

I like this site - https://www.starcapital.de/en/research/stock-market-valuation/

 

It ranks 40 of the biggest global equity markets on P/E, P/B, P/CF, P/S, etc.

Makes a useful starting point if you're looking for undervalued countries to invest in, or overvalued ones to avoid.

 

If you scroll to the bottom, you'll see where the German market is valued relative to historical trends.

 

 

 

[perulv]

John: Thank you for the introduction, and for the link. I will certainly check out the country reports.

 

ajc: Thank you for the link. I've briefly seen the site before, but was unsure about the quality of the data. Not that I had any reason to doubt it, but just general scepticism about "random sites on the internet" :) Great to see it recommended here, I will start using it more.

[John Hjorth]

You're welcome, Per,

 

The European value investing community valueDACH [covering Germany, Austria & Switzerland] also has a webpage with links to screeners and a toolbox webpage.

 

Our fellow board member ebdem is an active member of valueDACH.

[Spekulatius]

Disclaimer: German living in the US for ~20 years.

 

In my opinion, the German sentiments for the most part just follows the US sentiment, except if there are specific issues in Europe (Italy for example).

 

There isn’t as much of a shareholder culture in Germany than there is in the US. Many Germans don’t own stocks and those that do, own much less as a portion of their wealth. Most Germans don’t relay care if stocks are going down for that reason, also it may just be another thing to worry aboutt, which is something thet German are really good at. Owning stocks is considered by many a bit like gambling, or Spekulation (hence my screen name).

German companies are run in a more clubby way, and for a strong consideration of all stakeholders (employees, community), so there is less pressure to perform for many family controlled companies. it’s a bit like Loews in that way. There are many mid/smaller companies in Germany that have top notch products and are world wide leaders in their respective fields  - companies like Krones, Fuchs, Hella and many other which can be found in the MDAX. From time due to market volatility, there can be incredible bargains to be had in thr German market.

[SnarkyPuppy]

Disclaimer: German living in the US for ~20 years.

 

In my opinion, the German sentiments for the most part just follows the US sentiment, except if there are specific issues in Europe (Italy for example).

 

There isn’t as much of a shareholder culture in Germany than there is in the US. Many Germans don’t own stocks and those that do, own much less as a portion of their wealth. Most Germans don’t relay care if stocks are going down for that reason, also it may just be another thing to worry aboutt, which is something thet German are really good at. Owning stocks is considered by many a bit like gambling, or Spekulation (hence my screen name).

German companies are run in a more clubby way, and for a strong consideration of all stakeholders (employees, community), so there is less pressure to perform for many family controlled companies. it’s a bit like Loews in that way. There are many mid/smaller companies in Germany that have top notch products and are world wide leaders in their respective fields  - companies like Krones, Fuchs, Hella and many other which can be found in the MDAX. From time due to market volatility, there can be incredible bargains to be had in thr German market.

 

Do you have any more resources that discuss Krones and/or Hella from an investment perspective (i.e. investment blogs etc)?  I took a cursory look and both look to be on the path to becoming interesting in price

[SharperDingaan]

You might want to look at the board and governance structures of German (& other European), versus US, companies.

There is a reason that they are more 'stakeholder' orientated.

 

Buying a German company, and expecting it to act like a US one (especially in a crises), is often a recipe for tears.

There are some relative bargains, but it also requires a change of mindset.

 

SD

 

 

[ebdem]

Hey there.

You can find a lot of information on www.valuedach.com. We are happy to have foreign guests on our conferences and meetings.

Furthermore, https://boersengefluester.de/ and https://www.antizyklisch-investieren.com/ are a good source for the German market.

[John Hjorth]

You might want to look at the board and governance structures of German (& other European), versus US, companies.

There is a reason that they are more 'stakeholder' orientated.

 

Buying a German company, and expecting it to act like a US one (especially in a crises), is often a recipe for tears.

There are some relative bargains, but it also requires a change of mindset.

 

SD

 

Personally, I think this message from SharperDingaan is to a wide extent true.

 

We have discussed it at length earlier in respect of possible & potential acquisition targets for Berkshire in Europe, including Germany, actually.

 

This applies to some extent to Scandinavian investments, too.

 

Always to take a look at "the superstructure above the investment" [please read: controlling foundations and families etc.], and try to make an assessment about how it works - through thick and thin - may serve you well.

[perulv]

SharperDingaan, Spekulatius, John: You mention the way german companies are run / governed. I must admit this is something I have not thought much about, or have knowledge of. Being European myself (well, Norwegian, so European-ish  ;) ), my knowledge of the "US way" is also limited. Can you elaborate on what you mean, and how this impacts shareholders?

 

Buying a German company, and expecting it to act like a US one (especially in a crises), is often a recipe for tears.

 

In Norway there are strict rules for letting people go. I'm guessing this might be the case for many European countries.  Is this an example of what you mean? that a US company will be better at cutting costs quickly?  (Hmm, just googled and found this btw. http://www.plasticsnews.com/article/20181025/NEWS/181029944/covestro-cutting-900-jobs-globally)

 

Looking at https://www.covestro.com/en/company/management/board-of-management (I bought some shares in Covestro earlier, as mentioned in another post) how would I go about looking at the governance structure? What would I look for, and how would this typically be different in a US company (Which I take it you both mean have a more shareholder friendly structure)?

 

It seems I have quite a blindspot here. Not only to the way it works in Germany, but to the whole issue in general. Any more details on how I would educate myself about this, and do an assessment of this on individual companies, would be greatly appreciated.

 

ebdem: Thanks for the links. I see that the forums have english language in the menu, but that the discussions are in german. Do you know if it would be acceptable to post there in english, or should I avoid doing that?

[SharperDingaan]

German (& many other European) companies operate under a two-tier board system; a Supervisory Board made up of shareholder and labour representatives, as well as an Executive Board which is the decision making body. The Supervisory Board is required by law, and has teeth. https://global.handelsblatt.com/companies/why-german-corporate-governance-is-so-different-892389

 

"Half of the non-executive directors in all public limited companies with more than 2,000 employees came from the works councils and unions (Codetermination Act). Thus German boards must, in theory, heed the concerns not only of shareholders but also of employees, creditors, suppliers, and local governments, and should take a long-term perspective that stretches over generations. Nowadays, the chairperson of the supervisory board holds most of the cards. He or she (in practice, it is still mostly a he) can never hold the position of CEO at the same time, but must stay in regular contact with the executive board to discuss strategy, business developments and risks."

 

And this is in addition to the numerous supply chain cross-holdings at the holding company level and down; that are common practiice in both Europe and Asia. Hence take a run at a German (or Asian) company, and you pick a fight against a very large army .. and all of it's friends.

 

In North America there is no such thing as a Supervisory Board, and for many; the expectation is that you can do pretty much whatever you want, and deal with the rest of the stakeholders later - if at all. Each approach has its own pros/cons, and the major variable is essentially the speed of change. 

 

Federally regulated Canadian banking has a fairly similar arrangement to Europe.

Substitute the Regulator and the Bank of Canada for the Supervisory Board, the Individual Banks Charter for the Codetermination Act, and add ongoing operation 'at the pleasure of her majesty ....'

 

Just a different way of doing things  ;)

 

SD

 

 

 

 

 

 

[Spekulatius]

SD is correct about employees / unions having representation in the supervisory board, but I don’t think it is a problem really. I think owners still have the swing vote and also unions (if they exist) in Germany are far more reasonable than they are in the US. In the past, union members have agreed to even drastic cuts, as they can look at the numbers and generally they make sure that the cuts are done in a for them agreeable fashion.

 

It is correct that German companies are somtimes slower to make cuts than US companies, but thet difference to the US isn’t as large than it used to be 20-30 years ago. The bigger issue is not thet they can’t, it’s more a reluctance to do so. I would also argue that larger cuts may not be such a great idea in many cases anyways - I have seen many cases in my profession experience where employees had to be hired back shortly after cuts and considerable cost.

 

Generally, you will find that German companies are more run on consensus (by managment teams, employees, input from bankers) than an almighty CEO as is somethings the case in the US, for the better or the worse. Just a different way to doing things. Also keep in mind that many German companies are multinationals and they will cut positions in the US just as quickly than an US company will do.

[SharperDingaan]

The take-away here should be that the US model is the EXCEPTION, versus the rule.

Hence thinking that multi-national business in Europe, Asia, or even S America is much the same as it is in the US - is a big mistake.

 

The faster 'shoot from the lip' decision making of the US often produces bad decisions, and feeds into the 'fail hard, fail fast' mantra much favoured by start-ups. All good, except that it's typically a fail with YOUR money, and NOT theirs.

 

The slower 'consensus approach' typically produces better decisions, and more so - when the contributors are diverse. It also really comes into its own when dealing with highly disruptive or large-scale industrial/social change (ie: blockchain).

 

Obviously, depending on what you want - you invest accordingly.

 

SD