Naturally, I focus on strong stocks, promising investments and interesting trading setups in my articles in the premium section. That’s right, because we’re here to make money, not lose it.
What sometimes gets lost in the positive messages, however, are the messages of what *not* to do, where it’s better to *leave your fingers out*.
Every now and then I remind you of this, so 2015 in -> Lower always goes and only at zero is the end! also in the free area. After that, by the way, Peabody went bankrupt completely, now the stock is back on the stock market as a “zombie” in the new company shell, the old investors still lost everything.
Now it is 2022 time also in the free area again to remind and that I want to make today with 3 shares, which have quite quality, with which however for years the worm is in it and which one should not actually touch for years.
Because the basic problem is that especially supposedly “safe” stocks that start to fall attract a lot of interest from investors who underestimate how long and deep often fundamental structural problems can last and who are under the mistaken belief that everything is always just a dip.
At the level of broad indices or ETFs, this is true; everything is ultimately just a “dip,” and in the long run the stock market rises. But at the level of individual companies, that’s fundamentally wrong, individual companies – no matter how strong and stable they appear – can also slowly disappear whimpering into nirvana. And this happens again and again, the streets of the stock markets are paved with such “investment corpses”.
With the first example, I therefore deliberately use one that I have repeatedly critically discussed in the premium sector in recent years:
Kraft Heinz (KHC)
For it is definitely worth reading again what I explained in 2019 in the premium area to the basic problem of such shares:
Ask currently a private investor interested in the stock market and you will reliably get an argumentation along the line: you always need ketchup, they will come back. And after all, Buffett is in.
Then we still have a 5% dividend and a P/B ratio of 0.72, real “value” and of course the others who don’t see that are idiots. And then you buy, because this is a brilliant opportunity and you are the reborn Benjamin Graham, who can recognize “true values” – in contrast to the majority of the market. By the way, the more “opinionated” the investor is, the more secure this argumentation is.
…. “Papperlapapp Buffett!” is what I say to that! ….
So my point is not to talk up a bust here, my point is to make it clear that we don’t know and are no smarter than the instítutional investors in the market who are still driving KHC’s price down the way they are valuing KHC.
And now let’s look at what’s happened to KHC since 2019 and it’s not much.
On the positive side, this could be slowly bottoming out, but still, as an investor, it’s been losing years, while the indices have gone up massively, the SPX from 2,952 in July 2019 to 4,818 at the max – almost 2,000 points!
And they were losing years *even though* the stock had already fallen massively for two full years before that, since 2017 in fact. Despite this langen period, no real rebound was possible because KHC’s problem was not a dent, but a fundamental problem in the business model.
So what helped them that Buffett was in? Papperlapapp! And what to think of the argument that KHC is “value”? Hogwash!
Because even if KHC was really “value” as of today, they could have doubled their portfolio with attractive investments between 2017 and 2022, instead of halving it with KHC, just because they tell themselves that they will come back someday.
What is “come back” even worth? Investors who argue like this are simply understating the massive collateral losses of *not* having been in better investments, coming back to 2017 levels just isn’t enough and doesn’t justify anything in hindsight when markets double and triple in that time!
And how to avoid such traps as KHC? Not with “opinion”, opinionated investors are self-absorbed beginners, because opinion does not count in the market. Nor with “value romanticism”, that doesn’t help either.
What helps are a few hard basic rules of trends and market technique. I don’t want to analyze the top formation at KHC in depth now, I just want to show one central point among many, where everyone with sense *had* to see that one better becomes cautious here. And that was the crash into swelling volume after a failed rebound in 2018, see the purple arrow above.
But now to a similar, albeit less extreme, case. Henkel also reached its high in 2017 after a long rally, a year after Kasper Rorsted stepped down as CEO and moved to Adidas.
Now, one can argue fundamentally for a long time and can wonder if Rorsted was so “irreplaceable” or had just hollowed out and squeezed the company – a bit of both probably.
You can also talk about -> “visionary” Bagel-Trah, who I’ve always viewed with a fair amount of skepticism, having been passed around as a “role model” for female entrepreneurs by virtually every glossy magazine. That was and is far too much advance praise for someone who has a lot to learn first and presumably came to the position of head of the Supervisory Board through family ties. And for me personally, she also brought with her too much “sustainability romanticism” for me as an investor to put my money on it.
One can talk about many things at Henkel, about the fact that the company has perhaps lost its “bite” and what that has to do with the people. And about a bigger problem in the corporate strategy.
All of this is interesting but not compelling because we have an incorruptible judge who told us that 2017 and 2018 at the latest broke an upward trend that had existed since 2011.
And since then there has been nothing to get at Henkel, every now and then opportunities came up, like when the next CEO change came in 2019, but in the end it all came to nothing and Henkel has actually been “dead money” in the portfolio for 5 years now.
With this example, I simply want to show how long it can take when a company is really in trouble.
Nevertheless, you can always bet on countermovements with a toe in the water, if the charts indicate this.But you have to know what you’re doing, the share price has something to prove to you and if it can’t, you’re out again.
And that’s the key point, it’s rarely worth spending your energy and capital on such stocks waiting for a turnaround. In the time it would have taken to earn a *multiple* in Microsoft (MSFT), Thermo Fisher Scientific (TMO) and Deere (DE) shown below, especially as an investor. Such stocks as Henkel are “Dead Money” until they can seriously prove otherwise and a new uptrend is established. And that can then be clearly seen.
Which brings us to the third example, actually a strong stock in the “consistent growth” category and something I’ve had in my investment portfolio for a long time myself, unlike KHC and HEN.
However, MMM also has structural problems that started in early 2018 and again, it now takes years and in the end the stock has not really gotten back on its feet since then, the uptrend remains broken.
MMM is certainly not a bad stock today either, but again the question is allowed, why should one do that to oneself in the depot, just because one thinks that yes, the stock will come back at some point?
We haven’t seen any real “cucumbers” here, but three actually high-quality stocks that haven’t really gotten going for years after long rises.
Unlike examples like 2015 Peabody, these are not “it’s not over until zero” candidates, and it may well be that the stocks will eventually re-establish a 10-year uptrend. Right now, KHC may even be developing such an opportunity.
The point is that the problem was well seen in the prices and there was no reason to tie up one’s capital and time in such stocks.
The comparison made instinctively by investors to the old highs in the sense of “they will come back” is completely misleading, because it undercuts what one’s own portfolio would have done with strong stocks in the uptrend.
And that is what I want to visualize for you now. I contrast KHC, HEN and MMM with the three investment stocks of MSFT, TMO and DE. HEN has the problem of the wrong currency, I have solved this with an OTC rate from the US:
Really take a look at the comparison chart. Six stocks that all have quality, no real “cucumber” among them. But three are in uptrends since 2017 and three are not. It’s that simple!
You could have written “books” of fundamental considerations on this and still probably ended up falling into the trap of giving MSFT, TMO and DE too little credit and KHC, HEN and MMM too much.
But the difference in portfolios over 5 years is brutal, downright life-changing when you look at the fact that the better three have tripled on average, while the worse three have lost perhaps 40% on average.
The fact that the worse three will eventually “come back” and regain their 2017 levels is beside the point. It doesn’t change what one missed, because who is stopping them from buying the three stocks again now, if they start to run again now?
They will come back? Fiddle-dee-dee!
And there was an incorruptible judge who always told us that: The market with its sp
iel on the square, with its trends.
So let’s buy strength consistently, because strength gives birth to new strength….
If KHC, HEN and MMM show real strength again and establish new uptrends, they can become interesting for us again. If->Then!
Your Michael Schulte (Hari)
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