Year 2019 in Review

This post has been more than half a decade in the works. I've just been busy, that's all. And I'm still busy, but today was the day when I just decided to return the blog for a while.

So, let's look at the year 2019. 

I got fired in 2019 

What happened in 2019 was that the economy wasn't good, my employer-at-the-time was struggling financially and I ended up getting fired. Needless to say, it was a very stressful time, especially having received a second child the year before. The redundancy negotiations took a long time, maybe 6 weeks and I remember feeling very stressed throughout those weeks. I couldn't work on some days due to the stress. 

Salary

There was a silver lining however. When I was made redundant, I received a lump-sum compensation of about 35k euro or about 7 months salary at the time. On top of that, I was able to get into a new job with a competitor company almost immediately. So essentially, I was earning two salaries for about half the year. In hindsight, it worked out but having lived through it, it was super stressful. Would not want to relive that! Overall, my gross income was about 101k euro in 2019 (about 61k euro in 2018).

Taxation in Finland is tough, highly progressive, so my net income rose way less. Net income was about 62 500 euro in 2019 (was 45 000 euro in 2018).

Savings

With the redundancy package, I was able to save a lot. My yearly savings went up tremendously! Savings to portfolio in 2019 were 36 689 euro! Way up from 13 677 euro in 2018, but then again 2018 wasn't a particularly good saving year. The savings almost tripled from 1098 euro to 3057 euro per month!

My savings rate pretty much doubled from 30% to 59%. 

Market returns

2019 was great year in the markets. My portfolio returned about +27% or a about 36 542 euro. Portfolio size at the end of 2019 was 196 198 euro (up from 122 965 euro at end of 2018). 

Portfolio valuation and savings. The blue line is the value of my portfolio and the red line is cost of the portfolio, i.e., savings.

The below chart shows the TWR return calculation (in green, left axis) and the EUR/USD currency rate (in burgundy, right axis). 

In 2019 the market returns were off to the races at the outset for the year, the portfolio was in the green from first day of the year and never looked back! TWR ends a little over +27% in the green. 

My portfolio is quite heavily weighted towards dollar nominated stuff so there's a correlation with the EUR/USD exchange rate, but in 2019 the rate was essentially flat, hovering around 1.15 to 1.10 range.

The S&P 500 was up about +31-32% and with a small boost from the Euro strengthening, S&P 500 for a Euro investor was up about +34%, the strongest performance in a long time. Stoxx Europe 600 was up about +23%. Emerging markets were up about +18%.

TWR return calculation (in green, left scale) and the EUR/USD (in burgundy, right scale) currency rate.

Mortgage and net worth

During 2019 I also paid off 5 375 euro of my mortgage. There's still plenty left. As the Euribor rates are still essentially zero, I don't see any reason to contribute more than minimum to mortgage for the time being.

I can't tell yet if this will be considered an investment or not but if it were considered an investment, my total contributions to my net worth would be 42 065 euros or 67% of net income.

My net worth during the year was up about 67 700 euros to roughly 221 600 euros but I don't really track my net worth. I'm mostly interested in my money generating portfolio.

Conclusions

2019 was a great year in terms of portfolio returns and savings, both absolute numbers and savings rate, but overall the year still sucked. Big time! It might have been the most stressful year ever for me. Getting laid off was a shock to me. And waiting for 6 weeks to hear if you will potentially be laid off was suffocating. 

Still, getting laid off also validated that I am on the right path. Getting to financial independence is the way! And even though I was stressed out, I knew I wasn't in a really bad spot, I could have lived on my savings for a long time. When at the end part of the year, I had landed a new job, I could finally relax. 

Buffett and Munger always talked about how the first 100k is bi*ch but you got to do it. This year I made my second 100k in terms of net worth but it didn't feel like much of anything really. On to the next one.

Year 2018 in Review

No. That's still not a typo. I'm really going back to look at previous years' performance as I haven't been doing that for a while.
Review of 2017 is here and the review for 2016 is here. 

During 2018 I became a father for the second time which has been awesome in a way words cannot describe. Photo by mulan from Flickr, not my children.

Savings

This chart shows my 2018 portfolio value changes. The end of the year doesn't look too good..

Portfolio valuation and savings. The blue line is the value of my portfolio and the red line is cost of the portfolio, i.e., savings.

Let's look at the numbers for my portfolio cost and value in more detail in a table:

	31.12.2017	30.12.2018	change
cost (= savings)	86 392 euro	100 069 euro	+13 677 euro
value	118 336 euro	122 966 euro	+4 630 euro

Turns out 2018 wasn't a great year. During 2018 I managed to save only 13 677 euros which was down considerably from previous years (2017 was 19 807 euros, 2016 was 16 127 euros and 2015 was 12 167 euros). 
I can't say that I'd be disappointed with that number but I can't rejoice such a big decrease. That yearly savings works out to be 1140 euros per month. 

During the year, my net income was 45 151 euros which is roughly the same as last year.
(46 245 euros in 2017 and 37 600 euros in 2016). The net income went down because I paid some of last years taxes now this year, and this explains the lesser contribution also to some extent. I did get a raise at work which meant a couple of extra grands but not enough the outweigh other stuff. 

I also bought a car during the year, which swallowed a couple of grands. I went the frugal route and bought an old cheap clunker but had to make acute repairs to it, costing money but mostly a lot of effort. 

My savings rate for 2018 was only 30% of net income which I'm not happy about. 2016 and 2017 were both at 43% of net income. 

Growth

2018 wasn't great in the markets either. My portfolio is up in value by 4 630 euros during the year. But this is only due to savings. The market was down about -7.5% during the year which for my portfolio meant being down a bit over 9 000 euros.

2016 and 2017 were both up years of a bit more than 9k, so 2018 wiped away one of those years. Down years are inevitable in investing so I'm not too concerned about the loss.

The below chart shows the TWR return calculation (in green, left axis) and the EUR/USD (in burgundy, right axis) currency rate. It was looking a like a good year until about the start of October but then things went south fast! The year ended about -7.5% in the hole.

My portfolio is quite heavily weighted towards dollar nominated stuff so there's a definite correlation with the EUR/USD exchange rate as seen below.

TWR return calculation (in green, left scale) and the EUR/USD (in burgundy, right scale) currency rate.

Mortgage and net worth

During 2018 I also paid off 5 340 euros of my mortgage. There's still plenty left. As the Euribor rates are super low at the moment, I don't see any reason to contribute more than minimum to mortgage for the time being.

I can't tell yet if this will be considered an investment or not but if it were considered an investment, my total contributions to my net worth would be 19 017 euros or 42% of net income (2017 was 54%, 2016 was 56% and 2015 was 46%).

My net worth during the year was up about 13 600 euros to roughly 153 900 euros but I don't really track my net worth. I'm mostly interested in my money generating portfolio.

Conclusion

2018 wasn't a particularly good year. Neither for savings or in the market. My savings were hindered by last year's tax trickery, while Mr Market turned negative in October. 

The year was also made worse by me doing tax loss harvesting sales on 28th of December 2018 which turned out to be the bottom of the market, so the worst possible day to make those sales. As a learning point, I should do tax loss harvesting throughout the year, not just on the last days.

Still, with constant dollar-cost-averaging during the year, my portfolio made new records during the year: 120k in May and 130k also in May. 

Outside of saving and investing, during 2018 I also became a father for the second time which has been awesome in a way words cannot describe.

All in all, 2018 wasn't great but it didn't suck either.

Year 2017 in Review

No. That's not a typo. I'm really going back to look at 2017 because I haven't had time or the energy to review my progress. The last yearly review was for 2016. I also plan on doing reviews for later years. 

Savings

This chart shows my 2017 portfolio value changes. 

Portfolio valuation and savings. The blue line is the value of my portfolio and the red line is cost of the portfolio, i.e., savings.

Let's look at the numbers for my portfolio cost and value in more detail in a table:

	31.12.2016	30.12.2017	change
cost (= savings)	66 585 euro	86 392 euro	+19 807 euro
value	89 189 euro	118 336 euro	+29 147 euro

Woot? So, during 2017 I managed to save an astonishing 19 807 euros (2016 was 16 127 euros, 2015 was 12 167 euros). I am really happy with that number. That's 1 651 euros per month.

During the year, my net income was about 46 245 (37 600 euros in 2016). The big gain in net income is mostly explained by me adjusting tax rates. I also got a raise that explain a couple grands of the amount but mostly I adjusted my withholding to be artificially low. Basically this means that I took a short-term investment loan from the government that I'll need to pay back next year. My savings rate ended up being the same 43% of net income as last year. 

Growth

But I'm even more happy with the next number, the value of my portfolio is up 29 147 euros during the year. That means that the market produced about 9 340 euros or about +9% in gains for me. In euros the gain was about the same as last year but percentage-wise last year was a bit better. But I'll gladly take 9% gains over a long period of time.

The below chart shows the TWR return calculation (in green, left axis) and the EUR/USD (in burgundy, right axis) currency rate. The TWR was quite smooth throughout the year, with most of the gains coming within the September to November timeframe. My portfolio is quite heavily weighted towards dollar nominated stuff so there's a definite correlation with the EUR/USD exchange rate as seen below.

TWR return calculation (in green, left scale) and the EUR/USD (in burgundy, right scale) currency rate.

Mortgage and net worth

During 2017 I also paid off 5 198 euros of my mortgage. There's still plenty left. As the Euribor rates are super low at the moment, I don't see any reason to contribute more than minimum to mortgage for the time being.

I can't tell yet if this will be considered an investment or not but if it were considered an investment, my total contributions to my net worth would be 25 005 euros or about 54% (2016 was 56% and 2015 was 46%) of my net income.

My net worth was up during the year about 31 750 euros to roughly 140 250 euros but I don't really track my net worth. I'm mostly interested in my money generating portfolio.

Conclusion

2017 was a good and busy year. I made a withholding tax trick that allowed me to put more towards savings. I might write about that in some later post. In the markets the year was a pretty good one with my portfolio making +9%. The TWR return shows a pretty boring chart, nothing major happened in the markets during 2017.

I achieved some new record numbers during 2017, including 90k in January, Six figures or 100k in May and 110k in October. All in all, I'm happy with 2017.

Why I’m skipping the LeadDesk IPO

A SaaS company LeadDesk is currently IPOing to the Helsinki First North but I won’t invest in the IPO.

A SaaS company LeadDesk is currently IPOing to the Helsinki First North but I won’t invest in the IPO. 

Wow. It’s been over a year since I last wrote to the blog. I’m struggling to find time to write after all the private and work life stuff. I’ll need to think about how to overcome this “tyranny of the urgent”.

I’d really like to invest in SaaS companies. Especially as I’m remembering a similar SaaS company Admicom’s recent IPO and subsequent magnificent growth.

But the offering isn’t desirable enough, at least for the price. Fellow blogger Rahamiäswrote a good blog on the IPO and criticized the pricing, so I won’t repeat the same things, but the IPO isn’t cheap.

The company is only growing 20% which for a blue chip would be pop-the-dom-perignons-level of achievement, but for a small SaaS startup is actually quite a low number in my opinion. Also, they have started to make a profit, which I also consider a bad as they should still be focusing on investing in growth. Inderes is estimating an 18% discount in the IPO price but their estimates haven’t been quite accurate recently and I'm not believing that number.

But my main reason for staying on the sidelines for the LeadDesk IPO is the sentiment. Looking at Kauppalehti message board, Inderes message board or Sijoitustietomessage board, I see no enthusiasm or buzz for the IPO. That usually doesn’t promise good things to come, I believe the market will open under the IPO price for LeadDesk unfortunately.

MIFID2: What the actual f**k?!

Brandon Cragsley: Facepalm

My jaw dropped a couple days ago when I heard the latest news of the EU directive MIFID2. As part of the MIFID2 directive, brokers within the EU will cease to allow European customers to purchase American and Canadian ETFs and ETNs. What?! What the actual fuck?!

The directive was supposed to:

“strengthen investor protection and improvethe functioning of financial markets making them more efficient, resilient andtransparent.”

Yeah, so it will protect investors by blocking them from making purchases altogether.

The reasoning behind the block is, that as the products don’t have information available in all European languages, investors need to be protected (read: blocked) from such devious products. But the investors who are looking at American or Canadian ETFs probably know enough English to manage with the information provided in English. Thus rendering the block only as a nuisance.

What the regulators are trying to do here is protectionism but they’re only shooting themselves in their own foot; to circumvent the directive's blockage, European investors will need to take their business to a non-European broker. None of this shooting yourself in the foot makes any sense what so ever! 

At least one of my brokers, Nordnet, will impose the blocks in the 3^rd of January. But then again, I don’t trade American or Canadian ETFs there due to the extortionate pricing. I just hope, that my other broker, Lynx, will not impose these blocks as I’m holding a multitude of American and Canadian ETFs (Vanguard, Horizons marijuana ETF, etc.) and intend to buy more.

If you know a trustworthy non-European broker that takes European customers, let me know please!

Gofore about to IPO on First North

Gofore’s IPO closed just minutes ago and I got on board just in time!

Gofore about to IPO on First North

Gofore

Gofore is a rather small IT consultancy of approximately 400 employees from Tampere. Gofore seems to be almost a carbon-copy of another Tampere based IT consultancy, where I actually own a couple of stocks, Vincit.

Just like Vincit, also Gofore has been a success in the “Great place to work” competition. This becomes less of a merit once one realizes that taking part costs money and only a limited number of companies partake. That still doesn’t take anything away from Gofore, or Vincit.

IPO details

New shares 1.6 million

Sold shares 1.8 million

Of which offered to general public 750 000 shares

Minimum 150 shares => 5000 people at minimum would max out the IPO

Sold shares account for about 26% of all shares in the company

Lock-up period 6 months for Gofore itself and 12 months for sellers

Valuation

Market cap after IPO will be 82 million euro

P/E, trailing twelve months, is 18.5

EV/EBITA is 12-14 for the current year (Vincit is at 17, Siili at 12)

Growth

Revenue growth from 2015 to 2016 was about 50%, to 18.6 million euro

Revenue for 2017 is expected to hit 32.5 to 34.5 million euro, which would be +80%

Q1-Q3 2017 revenue was 22.7 million euro, which is up 76% compared to Q1-Q3 2016

Q1-Q3 2017 EBITA was 3.8 million euro, compared to 1.9 million euro Q1-Q3 2016

Q1-Q3 2017 EPS was 0.30 euro, compared to 0.14 euro Q1-Q3 2016

EBITA for 2017 is expected to hit 5.2 to 6.2 million euro, which would be +130%

Sales CAGR from 2012 to 2016 was 49.7%

Profitability

EBIT% 2017 estimate 17%

EBIT% from 2012 to 2016 has been 13.5%

ROI% has been around 50-60%

Major risks (from Evli research)

1) failing to maintain key personnel and attract new skilled professionals, 2) increased competition dampening price level, 3) unsuccessful internationalization to Germany and the UK, 4) Higher personnel costs due to wage inflation and 5) Customer risk; five largest customers account 42% of the sales.

Conclusions

I’m taking part in the IPO because of the current “climate” where the IPO scene is somewhat heated up and in my opinion there are quick profits to be made. I believe the IPO to be overbooked and that price on the open will be a bit over the IPO price. 

As for Gofore, the price seems quite fair, not too bad but not cheap either. The business is not capital intensive and is quite profitable. And having public sector as its biggest customers may be considered as a feat of entrepreneurship. Gofore tells that they will seek to grow faster than the overall market’s, which itself is growing quite fast at 15% to 25%.

Gofore’s current owners are selling their stock but they are not making an exit and will still retain a dominating 56% of all stock in the company. Mutual pension companies Varma and Ilmarinen are the anchor investors, with at least 1.35 million shares combined. 

The company lacks a moat or some other characteristic that would make it special. I mean, sure they have had success as a good employer and all but that doesn’t tend to last. As the company grows, recruiting top talent and providing a close environment becomes increasingly difficult. Therefore, I don’t intend to hold the stock for a long time.