undervalued-shares.com

Why I write

Deep down beneath Monte-Carlo's famed Hotel de Paris, in caves hewn from the rocks of the Alps' southernmost tip, lies the world's most magnificent wine cellar.

The narrow, labyrinthine catacombs are home to 300,000 bottles of some of the finest wines on earth. Name any vintage - such as the rare 1945 Château Lafite - and chances are the Chef Sommelier will still find enough bottles stacked up to supply a lavish dinner. Bought decades ago for the equivalent of pennies in today's money, more than just a few of these bottles would fetch in excess of EUR 20,000 when served in the hotel's ballroom restaurant.

A treasure, by any means, yet one that had laid undiscovered for decades when viewed from an investment perspective.

Owned by a listed company, this is an asset that conventional analysts had not paid any attention to. The owner, Monaco's famed Société de Bains de Mére et du Cércle d'Etrangers, has been listed on the Paris stock exchange for more than a century. As owner of the casino monopoly in Monte-Carlo, this company literally has a license to print money. For as everyone knows, it's the casino that always wins. However, the combined research resources of investment banks, brokers and media houses alike, had failed to take notice of one of Europe's most undervalued, highest quality companies.

As the biggest owner of trophy real estate in Monaco, this company's shares were trading at just 20% of their net asset value. With debt-free properties in a location where vacancy never rises above 1%, this was a share with limited downside, but tremendous upside.

No one spotted it, except a free investment website run by a German-born freelance journalist.

Being ahead of the curve

The dimly lit wine cellar of Monaco's Hôtel de Paris is not the kind of place where one would usually expect to hear about lucrative investments. Yet, on 22 September 2005, it was there that a group of 30 investors gathered to exchange ideas about where to invest their money.

Some 18 months earlier, these investors had bought into shares of the very Monegasque company that owns and operates the better part of the world's best known billionaires' refuge. They did so at a huge discount to the underlying property value, at a time when there was already a catalyst for change on the horizon - an event that would lead to a revaluation of the
shares.

Finding value is one thing, but discovering the event that leads to the gap between the lower share price and the higher asset value being closed, is
an entirely different class of investment research. It's the strategy that 'event-driven' hedge funds pursue. Without such an event, an undervalued share might stay in the basement for a long time, leaving its investors stuck in a value trap.

One and a half years later, members of this group of investors had harvested up to 200% profit on an investment that was as low in risk as you'd expect a debt free, AAA property to be. It was an investment coup worth celebrating. So where better to meet than in the Hotel de Paris, part-owned by these very investors through their share holdings. This hotel is also one that is part of the listed company's portfolio.

One and a half years earlier this group had been the first to read in detail about the coming changes to Monaco's economy. A 95 page report had outlined how this tiny country's government aimed to expand its landmass towards the sea. The core claim of this report, ridiculed by various media outfits as an Internet con, was subsequently confirmed when in December 2005 the Principality's government announced the launch of a tender for just such a construction project.

Except for that free website run by the German-born freelance journalist, no one else had reported on this in advance. And the participants of the wine cellar tour and dinner at the Hotel de Paris had come, specifically, to hear about this author's next investment idea. Once again, he was to present an idea that so far no one else had ever reported about.

As a matter of fact, at this time not a single sentence had been written about this company's new perspectives. People present at this dinner had a true first-mover advantage.

And as everyone knows, getting into the game first is one of the keys to successful investing.

A very special niche of finance publishing

Publishing investment advice is an thankless business. It's a claim that I make on the back of having written for over 30 investment publications in 6 countries - the US, the UK, Switzerland, Germany, Austria, and South Africa. After 15 years of investment writing, I believe that I have something to say on the subject.

I have written for more investment newsletters than almost any other journalist in the business. My last investment newsletter was published simultaneously in the US, the UK and Germany - the world's three largest markets for such products.

When I passed the product on to a new group of writers, it took three authors to replace me. Did I mention that I write extremely fast?

I even own a collection of historic pieces from the investment newsletter business. Would you have known that the Wall Street Journal once started as what some would deem a 'tip sheet'? Yet it was just that, when in 1883 today's most venerable financial newspaper was published for the first time. Delivered by runners to offices around New York's banking district, the two page 'Customer Afternoon Letter' perfectly fitted the profile of an investment newsletter. It took a full six years of life as a newsletter before it was converted into a newspaper.

I find the newsletter business fascinating, as it provides a perspective quite unlike that of reading the mainstream press. Investment newsletters don't live off advertising, and have instead to make a living solely out of original thinking.

As you see, I have lived and breathed the investment newsletter for the better part of my life.

Yet in April 2005, I quit.

The pros and cons of investment newsletters

I am going to sound a bit cynical now. And granted, maybe I am going to do some people in the business injustice with what I am going to write in the next few paragraphs. But there is a point to be made, one that has bothered me for years and which I now simply need to get off my chest.

In somewhat simplified terms, try selling subscriptions for an investment newsletter, and you'll get to learn that it's not the giving of the best possible advice that earns you the most money, but dishing out pro-cyclical messages on stocks that have already risen.

The old adage of 'buy low and sell high' seems such a simple concept to follow. Yet, 99% of investors simply can't cope with going against the crowd. It is for that reason that investment newsletters sell best when peddling messages that the majority of investors already believe in. Most people simply like to get their existing opinion confirmed.

Guess which kind of investment newsletter had the highest subscription numbers in March 2000? Internet share newsletters, of course. Which ones had the lowest? Value investment newsletters. During the ensuing years, Internet stocks fared worst and value investments fared best. Whilst this judgement does not do every single newsletter justice (there are indeed exceptions to the rule), when having to generalize I'd say that those that dish up pro-cyclical advice, sell the most subscriptions. Those going against conventional wisdom, sell the fewest.

This has been the most frustrating part of my business, ever since I first started it. Because I came into this business, after all, to give readers the most anti-cyclical advice that I could.

Blowing into the same trumpet as everyone else is not the kind of reporting that I enjoy doing so much. My goal is to be in the kind of place that others don't look at, haven't heard of, or don't dare to tread into. And if my 15+ years of experience are anything to go by, it is there that you find the best investment deals - off the beaten path, where you are the only, or one of just a few buyers. However, that's not what sells the most subscriptions.

The stock that no one wanted to write about

To give you a graphic example, one of the bigger coups of my investment career, was buying into the Iraqi oil industry just ahead of a major war.

Back in January 2002, I tried to find a publisher for a story on a tiny company's plans for producing oil in Iraq once the planned war had come to an end. In the weeks leading up to Gulf War II, no one seemed interested in - or dared to? write about the world's only listed play on the Iraqi oil sector. It was too unconventional a share, and it simply didn't fit into the profile of what the majority of investors wanted to read about.

In the end, I gave the story away for free, to a niche publisher in the Canary Islands, who subsequently used it in a report that was sent out to just one or two hundred subscribers. There wasn't a commercial market for this kind of advice. But at least I got it printed.

The share traded at 3 pence at that time.

Just 18 months later, it was trading at 150 pence.

What I am getting up to nowadays

A publisher did eventually want to print my story, but only after the share price had already risen a staggering 700% from the price that I had originally discovered it at. It's the old adage proving true once more: people like to buy what has already risen, in the hope of the price rising even further. Whilst the price did rise further in this particular example (making readers another several hundred percent), all too often it's a costly mistake to partake in this game of 'pass the bucket'.

Struggling with publishers about what to publish - and what not to - isn't my business anymore. I have left this business for good. There will never be another subscription based investment newsletter written by me. Ever.

Though this doesn't altogether mean that I won't write at all anymore.

Today, I write several columns. None of them carry any kind of buy recommendations. I report on markets in general, about players in the field of shareholder activism and about interesting oddities of the market. One such column is published in Germany's largest stock market magazine Der Aktionaer, another one in what I consider to be Britain's best finance weekly, MoneyWeek.

And when I do get the time, I will be releasing a new book. My first two books came out in German in 2006/2007. Think travelogue with an investment angle. I hope that I will soon find the time to finally write a book for my English language audience

Besides that, I simply enjoy staying in touch with contacts old and new. Playing the market myself - and doing so to a considerable degree - I very much value the information passed onto me by my worldwide network of contacts. Running a website like this is a great way for me, too, to procure new information from all ends of the globe.

A vast, growing and valuable network

After having spent half my life in this profession, I know more people than I can possible keep in touch with. Sometimes I have wanted to pass on an important investment idea to a particular contact, but simply didn't get around to doing it because my email inbox is clogged by about 100 emails per day. I often can't even keep up with answering emails, let alone write new ones. Some of my friends wonder why they never hear from me. Others actually complain about it.

Publishing an online investment diary - Undervalued-Shares.com - is my way of keeping in touch with everyone. It's not a website that I push forward in any commercial sense. Those who fancy exchanging ideas with me can check what I am up to, where I have been and what I have invested my own money into. Over and above that, I am not even going to make any effort whatsoever to run advertising for it. The odd new person is bound to stumble across the site by accident, or after having been referred to it by a mutual friend. Sometimes, this will lead to a new person entering my circle of contacts. Therefore, why should I bother with passwords?

When you read anything on this webpage, there is one important point you must never let slip from your mind. Everything you read on this webpage is guaranteed to be biased. It's about investments that I personally own, or at least observe (with a view to eventually buying into, when the time is right).

Many publishing companies actually forbid their journalists to take an interest in the companies that they write about. I, on the other hand, always felt that those who write about investments should put their money where their mouth is.

Research on the ground - right where it happens

There basically are two ways of writing about investments. You can stay in your proverbial ivory tower, and simply reproduce the marketing gargle presented on companies' investor-relations websites (and believe me, PR people try to stuff a lot of bull**** down a journalist's throat). Or you can go out into the field, binoculars and shotgun in hand, and hunt for the fattest profits in those fields where you've got the game to yourself.

It's the latter that I prefer to do.

In July 2005, I paid a visit to a shareholders meeting that lead to the crucial clues for my presentation in Monaco. Just two outside shareholders attended this Annual General Meeting; a local retiree and me. I was literally able to interview the management on a one-by-one basis, harvesting valuable information that had not been published anywhere else.

I cannot know whether that one other outside shareholder might have told his mates in the pub about what he heard. But in any case, I was the only one to subsequently write about this story - or to be more precise, to write about it months before the mainstream media caught wind of it.

Had I not been allowed to own shares in this company, I would not have been able to attend the AGM (nor, frankly, could I have been bothered with venturing out on what was a rather unpleasant rainy day). Without share ownership, you aren't allowed into an AGM. I went the extra mile - quite literally, given the remote location of the AGM in a village near Cambridge - because I had a personal interest. As a consequence, I picked up information right from the people that knew the most about the matter. It also helped that I owned enough shares to be taken seriously by the management, rather than to turn up with just one single share used as a token entry ticket.

As you can see, rather like a salmon, I had worked my way upstream to the very source of it.

Had I not done so, the presentation in Monaco would have never happened. My friends who were at the dinner would not have made money off this story either. So here is the value of reading the reports of someone who takes an active interest in companies, laid out for you, who goes to great lengths to find underreported information, and who simply refuses to do as everyone else does.

Personally, I'd actually pay money to read reports from people who own shares in the companies that they write about.

A small, but all the more fun group to work with

The share I talked about in Monaco, subsequently rose 94% during the following five months. It's even bound to rise further, and my take is, that we didn't even have to take much of a risk to achieve these gains.

Futhermore, this was another share that at that time, I couldn't have featured in a commercial investment newsletter, because it didn't fit the criteria of your average commercial publisher.

And before you ask, after the dinner in Monaco the shares actually fell for two weeks straight. That was my strategy of keeping the number of people who are in the know, to a relatively low level. That way, everyone had an opportunity to get in without having to chase a rising price (something that, may I mention, no smart investor should ever do - it's always better to wait for the price to come back, as it does in 90% of all cases). After my recommendation the share gradually fell a bit lower, with enough shares changing hands to serve everyone who wanted to buy.

With a large commercial publication, that wouldn't have been possible. Instead, because of the limited number of people at the dinner, everyone had enough time to buy into the share before it eventually started to rise again, and before it surpassed its previous record-high. Besides, a dinner in an intimate atmosphere is much more worthwhile than speaking to hundreds of people at a conference that is marketed to the masses. And trust me on this, as part of my career has also involved speaking at a conference that claims to be the world's largest investors' conference.

Those of my contacts who followed my trail and invested into the same company that I had put money into, made money on it without exception. And that's where the entire plot gets really interesting for me. Because if you are in the midst of a successful network of like-minded investors, you'll quickly find that interesting information is fed back to you.

Some of the attendees of that dinner have in the meantime sent me their ideas in return, and these have made me quite a few bucks. There are 50,000 listed securities out there, and it's impossible to keep a tap on all of them. That's why I like the idea, of having an ever-increasing network of contacts that feed back information to me. The more such feedback I get, the stronger and the more valuable the network.

It is for this reason that I have now set up this website.

Your invaluable feedback

On Undervalued-Shares.com, I can focus on feeding information to my personal contacts - information that I believe is valuable to them. It's entirely up to them what they do with it. None of the information on this website is to be seen as an actual investment recommendation. As a matter of fact, as I am not a regulated investment advisor I wouldn't even be allowed to give you any specific investment advice.

If you need information that helps you to plan your pension, go and see a regulated financial planner. If you only trust people who go to an office every morning, with suit and tie, then you also need to look elsewhere. This stuff here, is for people who are looking for shares that go up in value, and who want stories that are researched in swamps rather than glass towers. None of the content of this page is conventional investment advice.

What you find on this website, are personal observations, often given together with web sources and information about accompanying literature. All of it is written by someone who wearing rose-tinted spectacles when it comes to the shares being written about on this webpage, as I myself own these shares in my portfolio at the time of first writing about them (well, in most cases anyway).

Use the information as inspiration for your own research - in which case you might want to pay particular attention to the weekly International Chart of the Week; which picks one interesting-looking chart every week. Or, as quite a few people do, just read it for your amusement. Word on the street has it that my reports are entertaining to read and offer refreshingly original information.

If you do want to invest into any of the shares that I have an interest in, then do your own research first. Whilst I make every effort to use reliable sources for my reporting, I cannot guarantee for the accuracy of it all. Besides, just like every other investor I occasionally make mistakes too, and buy shares that subsequently go down in value. So if you buy what I buy, you might end up paying dearly for it. Caveat emptor.

The only thing I can guarantee, is that there aren't any marketing people anymore telling me what kind of recommendations sell, and which don't. I control the entire process behind this website - from beginning to end. I can simply do what I do best; researching weird and wonderful investment ideas.

Why you'll only hear from me occasionally

On this website, you'll never get to read more than 8 or 10 major stories a year. I am a big believer of putting all my eggs into one basket, and then watching the basket. My personal portfolio looks like a risk controllers worst nightmare, with me taking huge positions in what are often thinly traded shares.

E.g., I own a 12.5% stake in a German asset manager, PEH Wertpapier, where it'd be all but impossible to sell more than a fraction of my position. If I started selling off this position, the share price would tank. I am stuck with this share, it's utterly unsellable. As my personal banker once remarked, I am 'immobilized'. That, however, has the upside of me not getting my long-term vision blurred by the odd quarterly report not living up to expectations. Holding large stakes - and at times, disclosing them publicly when a threshold is surpassed - is something that in the future I will do ever more often. It's part of my strategy to place large bets on small companies.

Personally, I have yet to find anyone who has made lots of money on the back of 'diversification'. I feel that this is one of those neat but much overrated academic inventions that the financial establishment uses to sell their products. It works for some, depending on their circumstances. An 83-year-old granny shouldn't put her nest egg into a one single share. But if you want to strike it rich, you need to place big bets. Ask George Soros, or any other one of the mega money managers. None of them got to where they are by splitting their portfolio into 200 different shares.

Hence, this will sometimes for weeks-on-end be a static website. Not least because I might be somewhere in the jungle of Ecuador, looking for the next over-looked story. I manage to get my laptop online just about anywhere, but there are limits. Occasionally, my research takes me underground, or even under water. That's where WiFi internet access comes to an end.

When you don't hear from me, I am researching. My travels take me once or twice around the entire globe every year. And it is during this time that I sift through my contacts emails and pursue those ideas that I deem to have true investment potential. Thinking outside the box is what, in my experience, leads to the biggest investment gains. If you are stuck in an office trying to produce weekly updates for a paid-for, subscription based investment newsletter, you end up missing out on too many big targets.

Hence, if you are enough of a lunatic to invest where I invest, you will subsequently be out there on your own. My writing typically provides the initial leads for a story, but I never comment on quarterly reports or other day-to-day developments. As I said, this is not a trader service in the classical sense. Undervalued-Shares.com generates ideas for those who use it (me included), but it does not issue buy or sell recommendations.

As a matter of fact, you might want to try selling short every company that I publish a story about. Maybe the market turns against me and you end up making money. Feel free to use me as a contrarian indicator.

Believe it or not, I love exposing myself to scrutiny of people. Like any good investor, I like to understand the bear cases on companies that I am bullish on. My online investment diary Undervalued-Shares.com lets me do that: invariably when I post a positive piece on a company, I'll get a few (and sometimes a flood) of e-mails from investors who have a different view. Those emails are equally invaluable to me, since they can highlight negative facts or arguments I may have overlooked in appraising a company.

So if the spirit so moves you, send me an email! You can get hold of me on swen@undervalued-shares.com.

If nothing else, I hope you find some of the information on this website at least entertaining. Hopefully you'll even find it worthwhile.

Kind regards


Swen Lorenz

P.S.: Don't forget to check out the section about the events and tours I organize, such as investors meetings at one of London's most exclusive membership clubs and VIP tours of the fabled Galapagos Islands. These events help to raise money for charity and are usually booked out well in advance. Register early if you are interested!