Winter is Coming

Incredible. The coronavirus has already been among us for almost a full year. Research shows that the virus may have originated in China as early as November 2019. In January and February 2020 cases spread across the world, most notably in Italy, where the first lockdowns occurred following the successful approach in China. Other countries quickly followed suit. The world changed completely in a matter of months.

Stock markets crashed in February and March, but soon recovered following a sharp decrease of the Federal Funds Rate, increased government support and investment banks presenting their expectations of a ‘v-shaped recovery’. Even though many sectors still lag behind, the technology sector led the stock market to new all-time highs.

New infection cases dropped during the summer, lockdowns were eased and the economy started to recover. However, right now the coronavirus is making a comeback across the world. With earnings season and a lot of uncertainty still ahead, I decided to take a hard look at the current market sentiment. Is it actually the start of a new bull market or is winter coming to the stock market at last?




  • Markets have recovered soon after the crash induced by the coronavirus pandemic. This is likely because external factors make the stock market a uniquely favorable place to invest in right now. These factors are in my opinion mainly the low Federal Funds Rate and low Corporate Income Tax
  • However, with increasing multilateral tensions and increasing coronavirus infection cases, the turmoil in the markets may not be over. Especially since the market is still trading at all-time highs
  • The threats I see in the market right now are (i) sustained high volatility and (ii) a possible long-term negative real interest rate
  • The sustained high volatility may be a result of long-term uncertainty in the markets caused by the coronavirus, the international status of the United States and multilateral tensions (trade wars and Brexit), while the Federal Reserve cannot decrease interest rates much further to put the markets at ease
  • The long-term negative real interest rate may be a result of a long-term low Federal Funds Rate and a possible deterioration of the international status of the United States, including the US Dollar

Nay-Sayers and Permabears

One thing should be clear from the start: I am neither a nay-sayer nor a permabear. I am a rationalist. A neutral view, in my opinion, helps you survive in a market where everyone is jumping on top of each other to get the best returns. Sometimes it is just better to leave the party a little early to prevent a major hangover.  

That is also why this post does not include all metrics potentially pointing to an overvalued market (overvalued markets are also not my point of concern here). For example, many people refer to the total market capitalization to GNP (or GDP) ratio. This is a popular metric also known as the Buffett indicator. This ratio increased to a new all-time high recently.

However, I don’t think it is a suitable metric because, unlike in the past, an increasing amount of profits (value) from companies based in the United States is generated abroad. When looking at the GDP of the United States and a stock market with value generated globally you automatically get a skewed result. Therefore, I will gladly skip these types of metrics.

The metrics I do want to look at are the Federal Funds Rate, the Corporate Income Tax, the VIX and the United States’ credit rating. I also want to look at four scenarios that I see relating to the second wave of the coronavirus. Then, I will show what steps I am taking with my portfolio to prepare for the future developments I currently expect. 

Federal Funds Rate

The Federal Funds Rate is hovering between 0.5% and 1.0%. This makes stocks attractive because, with inflation above 1.0%, investing in US Treasuries will lose instead of make you money. Most stocks still offer a higher yield based on their results over the past few years, which is the main upward driver of stock prices.

The closer the interest rates go to 0%, the more exponential the effect is going to be on the value of stocks, as can be seen in the illustrative ‘perpetuity curve’ above. As interest rates cannot go lower (yes, they can go negative) this would mean that every upward change in the Federal Funds Rate will logically have a similarly increasing deflationary effect on stock prices.

The Equity Risk Premium

Aswath Damodaran showed that the equity risk premium increased in April, which implied that (at least on a relative return basis and looking at trailing twelve months earnings) stocks were still correctly valued. However, as profits have decreased while stock prices increased, the equity risk premium seems to have fallen back again over the past few months (possibly even to pre-corona levels).

The further stock prices rise (assuming constant earnings), the lower the expected returns are going to be. This implies that the risk in the market has decreased lately. This can be supported by the lower Federal Funds Rate, because lower interest rates decrease default risk. The economic recovery during the summer also supports this movement.

The Empty Toolbox?

Yet, if risks in the markets were to increase again (due to, for example, a second coronavirus wave or other external influence) investors may want to require a larger return in the equity markets again. This future increase in the perception of risk may pull stock prices down again. Investors will then look for alternative assets to put their money in, or cash (or even gold or cryptocurrencies) for ultimate safety.

Given the trajectory of the Federal Funds Rate after the Great Financial Crisis, it is reasonable to assume that interest rates will stay near 0% for quite some time. With an increased inflation target, negative real interest rates may become a long-term threat. As I wrote in my piece on gold, this may be a bullish argument for gold. However, as deflation is also a risk with a shrinking economy there are also still risks associated with holding this precious metal. In my opinion, inflation is much more likely than deflation in the long-term.

At some point the risk/reward relationship becomes unsustainable and investors will try to find yield (or safety) elsewhere, while the Federal Reserve cannot decrease interest rates much further than the current levels. That scenario may lead to large market turmoil and especially high volatility, which the Federal Reserve may not be able to tone down this time. This brings us to the VIX.

The VIX (Volatility Index)

When stocks are no longer an attractive option in terms of risk/reward, investors will even leave the stock market. In my opinion this drives the volatility we have seen over the past months. As if there is an angel and a devil on Mr. Market’s shoulders, the market wants to go up very badly when it goes down, but when it is up it is very keen to take a break again. Investors need to be in the stock market, even when they sometimes do not want to.

This sustained volatility can be seen in the VIX, a volatility index invented and maintained by the CBOE. Over the past decade, the VIX has been low because markets have been in a relatively calm bull market. In times of crises and rising uncertainty, investors are not sure what direction the markets will eventually move into on the mid- to long-term, driving the VIX upwards.

Currently, the uncertainty seems to persist as much as it did during the Great Financial Crisis, with the best medicine for the really huge spikes being the drop of the Federal Funds Rate to near 0% (compare the image above with the image below for the clear correlation between the two).

Afraid of Heights?

The big difference between the Great Financial Crisis back then and the coronavirus right now is that the current crisis is still ongoing and markets are still near all-time highs, while during the Great Financial Crisis this was (time-wise) about the moment where markets bottomed and started to recover. Without the remedy to further drop interest rates, the Federal Reserve may have pushed itself in a narrow and tight corner.

Next to the fact that volatility has not been this high with markets near all time highs for so long, it is also remarkable to see how fast the stock market recovered, and how high the actual bottom of the market has been.

When strictly looking at the S&P 500, the crashes of 2000 and 2008 needed about 6 years each to fully recover to their all-time high price levels (remember the 2007 high was above the 2008 starting point in the charts shown here), while the current crash only needed a few months. Additionally, the crashes back then had similar lows between 500 and 1,000 points. The current crash did not go below 2,000 points.

With the VIX still up high, we may not have seen the last spike in volatility during this crisis. When that happens, we need to hold tight because the Federal Reserve will not be able to calm the markets at that point – aside from really large and heavy asset purchases. My expectation is that such a downward move would turn the markets into a storming sea where only the true pirates (read: traders) are able to thrive.

Corporate Income Tax

The corporate income tax rate in the United States is currently 21% flat after the drop from 35% in 2018. This is the lowest corporate income tax rate for the United States since the 1940’s. Let’s consider an example with easy numbers to see the effect this has on profits and stock valuations.

Imagine a stock is trading at a 10x P/E. The earnings before tax (EBT) are $100 Million. With a 35% flat tax rate, the stock is valued at $650 Million. The corporate income tax rate drops to 21% resulting in an increase in the value of the stock of 21.5% to $790 Million. While this tax decrease may increase the value of the stock market in good times, the downside of a stock is still $0 since companies that make no profits or go bankrupt cannot be taxed (and taxes therefore do not matter for the ultimate downside). Hence, the downside risk (and thus volatility) increases with lower tax rates.

Global Operations, Lower Taxes

Globalization and the internet enabled companies to do business across the globe and to simultaneously export their tax money to more favorable tax nations. As a result, while the corporate income tax rate in the United States is 21%, effective tax rates of companies in the S&P 500 are often much lower.

The OECD warned that there is no deal in sight on a digital services tax. When this tax does not arrive, countries will tax digital companies on their own initiative. This can lead to further trade tensions, especially between the EU and the United States. The technology stocks that lead the stock markets to the new all-time highs may be caught in the crossfire.

Other multilateral tensions can also have a large negative impact on the business environment. On the one hand there is a hard Brexit coming up at the end of this year. On the other hand there is the trade war between China and the United States. With the shift to renewable energy being accelerated, it would be more devastating to have some of the OPEC countries added to the mix as well. Hopefully, it will not come that far.

Are Low Taxes Sustainable with High Debts?

If multilateral tensions were not enough to put the low tax environment, enabled by a global network of operations, at risk there is another elephant in the room: the government debt of the United States. An increase in the corporate income tax rate may become inevitable with the government debt to GDP ratio almost as high as in the post-war era, especially when powerful external factors force the United States to do so.

Just imagine the world where the United States loses its power and needs to recover its debts by increasing tax income. The United States will only grow angrier at foreign nations when they are taking some pieces of the large profit pie of the Silicon Valley technology darlings.

Negative Outlook for the United States and the US Dollar

While many respectable government bonds in the Western World are rated AAA by the rating agencies (the highest rating possible), the United States saw its AAA reputation crumble over the past decade.

Standard & Poor’s already lowered the rating of the United States back in 2011 and has never put it back to AAA since (ironically, the cause to do this back then were budget deficits). Fitch changed its outlook for the United States from neutral to negative as recent as July 2020. In my opinion it is a significant signal that even the rating agencies start to put the powerful United States on a lower pedestal. What I know for sure is that disputed elections and civil unrest will not do the credit rating any good.

This is especially a large problem for a country like the United States, which has been able to operate in a very privileged position in the global economy for almost a century. Where other countries need to keep their budget deficits limited, the United States has always been able to simply print more of their own reserve currency. When this luxury disappears, the global financial system will be shaken at its core.

No Alternative, No Worries?

This will not happen soon though, as there currently is no viable alternative to the US Dollar. Other countries would need to become inventive to use Gold, Bitcoin, or their own trust systems and currencies to find a better alternative, while pulling the United States down to their own level in the process. This may be a case of mutually assured destruction, where countries may decide to keep things the way they are.

Whoever may win the upcoming elections (Biden or Trump), each of them will have a hard decision to make. The United States can either cut back on stimulus and increase taxes to improve its financial position while risking the economy in the short-term, or it can continue on its current path (without improving multilateral relationships) while risking its privileged leadership role in the global economic system.

Coronavirus Scenarios

The coronavirus is ever increasing its presence in the Western World, mainly due to increased testing capacity. While the vaccine trials turn out to be less successful than anticipated and research for treatments is also paused, the spread may only accelerate during the winter, while decreasing the public’s morale. Remember that in March and April, we were entering spring (at least in the northern hemisphere). Right now, we are early into winter with the headwinds only becoming fiercer.

In my opinion we can plot the future impact of the coronavirus in four quadrants, based on the actual impact of the virus on the public’s health (which is still questioned by many) and the measures imposed by governments. This results in four scenarios.

Scenario 1: High impact on health and no measures

When governments do not impose strict measures and the impact of the coronavirus in the winter turns out to be high, this will result in a public health disaster. The outcome for the stock market and business environment will be negative long-term, with possibly a positive impact on the short-term. Given the statistics, I think it is safe to say that the coronavirus more likely has a high than a low impact on public health (of course still with a lot of unknowns). In my opinion, the United States is especially vulnerable when Trump wins the election, as he will likely opt for as little measures as possible.

Scenario 2: Low impact on health and no measures

When governments do not impose strict measures and the impact of the coronavirus in the winter turns out to be minimal or fading, business can continue as usual and both the short-term and long-term implications are positive. However, on a global scale I do not think this outcome is very likely. If Trump wins the elections, this gamble may have an unexpected favorable outcome for the stock market and the global economy.

Scenario 3: High impact on health and severe measures

When governments do impose severe measures and the impact of the coronavirus in the winter turns out to be high, this will be a severe blow to the economy both short-term and long-term as the public will fully focus on fighting the virus again. This scenario can possibly be a domino push to the other factors mentioned in this post. I think this outcome is most likely when Biden wins the elections, as he likely wants to show what he is capable of in fighting the virus from the start.

Scenario 4: Low impact on health and severe measures

When governments do impose severe measures and the impact of the coronavirus in the winter turns out to be low, this will be a public farce as the measures would be unnecessary. As mentioned before, I do not think this is likely. However, it is still a possible outcome to consider. In my opinion this scenario will also have a negative impact on the economy both short-term and long-term.

In short, I do not see a way in which a resurgence of the coronavirus will have a positive impact on the economy and the stock market. If the cases and death rates pick up severely and the election in the United States becomes heated, the stock market may become a scary place.

Portfolio Implications

You probably have been waiting for the actions I am taking with my investments. Well, here they are. It is mainly a matter of allocation, as I am not planning to walk away from the stock market altogether right now. At the moment, I am preparing my portfolio for different scenarios and I will gradually take steps depending on how the world around us develops. The trends I am preparing for are negative real rates on the one hand and high market volatility on the other.

Sell Stocks: Suez ($SEV.PA) and Veolia ($VIE.PA)

First, I got rid of cyclical stocks that were, in my opinion, not trading at a discount. I think Veolia is quite fairly priced right now, while I see some negative developments ahead. Veolia did quite a high bid on a minority stake in Suez, for which it needs to only further increase its debt. Suez sees this as a hostile takeover, so it will take Veolia quite some effort to complete this. As a result of this move Suez shares appreciated in value by over 50%, putting the valuation at a level I did not expect this soon. Given the downside risk, the market developments and the upcoming fights with Veolia (and possibly market authorities) I chose to take the profits on these stocks and leave them on the watchlist for later.

Stop Loss (Overweight) Stocks: HelloFresh ($HFG.DE), Nano-X ($NNOX), Boskalis Westminster ($BOKA.AS), EBARA ($EAR.F), Signify ($LIGHT.AS)

Some stocks had quite a run. Their positions became a little too large for my portfolio. Therefore, I decided to put a stop loss on a part of my holdings in these stocks. The rest I intend to hold long-term. I already sold 40% of my holdings in EBARA and put a stop loss on 30% to 40% of my positions in Boskalis Westminster and Signify. I put stop losses on two price points on all my holdings of HelloFresh, simply because if the stock will underperform in the short-term in a stay-at-home economy, I do not see a place for this stock in my portfolio for the long-term. My stop loss on Nano-X is unchanged, as I already had this in place at my initial buying price (this is truly a speculative position).

Hold Stocks: Nikon ($NKN.F), Bell Food Group ($BELL.SW), Publicis Groupe ($PUB.PA)

Nikon, Bell Food Group and Publicis Groupe are on my list for further research to make a final decision on. Long-term I still see a place for these stocks in my portfolio, so right now I intend to keep my holdings unchanged. I do have to admit that I added a little bit to Publicis Groupe after they gave an update on their Q3 performance, which was really to my satisfaction. I also added to my Bell Food Group position at the beginning of the month to build it out into a normal position in my portfolio.

Buy Stocks: Unilever ($UNA.AS), Ahold Delhaize ($AD.AS), Flow Traders ($FLOW.AS)

There are some stocks I currently want to increase my exposure to when they cross a certain price point. I already added to my Flow Traders position to prepare for more volatile times with a part of the proceeds from Suez and Veolia, and I put buy orders out for when the price crosses through some lower limits (I expect the price to possibly decrease after they announce their Q3 earnings). Ahold Delhaize is close to a point where I am really keen to significantly increase my holdings, because they will really be able to benefit from new lock-downs through both their regular positions in the grocery market as well as their online propositions. I expect Unilever to be negatively impacted by lockdowns on the short-term, but that will really only be an opportunity to increase the long-term position I already have.

Asset Allocation

My asset allocation changed slightly as I put the proceeds from the sale of Suez and Veolia equally into Gold and Flow Traders. I intend to increase my cash holdings with my monthly savings going forward so I can benefit from opportunities when they present themselves in a more volatile market environment.


No one can predict the future, but as we are all active managers of some sorts (at least partially) I think we bear the responsibility to limit our downside risk on the short-term to ultimately benefit on the long-term.

I am really curious what you think about the upcoming months and whether you think the steps I am taking are wise. So what do you think: is winter actually coming, or will George R.R. Martin never finish his book?

The Hype Premium and The Fraud Discount: Tesla, Nikola and Nano-X

The stock market has gained a lot of popularity over the past few years, and especially the past few months. The average Joe, in my opinion, does not have the patience to wait five or more years for good stock returns. Many of these investors are only satisfied with the next multi-bagger, with especially the 10-bagger being the most popular. It is clear that we have come to a point where the impatient have arrived at the stock market again, hoping to become rich as fast as possible.  

“The stock market is a device for transferring money from the impatient to the patient”

Warren Buffett

These investors are being lured into stocks with lucrative prospects leading to some interesting price fluctuations. In this post I will use Tesla as an example to explain what I currently call the Hype Premium and the Fraud Discount. Then I will shortly describe what we saw happening recently with Nikola and Nano-X to see what it can teach us about assessing these types of stocks.



The Hype Premium

We live in a world where almost all information is accessible at our fingertips. New technologies emerge that can change the world in the same way as the car and the smartphone have already done. Investors want to get a share in the profits these technologies can generate in the future. A company that was unknown yesterday can suddenly become the hype of today.

Whenever a company presents a new technology to the newly founded investment crowds on social media, one story can quickly lead to another. A company may be picked up by a financial influencer, who announces his ‘bull thesis’ on such an investment. People start talking about the technology, mostly focusing on the potential to disrupt industries and the world. They start to cook up some high level valuation metrics for the company and slap a huge price target on it.

Before you know it, the only way for the stock is to go up, while the fundamentals do not necessarily support the sharply increasing valuation. It is all about the story. The bigger the hype, the further the price increases. The gap between the fundamental value and the price in this case is what I would like to call the Hype Premium.

I do not have the necessary access to data and statistical software to do it, but if an academic would happen to read this: please do some research to see whether the existence of a hype premium can actually be academically proven (for example based on social media mentions of the ticker symbol)

The Problem

My personal problem with such a Hype Premium is that it ignores many of the risks a company faces in its growth path. It often even ignores the entire underlying business model and investments that are necessary to achieve it. What it certainly seems to ignore is the time value of money.

This is why discussions on these stocks can become very heated. People are often personally involved with their own hard-earned money. They see golden mountains, a mortgage free future, or other promises that they see as an absolute certainty. The more often they repeat the story, the less they see failure as a possibility.

When an investment banker or experienced financial analyst points out a flaw in the reasoning of these investors this may ignite a discussion similar to other academics trying to convince:

  • flat earthers that the earth is actually a sphere
  • religious people that humans evolved and were not created by a deity
  • climate sceptics that global warming is caused by human activity

Here is a great example video of a ‘Tesla Bear’ trying to convince ‘Tesla Bull Gali’ that the financials of Tesla are actually flawed.

Before I dive into the examples to make this more concrete, I want you to know that I do not want to pick a side. I think it is beautiful to see people thinking about great future scenarios and that they enable companies to achieve this by devoting their attention and capital to their products. I also think you should always be wise with your investment strategy. I find it very sad when people go all-in on a hype that eventually fails, resulting in huge money losses and personal difficulties. In short, let’s all invest wisely and hope for the best future for humankind.

The Fraud Discount

The other side of the story is that some of the companies of which the valuation is driven up by these crowds can eventually turn out to be less promising than initially thought. This has huge societal costs, because these companies are often directly labeled as frauds and management is often prosecuted (sometimes to a further extent than just for running a questionable business), while the capital of investors is directly destroyed.

The examples I want to focus on are companies that swung between the lows of fraud allegations or bankruptcy threats and the highs of a hype. What I am looking for is a common denominator, or something that can help us to identify frauds and non-frauds in the future. I think this can be beneficial, because a company that was, or can become, a hype stock and is currently thought to be a fraud can be an incredibly lucrative investment opportunity.

Now that the scene has been set, let’s dive in the examples. I want to use the case of Tesla as the starting point through which some recent hype and fraud stocks may be better understood.

Tesla: The Prime Example

Tesla ($TSLA) is by far the most prominent example of a stock that has swung between a fraud discount and a hype premium valuation.  

The Business

Tesla manufactures electric vehicles (EV) in the United States and China, with a factory currently being built in Europe (Berlin). The current models are the Model S, Model 3, Model X, and Model Y. Tesla plans to add a Semi-Truck, a New Roadster, and the Cybertruck to this line-up.

Compared to other car companies, Tesla does not rely on combustion engine cars. Tesla is also the only car company that manages to seamlessly integrate consumer-centric software in the car, and pursues self-driving technology in its own unique fashion. Whereas other car companies use LiDAR technologies, Tesla wants to directly start with a fully computer vision-based system.

Tesla aims to vertically integrate the car manufacturing process. For the self-driving technology it even designed its own chip. This aspiration leads to operational advantages that other car manufacturers don’t have. Recently, Tesla presented a new battery design that would be able to further increase the range and longevity of its vehicles.

Next to the car business, Tesla is also engaged in the (renewable) energy business. It sells energy storage packs and solar (roof) panels. These products aim to bring energy to consumers more efficiently and to reduce grid reliance.  

The Hype

The hype with Tesla is, in my opinion, based on the core assumption that they have unique technologies that cannot, or can only hardly be, beaten by the competition. This can be divided into three key segments: Autonomous Driving, Battery Technology, and Manufacturing.

Autonomous Driving

Tesla uses a unique approach to reach self-driving technology. Competitors use a different approach because current processing power is not yet capable to solely work with computer vision-based data. However, with Elon Musk blatantly calling LiDAR ‘a fool’s errand’, followers of Tesla are convinced that in the near future Tesla is the only company that can offer self-driving technology. The assumption of Tesla being the monopolist of self-driving technology is the core driver of the sky high valuation assumptions.

Battery Technology

The recently presented battery technology improves the electric car to such an extent that Tesla cars will be much better and cheaper than the electric cars of other car manufacturers. This has led to people, including Elon Musk, assuming Tesla could sell 20 million cars by 2030 (as compared to Volkswagen currently selling around 10 million cars per year). This battery technology also leads to the belief that Tesla can grow to become the world leader in the energy market, as this technology may be either licensed to other car manufacturers or other companies working with batteries for other purposes.


Innovation at Tesla goes beyond their products, the software, and battery technology. It is also about the production process. By rethinking old-fashioned car production people expect Tesla to achieve much higher margins on their automotive sales. The recent production improvements related to the battery technology further shows that this can not only improve margins, but can also improve Tesla’s competitive advantage.

Watch this recent video by Tesla Bull Gali (HyperChange) to get a feeling of how these investors look at the company

Tesla is one of the most valuable public companies in the world right now, so there has to be some truth in these hypes. I believe that is what makes it so easy for a company like Tesla to make these positive scenarios outweigh the caveats.

A lot of credible sources support these positive future scenarios. Elon Musk repeatedly supports the notion that Tesla will become the biggest and most dominant self-driving EV and energy company. As a co-founder of PayPal, people see Musk as a very credential source when it comes to building great companies. Cathy Wood, CEO/CIO of Ark Invest, is continuously putting out excessive price targets, which makes people further believe in the future of the company.

The Caveats

There are just as many hype theories as there are caveats. The caveats are mostly driven by a few individuals (called the ‘TSLAQ’ movement), mostly professional investors, that are constantly pushing narratives to show that Tesla is not, or will not become, the company it promises to be. Watch the $TSLAQ Twitter thread for some great entertainment.

Financial Manipulation

Many short-sellers emphasize that Tesla’s underlying business is actually not profitable. They point to accounting tricks such as revenue recognition related to the full self-driving technology, other inconsistencies in the financial reporting (such as warranties, inventories, accounts receivables and other items), and regulatory credits sold to the competition. Tesla short-sellers also like to point out that many executives are leaving the company as a proof point that the company is not as successful as it seems.

The Demand Problem

As Tesla sometimes sells less cars than it produces, gradually loses market share in some geographies, and because sales of the Model S and Model X are declining, short-sellers love to point out that there is no actual sustainable demand for Tesla products. There is some merit to this theory, as Norway and the Netherlands, the markets where Tesla is biggest in Europe, had extensive government incentives for electric cars. Since these incentives decreased, the electric vehicle market in these geographies seems to have shifted away from Tesla and towards cheaper alternatives.

Data from several sources and fact-checked with HyperCharts for 2017-2019

The Vehicle

The short-sellers love to point out all the things that are wrong with the Tesla vehicles. It started early on with movies of exploding Tesla’s in car garages and it is currently focused on production problems, design problems and self-driving technology failures. The truth of the matter is, that these are mostly singular examples, and that except for the design issues no consistent errors have been proven. Also, the production problems with the Model 3 have been fully resolved, and Tesla seems to be ready now to quickly expand production globally.

Elon Musk

The TSLAQ community also loves to point out all the wrong-doings of Tesla CEO Elon Musk. After multiple allegations from the SEC and other questionable public appearances (such as smoking a joint on a podcast) people have continuously questioned whether Musk is a suitable CEO for a public company the size of Tesla.

So far, the Tesla short-sellers have been proven wrong. Most likely that is because most of the issues pointed out have not resulted in a major impact on the overall business of the company. For example, the difference between a $100 million profit or a $100 million loss because of a tax credit will not completely disprove the entire future business model of the company. Other new allegations are very obvious or minor in a way that they start to seem like desperate attempts to still make their initial thesis seem relevant (such as the ‘failed’ presentation of the Cybertruck). Therefore, it is in my opinion unlikely that we will see Tesla trade at a discount in the near future.

My View on The Debate

I have often mentioned that I think the current valuation of Tesla is ridiculous (and clearly represents a certain form of a Hype Premium). People are then very quick to tell (or attack) me that I don’t know what I am talking about. As a former owner of Tesla shares, I would like to emphasize once more that I have done extensive research on the company.

Back in 2019 I made a full Discounted Cash Flow valuation model. When Tesla shares went above $600 I slowly built down my position in the company, selling my last share at exactly $1,000 simply because I could not justify the valuation anymore. I do see Tesla reaching a future value of $2,500 per share, but not within the next five years (note that these numbers are not split-adjusted).

I do get why many people see much higher price targets for Tesla, but I think they are overlooking some key business essentials. Here I would like to shortly explain five flaws people make in their current investment thesis for Tesla.

Industry Profitability and Valuation Essentials

The car industry is very competitive. Competitors will do everything in their power to take a share of the profits of Tesla if they happen to become the largest car, energy or transport company in the world. This will deteriorate the profits and competitive advantage of Tesla on the long-term, unless it can get a long-term strategic advantage that cannot be taken over by these competitors.

However, Elon Musk himself said on Battery Day that the only advantage he expects is in manufacturing. Operational excellence is not strategy (as is very well explained by strategy guru Michael Porter), so in my opinion Tesla really needs to come up with something else to justify its current $387 Billion market capitalization.

“Also for long-term competitiveness. Eventually, every car company will have long-range electric cars, eventually every company will have autonomy, but not every company will be great at manufacturing. Tesla will be absolutely head-and-shoulders above anyone else in manufacturing. That is our goal.”

Elon Musk on Battery Day

Something people also seem to completely overlook is the relationship between the car sales, margins and autonomous driving technology. Some key questions that are overlooked in my opinion are the following:

  • If Tesla is going to leverage a robotaxi network, will they actually sell 20 million cars per year (as there will be less demand for cars when they are self-driving)? What does this mean for the (excess) manufacturing capacity that is currently being built?
  • If Tesla is going to produce a car for $25,000, what will the margins of such a car be?
  • How much capital expenditure is needed to scale up to an annual production of 20 million cars from around 600,000 cars today?
  • When will Tesla actually reach a level of profitability that will justify the current valuation and what are the risks associated with not succeeding? Does this justify the valuation when this profitability is appropriately discounted?
  • Why is it so attractive that Tesla will enter the mining business, since capital expenditures in this industry is very high and margins can (at times) be very low?

New Technologies

We should not forget that other disruptive technologies may emerge. Electric vehicles are sustainable, but have already been around for a very long time (with the concept being around since the 19th century). Tesla is just making this technology affordable and publicly accessible. However, true full industry disruptions can still make Tesla (and other car manufacturers) obsolete. Think about hydrogen powered autonomous drones, or batteries made from salt and water for grid storage. There is currently no competitive edge for Tesla to beat these emerging technologies, of which the risk only becomes larger when Tesla can actually succeed in becoming the autonomous EV monopolist.

Further to the point of technology, I would like to point out that Tesla is doing a lot of things different from many competitors in the industry and along the entire supply chain. Think about the aforementioned autonomous driving example: is Tesla so smart, or are all the other manufacturers and scientists incredibly stupid?

Tesla Airplanes

Many bull theses put out there are in my opinion simply irrational. People still ask Elon Musk about Tesla boats, airplanes, or other vehicles. However, while Elon Musk does mention the transition to liquid oxygen for SpaceX, he somehow does not mention the threat of hydrogen for electric vehicles, even when it comes to boats and aircrafts.

Musk Empire

Investors also dream about synergies between Tesla and other Elon Musk enterprises. However, the acquisition of SolarCity (and the ongoing lawsuits) shows that this is not that easy. All relationships between these companies will be watched closely due to antitrust and transfer pricing laws, in all jurisdictions these subsidiaries operate.

S&P Inclusion

As a last note, I would like to point out that inclusion in an index such as the S&P 500 should not matter for any investment. The only thing that in my opinion has been proven by the S&P not yet including Tesla after four consecutive quarters of profitability is that they are also still not comfortable with the underlying (GAAP) profitability of the company.

All issues described above can best be summarized by the risk of failure. People tend to value Tesla as if it will succeed in all its goals, without setbacks or surprises. This tunnel vision is incredibly dangerous and can lead to unjustifiable valuations. This further increases the downside and lowers the expected returns of the stock, because there is hardly anything that can still surprise investors to the upside. Battery Day showed that, because despite presenting breakthrough technologies Tesla shares actually fell as much as 9% the following day.

The Tesla Tipping Point: 24th of October 2019

The chart below shows Tesla’s price action in 2019, which is the year I think we should focus on to identify the right investment opportunity for Tesla. The three highlighted points show the hype highs and fraud lows of the year.

1. Rough Start

Tesla started 2019 on a relative high. The prospects were good and people expected Tesla to bring the Model 3 in mass production, which was crucial for the path to profitability. However, in January 2019 Tesla announced it would fire personnel so it could bring down the price of the Model 3. This lead to a steep drop in the stock price on January 18th and kicked off a period of misery for the company.

2. Bankruptcy Scares

Investors were worried about the debt load of Tesla. In the first half year of 2019 there were more setbacks that increased these worries. First, Elon Musk admitted in May that there was more money needed to support the company. As a result, Morgan Stanley even put out a $10 price target (which would be $2 split-adjusted). The empty promises and worst case scenarios made the TSLAQ short-seller case stronger, increased the pressure on Elon Musk for possible frauds and made a lot of people believe Tesla would actually go bankrupt.

3. The Guerilla Recovery

From June 2019 onwards the stock started to recover. Many people following the stock closely, including many financial YouTube channels (for example Financial Education and HyperChange) noticed positive changes happening in the company. At some point, valuation guru Aswath Damodaran even made a valuation and decided to buy shares in Tesla. Later he (fittingly) stated that at that point, ‘a story stock lost its story’.

Production of the Model 3 was picking up, the Shanghai Gigafactory was built in a record time, and people started to predict a profitable third quarter in 2019. When Tesla announced profits in the third quarter of 2019 the stock surged 20% and never looked back (aside from the dip resulting from the pandemic), even though many professional short-sellers still questioned the underlying profitability.

In 2020 the hype with Tesla stock truly picked up. The company did a capital raise and all bankruptcy fears disappeared. Currently the stock is valued at $415 per share, a more than 690% increase compared to the jump to around $60 after the earnings surprise on October 24th 2019.

Nikola and Nano-X: Hypes of The Recent Past?

Following Tesla’s incredible returns and price action, many stocks have gone through the hype and fraud cycle. Two of them I want to highlight are Nikola and Nano-X.


Nikola ($NKLA) is a producer of a hydrogen-electric truck. The stock traded around $13 on April 27th 2020. As soon as June 8th 2020 the stock traded for $64. The company came (at least for me) out of nowhere, but following Tesla’s success, people expected Nikola to follow a similar or even greater path.

However, following fraud allegations from Hindenburg Research (there turned out to be no working prototype, similar to the Theranos story), Trevor Milton resigned as CEO and the company seems to continue without revenues (despite a $2 Billion investment from General Motors).

Right now, the stock is trading at $24.25 still giving Nikola a market capitalization of more than $9 Billion. Just as a comparison that is more than French auto producer Renault ($RNO.PA), which is currently trading at a market capitalization of just over €6 Billion.

My conclusion here is that even if Nikola turns out not to be a fraud, the current market capitalization seems way too high for a company that does not generate any revenues. If it does turn out to be a fraud, the conclusion to the story is pretty clear.


Nano-X ($NNOX) produces a new and revolutionary X-ray machine. Allegedly the company is able to produce an X-ray imaging device (Nanox.ARC) for $10,000 where it costs current incumbents in the industry millions to make one. Additionally, Nano-X wants to further leverage this solution by also providing software and cloud services (Nanox.CLOUD).

Nano-X went public through an IPO in August 2020 for $18. When the hype was picked up the stock rose to over $65 in September. However, Citron Research came up with a report stating that Nano-X is Theranos 2.0 and has no working product and/or technology. This sent the stock back to below $24.

Personally, I think the Citron Research report is terribly written, incomplete and without sufficient structure. Reading a counter-post and an objective story on the stock made it clear that the conclusion in the Nano-X story still has to be sorted out. Especially since the CEO stated that he will show a working product to the public. After this news the stock recovered to over $37 in just one day.

The Nano-X Hype Premium may still be intact for the coming two months, with this increase possibly being similar to Tesla’s 24th of October 2019 moment, as the start of the turnaround where short-sellers are going to be proven wrong.

Other Fraud Stories

If you are interested in these kinds of fraud stories other cases to read into are Wirecard and Theranos. For the latter, the book ‘Bad Blood’ is a good recommendation to read.

Key Take-Aways

When looking at all these fraud examples that started as or subsequently returned to a hype status, I think we can draw up the following three key lessons for your own research:

  • The Product: check whether the company’s product actually works and make sure this is diligently fact-checked. In the case of Tesla people could experience the cars themselves. In the case of Nikola and Theranos no one could tell with 100% certainty that they experienced a working product in real-life
  • The Financials: for retail investors it is hard to catch financial fraud or manipulation when it is done by a multi-billion company with seasoned professionals. The best thing you can do is to check for the metrics you can check and see if the numbers make sense on a high level. Whenever researchers, journalists or analysts think they see fraudulent activities you have to be very careful. See for yourself if the allegations make sense and act accordingly
  • The People: make sure the people behind the business have solid credentials and are not only involved as directors, but are actually operationally involved in the business. Directors can be hired on a part-time business with limited attention, while employees and operational personnel needs to be on the job on a daily basis. In the case of Tesla, Elon Musk is operationally involved and has a track record of successful businesses. Something similar could not be said for Elizabeth Holmes for example in the case of Theranos

Doing your own research on these companies is key and will make a vital difference. If you can prove that an alleged fraud is not a fraud, you can gain stellar returns in a short period of time. However, this requires a large time investment to assess the real risks of such a business and you really need to know your risk tolerance if you decide to eventually invest in this kind of venture.

The other way around, I would personally never short a hype stock. To all the ‘TSLAQ’ short-sellers – even though I also think the current valuation is ridiculous – I can only say their biggest mistake is to underestimate the unlimited upside of a hype stock.


A fraud cannot immediately show performance, real achievements and facts to disprove short-sellers. As an investor you have to do your due diligence. The first and foremost step is to make sure that the product is real. The second step would be to make sure the financial reporting is up to standards. The third is to look at the team and what the company is actually doing. Then, you need to know yourself to make a right decision.

Whereas Elon Musk did get angry at short-sellers, videos made by independent fans of the Shanghai Gigafactory and Model 3 production output did not lie. People experienced Tesla’s products for years and were more often an ambassador than that they disliked the products. The financial part is hard to disprove, but as long as there is critique on reporting standards I think it is wise to stay careful and vigilant.

The investing public hyped up Nikola, whereas the broader public hyped up Tesla. In the end, the customer is always right.

So what is this going to tell us about Nano-X? The announcement of the CEO that he is going to show the product to an audience excites me. Therefore, I picked up a small amount of shares to follow this stock more closely as I think it will move from the fraud discount back to the hype premium. However, I know very well this is merely based on the speculation that they can present a real product and a compelling business case in the future.   

Portfolio Update: August & September 2020

After a busy month where I could not find the time to write a post about my portfolio performance, I decided to combine the August and September performance in one post. It still surprises me how the market is moving and how my portfolio moves through these turbulent times. With a fourth quarter ahead of use where Brexit negotiations will need to be finalized, the US elections will take place and the second wave of the corona virus may hit in the fall and winter, I am very curious what the portfolio will look like three months from now. Let’s hope for the best!



Overall Performance

My overall performance for the month of August was 6.07% compared to 5.83% for the benchmark MSCI World Index. In September this was -0.47% compared to -1.20%. Of the first nine months of 2020, three saw a negative return for my portfolio, meaning this was a kind of special month. Still, the portfolio has a cumulative return this year of 25.93% compared to the benchmark MSCI World Index of -2.05%.

Asset Allocation

My asset allocation has changed over the past two months:

  • Gold and Silver prices decreased
  • I sold some of my Silver holdings
  • I invested more in individual stocks
  • I added a Consumer Staples ETF ($WCOS) to the portfolio

As a result, my Gold allocation went from 36% to 29.4%, and my Silver allocation halved to 1.2%. My ETF holding is around 4.8% of the portfolio, which I envision to build out to around 20%.

Right now I chose to only allocate towards a Consumer Staples ETF, because I expect some turbulent market times and a possible longer recession as a result of the corona virus. In my opinion, consumer staples are most likely to outperform other sectors in such a market environment. In September this was proven correct, as this ETF increased by 0.55% compared to the drop of -1.20% in the MSCI World Index (of course only the long term counts in the end). I also think this was a good way to diversify the portfolio a little more, where I hope to decrease the Gold exposure to 25%, even though I am still bullish on Gold.

Individual Stocks

My individual stock allocation changed quite a lot in August and September:

  • I sold my position in JC Decaux ($DEC.PA) because I saw the odds of a second wave of the corona virus increasing. JC Decaux has a pricing system based on (foot) traffic in cities, which is very vulnerable for this second wave. I will keep an eye on them though for when a (or the) vaccine becomes available and the turnaround can begin
  • I opened a position in the Bell Food Group ($BELL.SW), one of the largest food companies of Switzerland. It mainly operates in the meat and convenience meal industries. I noticed them in an article about investors in Mosa Meat, which I think is truly the future of meat. When taking a first look at the company I thought they were quite fairly valued, with its investment in Mosa Meat as a nice long-term bonus. Right now, Bell only takes up around 2.5% of the stock portfolio and 1.6% of the total portfolio, so there is room to increase this position
  • I decreased my position in Flow Traders ($FLOW.AS), even though I still see some volatile market conditions ahead. I just thought my exposure to this stock had become too large, especially after a further increase following their Q2 earnings announcement, so it was more of a portfolio rebalancing to other stocks:
  • I added to my positions in Ahold Delhaize ($AD.AS), HelloFresh ($HFG.DE), Ebara ($EAR.F), Veolia ($VIE.PA), Signify ($LIGHT.AS), Boskalis ($BOKA.AS) and Publicis ($PUB.PA)

Last week I shared a post with my analysis of HelloFresh, which is just an example of how I plan to analyze the other stocks in the portfolio as well. I also added a post on my core value investment theme. This month I want to add at least one other investment theme to the blog!

Special Feature: Suez and Veolia, a Love Story?

The waste management industry is an interesting industry to say the least. The market is mostly dominated by its three largest players: Waste Management ($WM), Veolia Environnement, and Suez. Interestingly, the latter two are both French-based companies.

Several weeks ago, something interesting happened. Engie ($ENGI.PA), one of Europe’s largest energy companies, decided to sell its 32% stake in Suez. Veolia made an offer for 29.9% of this stake, planning to ultimately take over the entire company. Suez shares went from around €12 before this bid, to over €15 right now. Veolia shares have fared a little less well, and declined to €18.50 today from around €20 one month ago.

Initially, the bid was rejected by Suez stating that it was hostile, also Engie thought the bid was not good enough. Additionally, a lot of antitrust issues have to be resolved to make this deal work. However, Veolia came with an increased offer today.

I will be watching closely to see how this deal will turn out for both parties. One thing is certain: when the deal is closed, there will be one behemoth of a waste management company. Another certainty is that Veolia needs some additional financing, as the €3.4 billion offer is quite large compared to its €10.2 Billion market capitalization.


There will be a lot of content coming your way on this website. October will be a very interesting month with more stock analyses, a new hot take I am working on, and the first Stock Contest: the S&P 500 Major League. The end of this contest will inevitably be tied in to the launch of a second portfolio: the Hall of Fame portfolio.

Stay tuned!

SP500 Major League – 2020 Edition

With pride I announce the BeursWolf S&P 500 Major League – 2020 Edition. This is a Twitter contest that is meant to answer one question: which one of the top 64 largest stocks in the S&P 500 will outperform the rest over the next five years?

In this post you will find:

  • What this contest is all about
  • What you can expect in the future
  • What stocks will take a part in the contest
  • How the winner is selected
  • Contest updates and progress



What is this contest all about?

The S&P 500 Major League is a Twitter contest. The contest will start with 64 stocks. In each round, you get to vote which stock you think will outperform the other stocks over the next five years. Eventually, one stock wins!

Which one of the top 64 largest stocks in the S&P 500 will outperform the rest over the next five years?

The Stock Contest

When the winner is chosen, I will invest one thousand euros (€1,000) in this stock to start a ‘Hall of Fame’ portfolio. I will also write a deep dive analysis on this stock on the blog.

My goal is to make this an annual contest to eventually build a long-term stock portfolio that is completely constructed and voted for by you!

What can you expect in the future?

This portfolio will be built out later with other contests. Some ideas I currently have are:

  • S&P 500 Little League: smallest 64 companies in the S&P 500
  • EuroStoxx Champions League: largest 64 companies in Europe
  • Nikkei Nippon Number One: largest 64 companies in the Nikkei 200

When you have ideas for other contest designs, please let them know in the comments!

My goal is to have around four contests per year, meaning the Hall of Fame portfolio can grow significantly in the long-term.

Already excited? Let’s dive deeper in the first edition of the S&P 500 Major League.

What stocks will take part in the contest?

The stocks taking part in this edition are the 64 largest stocks by market capitalization in the S&P 500. To select these stocks I used the top holdings list of the iShares Core S&P 500 UCITS ETF ($IUSA) as per the 24th of September 2020.

To make sure Google does not get uneven odds, I filtered out the double position Google ($GOOG and $GOOGL) has in the list. The lucky company that just got into the contest this way is AMD ($AMD).

The contest is more interesting when the match-ups for the schedule are random. That is why I used the randomizer function and order function in Microsoft Excel to mix up the order of these 64 stocks. The final list that forms the basis of the contest is:

No.TickerCompanyContest Name
2PGPROCTER & GAMBLEProcter & Gamble
17JNJJOHNSON & JOHNSONJohnson & Johnson

How will the winner be selected?

All 64 stocks are put into a schedule. There is a round of 64, a quarter final, a semi final and a grande finale. The round of 64 and the quarter final are matches with four stocks. The semi final and the final are matches between two stocks. In total there are 23 matches to be played.

The winner of each match is selected through a Twitter poll ( Follow @BeursWolf ). Each poll will run 24 hours and starts at 07:00 Amsterdam time (01:00 in New York). The winner of each round will be announced in the evening of the following day. The schedule is:

  • Round of 64: October 1st – October 16th
  • Quarter Finals: October 19th – October 22nd
  • Semi Finals: October 25th – October 26th
  • Final: October 29th

During the contest, this specific post will be updated to show the progress!

The contest will be much more fun when more people engage, so you have until the 1st of October to spread the word.

Let the games begin!


The contest is fully prepared and ready to start October 1st. Sharing is caring!


October 1st – Match 1
Vote Count: 56

  • Philip Morris ($PM) – 12.5%
  • Procter & Gamble ($PG) – 17.9%
  • Nvidia ($NVDA) – 62.5%
  • Eli Lilly ($LLY) – 7.1%

October 2nd – Match 2
Vote Count: 66

  • Danaher ($DHR) – 12.1%
  • Microsoft ($MSFT) – 72.7%
  • Netflix ($NFLX) – 6.1%
  • Abbott ($ABT) – 9.1%

October 3rd – Match 3
Vote Count: 49

  • Wells Fargo ($WFC) – 16.3%
  • McDonald’s ($MCD) – 30.6%
  • Berkshire Hathaway ($BRK-A) – 38.8%
  • Amgen ($AMGN) – 14.3%

October 4th – Match 4
Vote Count: 65

  • Walt Disney ($DIS) – 43.1%
  • AT&T ($T) – 18.5%
  • JP Morgan ($JPM) – 9.2%
  • Texas Instruments ($TXN) – 29.2%

October 5th – Match 5
Vote Count: 38

  • Johnson & Johnson ($JNJ) – 28.9%
  • Walmart ($WMT) – 42.1%
  • Coca Cola ($KO) – 5.3%
  • NextEra Energy ($NEE) – 23.7%

October 6th – Match 6
Vote Count: 50

  • Verizon ($VZ) – 8.0%
  • Qualcomm ($QCOM) – 42.0%
  • Oracle ($ORCL) – 10.0%
  • Mastercard ($MA) – 40.0%

October 7th – Match 7
Vote Count: 62

  • Starbucks ($SBUX) – 11.3%
  • Accenture ($ACN) – 6.5%
  • Apple ($AAPL) – 59.7%
  • Intel ($INTC) – 22.6%

October 8th – Match 8
Vote Count: 37

  • Salesforce ($CRM) – 62.2%
  • Pfizer ($PFE) – 21.6%
  • Honeywell ($HON) – 10.8%
  • Chevron ($CVX) – 5.4%

October 9th – Match 9
Vote Count: 31

  • Cisco ($CSCO) – 48.4%
  • UPS ($UPS) – 25.8%
  • Union Pacific ($UNP) – 9.7%
  • United Health ($UNH) – 16.1%

October 10th – Match 10
Vote Count: 43

  • Thermo Fisher ($TMO) – 9.3%
  • Adobe ($ADBE) – 53.5%
  • Exxon Mobil ($XOM) – 20.9%
  • Linde ($LIN) – 16.3%

October 11th – Match 11
Vote Count: 83

  • Broadcom ($AVGO) – 7.2%
  • PepsiCo ($PEP) – 12.0%
  • Visa ($V) – 50.6%
  • Facebook ($FB) – 30.1%

October 12th – Match 12
Vote Count: 28

  • Lowe’s ($LOW) – 3.6%
  • American Tower ($AMT) – 14.3%
  • Abbvie ($ABBV) – 60.7%
  • Costco ($COST) – 21.4%

October 13th – Match 13
Vote Count: 30

  • Bank of America ($BAC) – 0.0%
  • Alphabet ($GOOGL) – 40.0%
  • Nike ($NKE) – 0.0%
  • Amazon ($AMZN) – 60.0%

October 14th – Match 14
Vote Count: 34

  • Medtronic ($MDT) – 20.6%
  • Lockheed Martin ($LMT) – 26.5%
  • Comcast ($CMCSA) – 0.0%
  • 3M ($MMM) – 52.9%

October 15th – Match 15
Vote Count: 18

  • Fidelity ($FIS) – 0.0%
  • Home Depot ($HD) – 16.7%
  • Charter Communications ($CHTR) – 0.0%
  • AMD ($AMD) – 83.3%

October 16th – Match 16
Vote Count: 21

  • Merck ($MRK) – 19.0%
  • Bristol Myers Squibb ($BMY) – 4.8%
  • IBM ($IBM) – 9.5%
  • PayPal ($PYPL) – 66.7%


October 19th – Match 17
Vote Count: 96

  • Nvidia ($NVDA) – 30.2%
  • Microsoft ($MSFT) – 46.9%
  • Berkshire Hathaway ($BRK-A) – 10.4%
  • Walt Disney ($DIS) – 12.5%

October 20th – Match 18
Vote Count: 38

  • Walmart ($WMT) – 13.2%
  • Qualcomm ($QCOM) – 21.1%
  • Apple ($AAPL) – 47.4%
  • Salesforce ($CRM) – 18.4%

October 21st – Match 19
Vote Count: 42

  • Cisco ($CSCO) – 16.7%
  • Adobe ($ADBE) – 21.4%
  • Visa ($V) – 38.1%
  • Abbvie ($ABBV) – 23.8%

October 22nd – Match 20
Vote Count: 47


October 25th – Match 21

October 26th – Match 22


October 29th – Match 23

  • Winner Match 21
  • Winner Match 22

HelloFresh: A Blue Ocean in Food Delivery

Investment Themes: Core Value

Since the world has been in the grip of the coronavirus, a lot of new investment ideas popped up. Most of these have been focused on e-commerce and software platforms. One of these investment ideas is HelloFresh ($HFG.DE), a meal delivery company based in Germany with operations in Europe, North America and Oceania.

HelloFresh is the pioneer in this space and started in 2011. HelloFresh estimated the US market for home delivery meal kits to be worth more than USD 2.0 billion in 2019. Based on this metric, it would have around 50% market share in the US in 2019, making it one of the market leaders in the space. Through acquisitions and strong organic growth, it is positioned to also become the global market leader in the space for food delivery services.




  • HelloFresh has seen incredible growth due to the coronavirus pandemic
  • The business model is unique and can, in my opinion, be seen as a Blue Ocean
  • It has built a strong brand that is currently the largest and strongest in the industry
  • Assuming market growth and only slight improvements in operating margins the stock offers an implied return of 11.4% at the current share price of €45.06
  • However, it is important to continuously assess the growth track of the company as pricing pressure and customer churn can have a large impact on the future value

– HelloFresh expanded to Denmark in June 2020
– HelloFresh expanced capacity in the United States in August 2020 to meet demand

The Price

Many people came up with the idea to invest in HelloFresh earlier this year and these investors have been rewarded. On October 30th 2017 the stock closed at €10.25. A year later in 2018, the stock was still moving around that price. During the early months of 2019 the stock even went below that level, to eventually recover and grow to around €16 by the end of October 2019. HelloFresh showed it could achieve a positive (adjusted) EBITDA over 2019, and driven by the pandemic the stock soared to over €50 in July 2020. Right now the stock is at €45.06 (€7.5 Billion market capitalization based on 166 Million shares outstanding). The investors from 2019 are already rewarded with a more than 400% return. The question now is whether it is too late to step in, or whether it is still a great investment opportunity.

While the stock price has soared over the past years, it does seem that it has resistance around the €35 level (black line). Aside from that, the stock has been very volatile over the past months, meaning it can be wise to slowly build a position in this stock if you desire to do so.

The Product

HelloFresh delivers meal boxes with ready to cook meals for an affordable price. The meal boxes aim to offer healthy meals and to reduce food waste by tailoring the meals to the individual customer. As of 2019, HelloFresh operates in the following countries:

  • Europe:
    • Germany
    • Austria
    • The Netherlands
    • The United Kingdom
    • France
    • Belgium
    • Luxembourg
    • Switzerland
    • Sweden
  • North America:
    • The United States
    • Canada
  • Oceania:
    • New Zealand
    • Australia

The reporting is split into the USA and International, where the USA only includes the USA and International includes all other geographies. The total population of this market is around 673 million people.

Given the requirements of the company to expand to geographies with high internet penetration, a developed infrastructure and high disposable income, the geographies to still expand to seem to be limited. The geographies I personally still see as opportunities on the short- to medium-term (around 5 years) are:

  • Spain
  • Portugal
  • Italy
  • Denmark
  • Norway
  • Finland
  • Poland
  • Czech Republic
  • Estonia

Most of the future growth needs to be achieved in the geographies where HelloFresh is currently active. The countries listed above offer a market expansion of 184 million new people (27.3% of the current geographies).

Green: current geographies / Red: BeursWolf identified new geographies / Block size represents population size

An additional opportunity is the expansion to other Eastern European and Asian countries in the future, but that would be a whole new culture and market to adhere to. Because of that, I don’t take this into account in my future view of the company (even though China, South Korea, Japan and some other South-East Asian economies may be very interesting for the product offering given HelloFresh its own market requirements).

The Cutting Edge

What makes HelloFresh such a strong player in the market is that it is focused on technology and rethinking the food supply chain. Whereas a regular supermarket or grocery delivery company would have an inventory that requires customers to make a choice, meaning that there will always be shortages and surpluses (including waste), HelloFresh has an optimal just-in-time supply chain model, where customers receive a customized meal, for which the ingredients are bought by HelloFresh based on the customers’ pre-determined choices. This optimized supply chain model allows for better margins and closer relationships with both suppliers and customers.

The product proposition enables upselling through boxes for starters, side dishes, fruit, wine and other special boxes, but it also allows for economies of scale, which will eventually result in better operating margins. Examples of possible product differentiation are to sell budget meals for people looking for this delivery service with a tighter budget, or ready to eat meals for people who don’t fancy having to cook for dinner.

BeursWolf Future Vision

The vision I personally have for HelloFresh is that it can disrupt the grocery store model. Whereas people are afraid that for example Amazon may take a meaningful role in this space (also through WholeFoods), I think the current model of Amazon will not make it both in terms of the business model, as well as for the consumer.

The reason why I think grocery shopping is the last retail branch to be disrupted by the e-commerce model is because there is a grocery store near every home, and hunger and thirst are needs of people that come and go on a very short-term. When you currently order food online, you have to individually select all individual products. However, when HelloFresh delivers your food they select the ingredients for you. The former carries the risk that, when you forget something, you still have to visit a local supermarket. The latter (HelloFresh) makes sure you have everything you need. This, combined with the strong brand HelloFresh has already built and the learning curve it has gone through over the past few years, mean that HelloFresh has a very strong market position in a market that can become the future of grocery shopping.

In terms of the business model, the online grocery store model generates a lot of waste, requires high inventories, and will have inefficient delivery routes (HelloFresh can plan routes because they can plan a one-time complete delivery as described above). Of course there will still be a need for the ad hoc grocery shopping. That is why I believe in a combination of the offline grocery store model with the current HelloFresh offering. An integrated product offering between a meal kit delivery company and an established grocery store is in my opinion inevitable. This combined product offering can be the ultimate brick-and-mortar food and beverage business model:

  • Just-in-time efficient home delivery of perishable goods and specific non-perishable goods for all meals you want throughout the week (breakfast, snacks, lunch and dinner)
  • Cheaper than the competition offline grocery stores only carrying limited perishable goods and mostly non-perishable goods that can stay in inventory for longer
  • Optimum balance in the control where (a) the consumer is still in control of meal choice, and (b) the nutritional balance in meals and waste can be controlled by the company

Personally, I think that this attracts current market players to this industry. Interestingly, the CEO of Ahold Delhaize ($AD.AS), Frans Muller, mentioned something similar in a recent interview with the Dutch Financial Times. Loosely translated he said the following in this interview:

“We would rather acquire an innovative, online player, instead of a traditional retail company such as Hema”

“What we want is to further grow with our supermarkets and the online sale of food products”

“Since the outbreak of the virus people do not only cook more often, but they also look more closely at what they eat. We expect these trends to stay, and we want to act on these trends through acquisitions”

Even though Ahold Delhaize has the Allerhandebox as a similar product, I believe they may be looking at the possibilities to acquire a company in this exact space. Whether that will be HelloFresh is a big question, but I think it is the only one that directly fits in Ahold Delhaize’s vision in terms of brand value, geographical scope and financial strength. Still, at the current market capitalization, it would be a hard pill to swallow.


I do not see the competition become as strong as HelloFresh at this moment. HelloFresh has become the largest brand in this space. Other well-known brands are Blue Apron and Marley Spoon. Blue Apron ($APRN) has continuously diluted shareholders and has yet to gain real traction. With a market capitalization of $94 Million, Blue Apron is already dwarfed by HelloFresh its operating result over the first half year of 2020 of €181 Million. With a single convertible note offering of €175 Million, HelloFresh has enough capital at its disposal to blast this competitor out of the water, or acquire them to further strengthen their market position.

Marley Spoon ($MMM.AX) is the larger competitor with a market capitalization of $517 Million (AUD). Given the traction of Marley Spoon, this seems to be the main company to beat at the moment. However, Marley Spoon still has to find a real path to profitability. HelloFresh can use its head start to further strengthen its market position relative to Marley Spoon. Even if it becomes a serious competitor, the current $11.7 Trillion food and grocery retail market size should be sufficient for more than one player to offer great shareholder returns.

The Strategy

I want to assess the strategic positioning of HelloFresh through the Blue Ocean Strategy model. The cutting edge described above best reflects what business model revolution HelloFresh pursues. The visualization below shows how it differs from the regular supermarket business model and the common online grocery business model.

The optimizations are gained in procurement through efficient and just-in-time warehousing and fulfillment. Similar to the online model there are no stores between the warehouse and the customer, which also means that customers need to spend less time doing their groceries. Finally, HelloFresh its business model offers the advantage to customize portions and meals for health and customization purposes, and it can all be done in one delivery (whereas the traditional online model needs to come and go as often as the consumer wants).

The Risks

Before diving into the financials I want to take a look at the risks facing this business model. While it can be easily explained that it offers unique value to customers, it is more expensive than regular grocery shopping. Customer churn and pricing are therefore the biggest risks facing HelloFresh in my opinion. There are currently no consistent numbers on what part of the customer base is recurring, and what part is churned.

The simple truth is that HelloFresh offers a very low entry barrier product for consumers with attractive entry pricing. When churn is high, large marketing investments can result in growth even with large churn numbers. Therefore, I will tread carefully with this stock over the first few years. The moment where growth stops is the moment where the stock can take a tough beating.

In terms of pricing I believe the current average price per meal of just over €6 is not sustainable in the long-term (shopping in a supermarket is still much cheaper), so it is something to take a look at in forecasting the future margins.

Financial Performance

The most important thing to note in the financial statements is that HelloFresh achieved incredible revenue growth already before the coronavirus pandemic started. Revenue growth has been consistently higher than 40% starting in 2017, with revenue growth of 84.8% in the first half of 2020 (assuming the second half of 2020 is exactly equal to the first half of 2020).

Even though the improvements in the contribution margin (defined as the revenues minus procurement and fulfillment expenses) reversed in the first half of 2020, it can be noted that this is the result of relatively higher fulfillment expenses due to the coronavirus. The procurement expenses as a percentage of revenues still improved in 2020. Due to the large increase in revenues in 2020, HelloFresh achieved a positive operating result of €181 Million over the first half year of 2020.

The revenue growth is mainly driven by the increase in the number of meals delivered. The underlying figures measured by HelloFresh are the number of orders, number of meals, value per order and value per meal. The take away from the historical trend here is that as people buy more in one order, the price per meal decreases.

The average price per meal in the first half of 2020 was €6.42. I believe people wish to spend between €4 and €5 per meal on average, underlining the possible future pricing pressure that HelloFresh may face.

The balance sheet shows that HelloFresh operates with a negative working capital model, which is very interesting as this will pay the company money as it grows faster. The operating cash flow was therefore much higher than the operating income in the first half of 2020, because of the divestment in working capital. HelloFresh can use this capital together with the freshly raised convertible note of €175 Million to further grow and strengthen its position in its core markets. HelloFresh is in a unique position as a start-up growth company with a very strong balance sheet, positive net cash position, and a business model that provides additional growth capital through a negative working capital and superior operating margins.

Note that the financial statements do not necessarily match the financial statements reported by the company, since some classifications have been changed to reflect a BeursWolf vision on the financials

The Forecast and Valuation

I divide the forecast of the free cash flow of HelloFresh in three segments:

  • Revenue Growth
  • Operating Margin
  • Other Assumptions

In this forecast, I will use a two-step time horizon. The first period will be a high growth phase from 2020 up until 2027. Then there will be a slower growth period from 2028 up until 2031, from where the terminal value will be calculated.

Revenue Growth

The revenue growth has been incredible over the past years, so it would only be logical to extrapolate this growth into the future. However, there is a possibility that a lot of growth has been taken forward due to the pandemic, meaning that growth will be relatively slower in 2021 and the years thereafter. To accommodate for this, I will just apply a flat market growth rate of 12.8% to the revenues based on market growth expectations. After 2027, I will flatten the growth curve to 5.0% per year. This growth path from 2020 onwards (where I will assume the second half of the year to be equal to the first one) results in revenues of €9.4 Billion by 2031.

Of course that is a great revenue number, but let’s run a sanity check on that. If revenues per meal stay constant at €6.42, this means HelloFresh would deliver about 1.5 Billion meals in 2031. Looking at the total identified market (current and new) of 857 Million people and one meal per day, this would mean a total ‘meal market share’ of 0.47% (in other words, about one in every 200 meals would be delivered by HelloFresh). When looking at the meals delivered in the first half of 2020 and the 673 Million people in the current markets, this market share is 0.21% (or one in every 500 meals).

If the average price per meal would decrease to €4 this would result in the delivery of 2.4 Billion meals in 2031 or a market share of 0.75%. Even though this may still sound feasible in terms of the market share, the problem lies in the margins that can be achieved with these revenues and the delivery of either 1.5 Billion or 2.4 Billion meals for the same revenue number.

Operating Margins

The expenses of HelloFresh consist of procurement expenses, fulfillment expenses, marketing expenses and general and administrative expenses. For simplicity purposes, I assume marketing and general and administrative expenses stay constant as a percentage of revenues.

The contribution margin (revenues minus procurement and fulfillment expenses) increased from 17.0% in 2016 to 28.6% in 2019. Whereas fulfillment expenses decreased from 40% to 36% of revenues, procurement expenses decreased even further, from 43% to 35%. I assume fulfillment expenses to decrease to 36% of revenues by 2022 and thereafter (after an increase to 38% in the first half of 2020) and procurement expenses to decrease to 34% by 2021. This results in a long-term contribution margin of 30%.

As a sanity check for this 30%, I checked the gross margin of some other super market chains. For example, Ahold Delhaize has a gross profit margin of around 27% and an operating margin of around 4%. Because of the unique, scalable and more efficient business model, I expect HelloFresh to achieve superior margins.

The assumptions described above would result in a long-term operating margin of 13.7%. If pricing pressure would start to play a role in the meal kit delivery business, this can put pressure on the operating margins. In this worst case scenario I would – for simplicity purposes – assume the contribution margin of HelloFresh to remain constant at the level of the first half year of 2020 (10.8%).

Other Assumptions

Other assumptions that are necessary to calculate the free cash flow from the operating margins are the tax expenses, net working capital investments, and capital expenditure requirements (including depreciation and amortization).

From 2021 onwards, I expect the German tax rate to apply to the operating income (15%). In terms of working capital, I expect the current assets to stay at 4% of revenues (similar to the first half of 2020 at 3.8%) and the current liabilities to stay at 10.5% of operating expenses (similar to the first half of 2020 at 10.4%). I use this conservative approach to make sure the valuation is not influenced by large improvements in working capital.

In terms of capital expenditures and depreciation and amortization expenses, HelloFresh noted that it was operating at full capacity in the first half of 2020. I would estimate (based on the capital expenditures in the period 2016-2019) that the required capital expenditures to maintain the current capacity are €50 Million per year (with a similar D&A profile) and the capital expenditures made to achieve this additional capacity are around €100 Million. The growth path to 2031 means revenues will triple. Hence, I would expect growth capex of €200 million over the next ten years. To model this in the forecast, I assume the capital expenditures to grow from €75 Million in 2021 to €150 Million in 2031. As a conservative addition I take into account €10 Million of annual capital expenditures for software development. The IFRS lease expenses stay constant as a percentage of revenues.

Free Cash Flow Forecast and Implied Market Return

The free cash flows resulting from this forecast are about 80% of the forecasted operating income. To make sure the terminal value is not overvalued, I assume the free cash flow for this calculation to be equal to 80% of the operating income in 2031, or about €1 Billion euros. I assume a terminal growth rate of 1.5%.

When applying a goal search this results in a 11.44% discount rate to arrive at the current market capitalization and share price of €45.06. In the scenario where operating margins will not improve (and would stay constant at 10.8%), this would result in a discount rate of 9.59%.


When in-home delivery of ready to eat and ready to cook meals continues its growth path and HelloFresh can maintain its market position and can slightly improve its margin profile, my current expectations are that investors will be rewarded with a return of around 11.4% per year. This is above the market return and would therefore imply that HelloFresh currently offers above average market returns.

However, it is important to keep a close look at the following key metrics in the future reports of the company and to see how that impacts the value of the stock:

  • Overall revenue growth (above 12.8%)
  • Customer retention
  • Revenue per meal (currently €6.42)
  • Operating margin (growing to or above 13.7%)
  • New growth investmens and acquisitions

Disclosure: I currently own shares in $HFG.DE

Investment Theme: Core Value

In the construction of your portfolio you need to think about diversification. I also believe that minimizing downside risk in the core of your portfolio is key to solid risk-adjusted returns. That is why I want to start my series of investment themes with the one I personally started with: core value.

Academically speaking, the best way to get solid risk-adjusted returns is to just by an ETF with an underlying broad market portfolio. However, this blog is not aimed at just telling you to buy an ETF and go on with that. This blog is meant to be a fun add-on to the portfolio of those who want to deviate from ‘the path of the ETF’.



Where to Find Core Value

What do I mean with core value? It is simply about businesses that can offer returns, no matter what happens, for a long period of time. The sectors where you have to look are those that offer products that serve a need of one person on the globe each and every day. The companies you want to look for are those within these sectors that have, or are creating, a strong market position by operating in a niche or by operating with a very strong moat. The companies can offer stable returns because their services are needed, while the size of the markets they operate in can offer seemingly unlimited growth.

These sectors are really large. Think about the following examples:

  • Construction Companies: humans will always continue to build the future ($12.7 Trillion)
  • Transport Services: people have legs, but other means just go faster ($6.6 Trillion)
  • Food & Beverages Industry: you cannot go far without food and drinks ($6.1 Trillion)
  • Water Management and Supplies: water is and remains the source of life ($696 Billion)
  • Clothing & Apparel: it is illegal in most countries to walk around naked ($1.5 Trillion)
  • Waste Management and Waste Disposal: where there are humans, there is waste ($2.1 Trillion)
  • (Tele)communications Market: humans are social animals ($1.7 Trillion)

If you have more examples or ideas for core value industries, please let readers know about them in the comments and get the discussion going.

How to Spot the Core Value Company

The core value company is the one that can earn superior margins because it has a strong strategic positioning, or that creates a new product offering (with a great underlying business model) that can grow seemingly unlimited in these large markets.

Some important things to look at when assessing a company’s strategic positioning are:

  • The Long-Term: Core Identity and Vision (background)
  • The Industry: Porter’s Five Forces (background)
  • The Short-Term: Business Model Analysis (background)
  • The Management Team: Achievements/Credentials

A key question to ask yourself is whether a company has a strategy, or whether it is in what I call a ‘panic mode’. A company with a strategy is developing its product and looking for new markets. These companies can create a blue ocean or a niche that will offer larger profits. A company in ‘panic mode’ has no resources to look for growth and is only looking to cut costs or is turning to other financial trickery methods to maintain some shareholder satisfaction.

For example, a company like Apple ($AAPL) today is looking for new markets with services and wearables, while improving its core iPhone product. This is a company with a clear strategy. On the other hand, I (note: my opinion) believe McDonalds ($MCD) is a company in ‘panic mode’, exchanging its own restaurants for higher margin franchise restaurants and taking on debt for dividend payments and share repurchases to the point of negative equity.

I personally maintain a list of core value companies with a personal price target. When these companies go under my price target threshold, I buy them (these companies are of course still subject to economic cycles). Remember that markets always change, so I may add and remove companies from the list from time to time. It is very important to look out for companies that emerge in these spaces. An example of such an emerging company is Starbucks ($SBUX), which has successfully scaled its brand in the global coffee industry ($363 Billion) over the past decade, offering incredible returns to shareholders.

New Core Values

Core value investments can change over time, when new technologies emerge and take up a space in people their everyday lives. Think about the internet. In no crisis or economic circumstance people will cancel their internet subscription.

Core values can still be replaced on the long-term, so it is always good to stay vigilant. Think about the candle being replaced by the light bulb, oil possibly being replaced by wind and solar energy or other renewables, or telephone and video communication networks slowly being completely replaced by the internet.

Examples of Successful Core Value Investments

Core value investments are interestingly some of the most famous investments, resulting in some of the richest people in history. Think about the following people becoming rich through a core value company:

  • Inditex ($ITX.MC): The richest man from Spain, Amancio Ortega, started an apparel empire
  • Heineken ($HEIA.AS): The richest Dutch person is a member of the Heineken family
  • Carnegie: One of the richest men of the 19th century, Andrew Carnegie, sold steel
  • Telmex: Carlos Slim was the richest person in the world for some time with investments in the telecommunications industry

Some of these examples of course started out as private ventures. So let’s look at the following annual return examples of some publicly listed companies (10Y total returns):

  • Domino’s Pizza ($DPZ): 43%
  • Starbucks Corporation ($SBUX): 23%
  • Nike ($NKE): 22%
  • Chipotle Mexican Grill ($CMG): 21%
  • Procter & Gamble ($PG): 12%
  • McDonalds ($MCD): 15% (even though I don’t like it right now, I still could not keep it off this list)

Or, one I could not easily calculate the total return for with the tool: A2 Milk ($ATM.NZ), which started out at $0.25 (NZD) in 2017 and is currently valued at more than $18.00 (NZD) per share. Actually, I don’t need a calculator to show those returns are incredible for a company that is just selling milk products. And let’s be honest that their ticker is very well selected as it seems to be the ATM of the stock market.

Of course this list is subject to incredible success bias and there are a lot of companies in these spaces that fail to provide ‘alpha’ to their investors. Also remember that success in the past does not guarantee success in the future, meaning that some of the companies listed above can fail to provide ‘alpha’ over the next decade. That is why it is important to look at every single company on a stand-alone basis and to do your research to make sure you make an investment that can help you sleep at night.

Final Thoughts

Do you have some successful core value investments? Share them in the comments!

“Price is what you pay. Value is what you get.”

Warren Buffett

Amazon: King of the Story Stocks

Everyone has been talking about Amazon for years now. The stock has been one of the prime (pun intended) examples to show that making big losses in the beginning is not a bad thing, because they can turn into huge profits in the long-term. This narrative has been the key reason why small companies making huge losses currently trade at incredibly high valuations. Everything can become the next Amazon.

Amazon has also been mentioned as a threat to almost every other company that I know. Just like winter in Game of Thrones, the go-to sentence is “Amazon is coming”. For example, one of the largest web shops in the Netherlands (CoolBlue) had some operational issues at the start of the covid-19 induced crisis. Every single news channel went wild with rumors that they might had been acquired by Amazon. Spoiler alert: it turned out to be untrue. I personally also still believe that Ahold Delhaize, owner of the Dutch web shop, would trade much higher if people would not have been saying that Amazon is also coming for them for over five years (if not longer already). Similarly, when Amazon starts a collaboration with any company (such as recently with Slack) rumors pop up that this is the start of another take-over.

Amazon rocked the news again this week, announcing incredible second quarter results due to covid-19. So I decided to put Amazon on my potential list for hot takes – and my Twitter followers voted in favor. The big question I aim to answer in this post is: is winter, in line with covid-19, finally here?



Conquering Conglomerates

The most valuable company in history is, allegedly, the VOC – better known as the Dutch East India Company – at an inflation adjusted market capitalization of $8.28 Trillion (1637). Incidentally, the VOC was the company that pioneered the modern day stock market in Amsterdam in the early 1600s. The VOC used the stock market to finance its risky endeavors to conquer the world.

What did the VOC do? Today it is mostly known as a trade and shipping company with shipyards in Amsterdam, many warehouses and offices across Asia, and trading posts across the world. As history is told by the victors, people often forget that the VOC had a self-maintained monopoly on trade east of Cape Town. The activities of the VOC went far beyond simple trading and included managing an entire war fleet to protect its monopoly, controlling jurisdiction in its territories and even producing its own coinage.

What does this have to do with Amazon? Well, Amazon is not that different. Amazon is (i) using the stock market to finance its risky endeavors to conquer the world, (ii) is mostly known as an e-commerce (trading) platform, and (iii) its activities go far beyond simple e-commerce (trading). There are more similarities, like underpaying employees, but I intend to avoid such sensitive topics.

Amazon’s market capitalization currently stands at around $1.58 Trillion ($AMZN), so it still has a long way to go to surpass the VOC as the most valuable company in history. However, its 120+ P/E ratio implies that some people expect it may have a chance to grow a lot higher.

Introduction to Amazon

Amazon started selling stories as an online bookstore in 1994 (under the name Cadabra). Today, in 2020, Amazon is part of the big four tech companies in terms of market capitalization: Microsoft, Apple, Google, and Amazon. But then I hear you ask: how can an online bookstore (or e-commerce platform for that matter) be part of these global behemoths? The answer is that Amazon is doing much more than e-commerce. Amazon is actually doing almost everything.

It is hard to find a comprehensive overview of everything Amazon owns and does, so I tried my best to make my own visual to show what they all do and how it is supposed to connect with each other. But let’s first dive into Amazon’s culture.


Amazon has a very strong corporate culture, as becomes clear in Jeff Bezos’ shareholder letters. The main thing you will notice is that he is talking about ‘Amazonians’ when mentioning Amazon employees, a term I had never heard before and that honestly lacks some spark and creativity (I would personally vote for ‘Amazers’). Something else that stands out are the four principles of Amazon:

  • Customer obsession rather than competitor focus
  • Passion for invention
  • Commitment to operational excellence
  • Long-term thinking

When you realize this is the core of the company, then you understand why the logo has a (customer) smile in it, and why Amazon does so many different things.

As a reminder to the outside world that Amazon still perceives itself as a growing and starting company, Jeff Bezos always attaches a copy of the original 1997 shareholder letter and reminds the reader that today is ‘Day 1’.

Amazon Web Services (AWS)

Amazon’s main business is actually its Amazon Web Services (AWS). This is a cloud infrastructure business similar to that of Microsoft (Azure), Google (Google Cloud), Apple (iCloud), IBM, Alibaba in China and Nippon Telegraph and Telephone (NTT) in Japan, where businesses store their data in a centralized location instead of an on-premise location.

While many new businesses continue to enter the market and incumbents try to increase their market share, the market as a whole is growing at such a high pace that every player still has a lot to gain. Nevertheless, Amazon decreased its prices for AWS in 2019 and states that it will continuously try to reduce its prices for their customers.

Amazon also states that all of the industries it operates in are highly competitive, which at least to me means that even Amazon is aware that it is unclear how profitability in the cloud computing industry will turn out to be when growth starts to slow down. However, as the market leader with a market share of 33% and no sign of decreasing growth this may be a concern for later.

Everything Else and Other

Amazon leverages AWS to support all of its customer-oriented businesses. The main pillar of this business is not surprisingly e-commerce, which includes both the products that they buy and sell themselves as well as third-party services, where businesses use as a platform to sell their own products (and where Amazon in some cases also fulfills the orders). The physical stores (including WholeFoods) offer synergies with the e-commerce business through Amazon Fresh and other smart store concepts such as Amazon Go.

Amazon offers many adjacent services to enhance and support the e-commerce experience. The first are subscription services, which include Amazon Prime Video, Amazon Music, Audible and Twitch. These subscriptions lure in customers to the e-commerce platform and customers of the e-commerce platform can be referred to these subscription services for books, videos, music, games and other products.

Amazon Advertising is the advertising business through which Amazon can earn money by pushing ads on the e-commerce platform or on the subscription service platforms. Amazon Publishing and Amazon Studios (by which I mean both the video production and gaming studios) are the resources to more efficiently channel content to the subscription and e-commerce platforms. Finally, Amazon’s electronic devices are the physical counterpart for customers to enjoy the subscription services and to access the e-commerce platform. These electronic devices include the Kindle (e-books), Amazon Fire (phones, tablets, TVs), Echo and Alexa.

The other segment includes, in my opinion, everything Amazon does to further support its customer ecosystem. This includes the broadest variety of activities and aims to increase the ease of use of the services, reduce expenses, as well as improve corporate social responsibility. I perceive the following products and activities to fall in this category: Ring (conncected doorbell), investments in Rivian and other self-driving / mobility start-ups, Amazon’s own solar and wind farm projects, Amazon’s partner programs for payments (credit cards, etc), IMDb and Amazon Air and similar delivery systems it is setting up to increase its competitiveness.

P.S.: Forgive me if I forgot anything. As mentioned before, Amazon basically does everything. So if I missed any activity please let other readers know in the comments below this post.

The Threat of Competition

Amazon itself recognizes that it faces heavy competition. For every investor, cash flow and the risk of those cash flows determine the value of a stock. Yet, you cannot expect cash flows to be astronomically high in highly competitive industries. Amazon seems to combat this threat by focusing on customers, inventions and the long-term. However, by doing this Amazon is playing on a lot of different chess boards. Some of those chess games are just at the beginning, some are near their end.

Just think of the companies Amazon is competing with in all of its end-markets, aside form the earlier mentioned companies for AWS:

  • Netflix, Apple, Disney, AT&T, Comcast, Spotify, Tencent, EA, Activision Blizzard (subscription services and studios)
  • Alibaba, Google, eBay, Shopify, Facebook, company websites (e-commerce)
  • Local stores, Walmart, Costco (physical stores)
  • Apple, Microsoft, Google, Sony, Samsung, Huawei (electronic devices)
  • Google, Facebook, ByteDance, Microsoft, Twitter (advertising)

As long as Amazon can reinvest enough cash and grow its top line in these sectors, hard questions will not be asked about its failures (such as the recent Crucible failure from Amazon’s Gaming Studios, or the Fire Phone). Amazon then just has to come up with enough ideas for new investments and growth stories to continue its world conquering trajectory (even if it means launching thousands of internet satellites, just like SpaceX – another competitor for the private sector space race).

Yet at some point, investors do want to see returns. So far the stock has been soaring, which has made investors enthusiastic and happy. The underlying numbers followed suit to keep the P/E multiple below 150x. The specific questions are (i) whether the growth will be sustainable and (ii) whether that growth is likely to produce sufficient cash flows to support the current valuation. To understand why this is so important, note that the share count of Amazon is still increasing and that the board approved a program to repurchase up to $5 Billion of common stock around three years ago (with no fixed expiration). To date, no stock has been repurchased under this plan (and Bezos is gradually selling his).

So, with all this in mind. Let’s dive into the financials.

Amazon’s Financials: Blurred Lines

Since Amazon heavily expanded the breadth of its business lines and competes on so many levels, it would be very nice to see how their Prime Video subscriptions and financial results would compare to Netflix, how their Fire Tablets and Kindle units sold would compare to Apple’s iPad, how fast Ring is growing, or at least what the actual operating margins of the e-commerce segment are.

I am going to honestly admit that I find the reporting of Amazon very disappointing. For a company of this size you would expect the annual report to be structured in a way that suits the underlying business. However, with Ernst & Young being their auditor since 1996 it seems more like the underlying business has just been shoved into the annual report structure of 1996. Fun fact: Amazon’s 2019 annual report has 87 pages compared to Unilever’s 2019 annual report of 183 pages. Probably that’s just a European thing. Still, here are five things I think are wrong with Amazon’s financial reporting.

Business Lines

The net sales are reported across different dimensions, of which the most insightful is (i) Online Stores, (ii) Physical Stores, (iii) Third-Party Seller Services, (iv) Subscription Services, (v) AWS, and (vi) Other. The annoying part then is that the operating income is only split into the primary net sales split of (i) North America, (ii) International, and (iii) AWS.

Then, if you wish to analyze the cost structure of the latter three segments there is no way to do it. The annual report mentions that the costs to operate AWS are primarily classified as ‘Technology and Content’ in the income statement. Yet the description of this cost items is as follows:

“Collectively, these costs reflect the investments we make in order to offer a wide variety of products and services to our customers”

In short, there is no clear-cut way to analyze Amazon’s underlying business lines in detail, which explains why its valuation is such a large topic of discussion and why so many people flock to competitors’ operating margins to estimate Amazon’s value. For now, I just need to have faith that their own reported margins are true and consistent over the years.

The Amazon Maze

This might be an issue I have in general with SEC filings and US reporting. The US is very confident that their reporting standards are superior, yet I have trouble to easily match something as simple as the accounts receivable number on the balance sheet to its underlying constituents. Any annual report in Europe or Asia would just show it to you in a simple table.

Then there is the US and in this specific case Amazon. You have to look for at least four paragraphs of text to find the constituents of the ‘accounts receivable, net and other’ position. Yet, when you have found them, it still does not add up to the number on the balance sheet. I will just assume I am missing another obscure paragraph and I will analyze the financials on a high-level basis from the overall financial statements, especially since that is all we can do given the lack of financial data for each operational unit.

Cash Cash Cash

Amazon knows how to inspire investors. Investors always say that profits are an opinion and cash flows are a fact. Amazon knows this and unlike other companies that start with the balance sheet or income statement in their reporting, Amazon starts with the cash flow statement. Amazon even goes as far as to state that their prime focus is on cash flows and they don’t really look at GAAP earnings:

“When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows”

Yet, while the cumulative cash flows are of course factual, the underlying allocation to operations, investing and financing activities is questionable. Amazon seems to admit this themselves and provides three(!) different free cash flow metrics. For 2019, the range of free cash flows provided is between $12.49 Billion and $25.83 Billion. The difference is explained by the way Amazon records its lease obligations as has already been covered by multiple journalists and bloggers.

The Tax Debate

Another remarkable issue is that Ernst & Young made mention of a ‘critical audit matter’ in their audit letter for the 2019 annual report, relating to the uncertainty of Amazon’s tax position. You would expect that a company that is earning so much cash, that is focused on society and the long-term, and that is very invested in corporate social responsibility, would take some efforts to resolve this matter. The most notable part is that allegations on tax evasion have been swirling around Amazon for years before this being pointed out by the auditor in the actual annual report.

Like-for-Like Numbers

Many companies always report like-for-like income statements and organic vs non-organic growth when they either make an acquisition or change accounting policies. Amazon doesn’t. It just adds the WholeFoods numbers in 2017 without providing like-for-like numbers, and it does not show adjusted financial statements for 2019 without the capitalization of operating leases.

To me all these shortcomings in the financial reporting seem to be a way to pull analysts away from the underlying margins of the business and towards the growth rates and sales numbers, to pull analysts into the growth story and to make them believe Amazon can continue to grow. Forever. This will enable Amazon to raise more cash from capital markets, reward more employees with favorable stock options and continuously gain a competitive cash advantage.

Amazon is no longer just a bookstore, but it never stopped selling stories.

The Actual Numbers

It is finally time to dive into the numbers. I am going to look at AWS, North America and International (just as Amazon wants me to). Keep in mind that I will use a very holistic 80/20 approach to get a sense of Amazon’s current valuation metrics and to see what needs to happen to justify its current valuation.

Financial Statements 2016-2019

Below you can find the financial statements for the period 2016-2019 that I pulled from the 2017 and 2019 Annual Reports.

Given the cash flow statement, you would expect the free cash flow to look something like this (similar to the initial way Amazon reports it). The current $1.58 Trillion market cap is (only) 61.1x the $25.8 Billion free cash flow number presented in this table for 2019.

Yet, when I look at it more carefully, I add back the stock-based compensation (as this would be a cash expense in the case of a mature business, or at least dilutive to current shareholders) and I also deduct the principal repayments of the finance leases, as these can be seen as a consequence of operational activities (I could also deduct the other principal repayments, but those are less material).

As a percentage of operating income, these cash flows seem to make much more sense. When looking at the $9.3 Billion free cash flow number, the 61.1x multiple increases to 169.1x.

Amazon Web Services

The key to Amazon’s current value is in Amazon Web Services (AWS). It is one of the pioneers and constantly innovating players in the cloud computing market, and while growth seems to be slowing, it is still well above 30% (the numbers for 2020 are the numbers for the first half year and the growth rate for 2020 is the growth compared to the first half year of 2019).

Operating margins even improved to above 30% in the first half of 2020, possibly driven by larger pricing power due to increased demand caused by covid-19. To see where AWS is going long-term, let’s see what we can derive from some market estimates.

According to Statista, Amazon currently owns 33% of the Cloud Market, which Statista values at $96 Billion. Some reports expect the market to grow to $832 Billion by 2025. As this specific report starts at a higher market estimate of $371 Billion in 2020, I would estimate Amazon’s current market share to be around 11%. This would mean revenues of around $91.5 Billion by 2025. For simplicity purposes let’s assume that Amazon can grow its AWS at the implied CAGR of 17.5%.

As the growth mainly comes from small and medium enterprises in the later stages of this development, operating margins are likely to decline for additional service loads, possible future pricing pressure or value going to more local intermediaries. On the other hand, operating margins may increase as a result of additional operating leverage. For now let’s assume that operating margins stabilize around 25% by 2025.   

These growth rates and margins may seem low, but remember that growth rates have been sharply declining for AWS, and the higher than 30% growth rate in 2020 may just be a result of additional cloud investments as a result of covid-19. With all the additional players entering the market and the barriers to entry in Asian markets, we may have seen the highest growth for AWS. Yet, this is not necessarily a bad thing, as Amazon’s operating income has become less dependent on AWS over the past few years. The real growth in operating income may be hidden elsewhere.

North America and International

The North America and International segments consist of all the non-AWS business lines. Of these business lines around 79% of revenues originated from online stores and third-party seller services in 2019. Around 7% originated from physical stores, around 8% originated from subscription services, and around 5.7% came from the other segment.

Profitability has been volatile in the North America segment, with the highest operating margin in the past four years standing at 5.1% in 2018. The International segment slowly moves into profitable territory, with the second quarter of 2020 showing the first quarterly profits.

The e-commerce market is in my opinion the best proxy to estimate the future potential of the more shrouded segments of Amazon’s income statement. While Amazon’s $171 Billion net sales in North America and $75 Billion in net sales internationally in 2019 seem impressive, the market size for e-commerce was estimated at a whopping $9.1 Trillion.

This would imply that Amazon has a market share of only 2.7%. Logically, this is a result of many companies having their own e-commerce channels and the presence of other large e-commerce platforms. As a result of this industry dynamic, I would not expect Amazon to grow its revenues outside of AWS at a higher growth rate than the expected 14.7% for the entire market. Given that a lot of growth in this area may be taken forward due to covid-19, I think this estimate may even be optimistic, also given the developments in the growth rate in 2018 and 2019.

Concerning the operating margin I will be more optimistic again. As operating margins have already been 5.1% in 2018 and the revenue mix consists of some more profitable and scalable service and software components, I think the North America Segment and the International Segment can gradually grow towards operating margins of 13% over the next five years (twice the retail operating margin of 6.5%). We should also not forget that current margins in 2020 have been suppressed by operational covid-19 measures and could have been much higher in retrospect.

One could argue that the margins in the international market should actually be lower as operations in North America are set up more efficiently on a smaller geographical scale and with less diversity between cultures and geographies. However, as the other segments may be a little more profitable (most notably the ‘other’ segment), I choose to use equal operating margins.

The Scenarios

I will use the aforementioned assumptions to calculate three scenarios (base, optimistic, worst) where I will assume that the full year revenues for 2020 will grow at the current growth rate of the first half year as compared to 2019 (I am giving Amazon a lot of slack – pun intended). My assumption will also be that by the end of 2025 Amazon’s current business lines will have matured so that it is a good measure of perpetual value.

The Base Case: AWS revenues grow at a CAGR of 17.5% to $105 Billion by 2025 with operating margins of 25%. The North America and International segments will grow at a CAGR of 14.7% to cumulative revenues of $653 Billion and operating margins of 13%. Together this results in a total of $757 Billion in revenues and $111 Billion in operating income. The EBIT x (1-t) formula would give us, at a tax rate of 21%, a free cash flow estimate of $87.7 Billion. The current $1.578 Trillion market cap is around 18x this 2025 net earnings / free cash flow number (5.6%).

Note: 2025 growth rate is the 2021-2025 CAGR

The Optimistic Case: AWS revenues grow at a CAGR of 20% to $116 Billion by 2025 with operating margins of 30%. The North America and International segments will grow at a CAGR of 20% to cumulative revenues of $818 Billion and operating margins of 20%. Together this results in a total of $934 Billion in revenues and $199 Billion in operating income. The EBIT x (1-t) formula would give us, at a tax rate of 21%, a free cash flow estimate of $156.8 Billion. The current $1.578 Trillion market cap is around 10x this 2025 net earnings / free cash flow number (10%).

Note: 2025 growth rate is the 2021-2025 CAGR

The Worst Case: AWS revenues grow at a CAGR of 15% to $94 Billion by 2025 with operating margins of 20%. The North America and International segments will grow at a CAGR of 10% to cumulative revenues of $530 Billion and operating margins of 6.5%. Together this results in a total of $624 Billion in revenues and $53 Billion in operating income. The EBIT x (1-t) formula would give us, at a tax rate of 21%, a free cash flow estimate of $42.1 Billion. The current $1.578 Trillion market cap is around 37.5x this 2025 net earnings / free cash flow number (2.7%).

Note: 2025 growth rate is the 2021-2025 CAGR

Again, this approach is very holistic and does not take into account all other opportunities Amazon has at its disposal like shooting satellites into space for its own internet platform, other mergers and acquisitions, or price increases for (just as an example) its streaming business. It also leaves out all positive cash flows Amazon will earn in the rest of 2020 and the years 2021-2024. Likewise, it also leaves out all probable dilution.


The truth is, in my opinion, that the medium outcome implies a fair value for Amazon when looking five years into the future. Given the uncertainty and time span, this means to me that a lot of growth has already been priced in and for which the risk is hardly being rewarded (when strictly looking at fair value).

It is also not true to state that Amazon is grossly overvalued as some people may make you believe. There is a chance of outperforming expected market returns, but Amazon would have to continue to surprise all expectations for another five years. Personally, I would think the chance of Amazon underperforming the market and losing value (with some new failed investment initiatives here and there) is just as likely – especially considering the worst case scenario still assumes 10-15% annualized growth rates for a company already doing around $300 Billion in revenues.

Still, as long as Jeff Bezos can continue to tell his story, can continue to grow into emerging markets and can actually completely take over a multi-trillion dollar retail market, Amazon may actually be an interesting play if you want to be exposed to the market exuberance and if you would be satisfied to earn that worst case 2.7% yield if it just slightly underperforms industry expectations by 2025.

Hence, at a future market pull-back I might even myself consider to seriously look at Amazon. However, I would very much like them to improve their reporting standards first so that investors can make better decisions and are less led by the story and more by the actual numbers (which are honestly still impressive).


I started this post with a comparison between Amazon and the VOC, thinking that if Amazon looks like the VOC, talks like the VOC and walks like the VOC, it likely would be similar to the VOC. The only thing Amazon seems to lack is a monopoly and an army to gain or sustain it. Amazon does have a war chest of cash, but so do all the other tech giants. As everyone has to look out for Amazon, I believe Amazon also has to look out for what might be coming for them. If it were up to me, the VOC will remain the most valuable company in history for quite some time to come.

However uncertain the future may be, Amazon will remain an incredible story and one that will continue to dominate the markets for quite some time. I will personally sleep very well by passing up on the opportunity to invest in it, though I might slip a small speculative amount into a fractional share to see whether they will be able to beat my expectations.

As a bonus from this post I learned that Jeff Bezos is one of the best storytellers of our time, and one of the most influential persons in the world today. Amazon’s story is unlikely to come to a close, as he can always continue to tell stories at the Washington Post.

Jeff Bezos is the man that made Amazon King of the Story Stocks.

Portfolio Update: July 2020

The first time I shared a portfolio update on Twitter, I actually thought it was pretty scary as I felt that I had to defend all my investment decisions. Right now I see the positive side of this process as it incentivizes me to really think about my investment decisions. So here we go for the first time on this blog: a portfolio update for the month of July 2020.



Overall Performance

My overall performance for the month was 1.15% compared to -0.27% for the benchmark MSCI World Index, to come at a return for the first half year of 2020 of 19.29%. My return is mostly driven by my asset allocation, with large parts allocated to Gold and Silver. While some individual stocks performed well, other individual stocks showed negative performance.

Let’s dive in and look at the details!

Asset Allocation

My asset allocation stands at about 36% Gold, just over 2% Silver, and the other 62% in individual stocks. My target allocation to the MSCI World index is actually about 20%. However, I don’t put any money into index funds right now as I believe these will not necessarily perform better in times of economic decline. As soon as the economy recovers I will allocate money to index funds again.

In July I sold a small part of my Silver holdings. I am well aware of my exposure to precious metals and as Gold and Silver continue to rise, I will slowly sell some of my holdings to increase my allocation to individual stocks. Silver prices rose by 29.63% in July as compared to 6.55% for Gold, and given Silver’s volatility I thought it was wise to take some profits.

Individual Stocks

My individual stock allocation changed quite a lot in July. I sold my positions in Netflix ($NFLX) just before they announced earnings and because I did not feel comfortable holding such a negative cash flow company at this moment. I also sold my position in Koninklijke BAM Groep ($BAMNB.AS) because recent strategic developments resulted in my investment case no longer being valid.

On the other hand I added The Publicis Groupe ($PUB.PA), JC Decaux ($DEC.PA) and Hello Fresh ($HFG.DE) to the portfolio, and I bought more shares in Nikon ($NKN.F) and Veolia ($VIE.PA). I plan to add more detailed investment cases for all of these stocks and some of my other holdings to this blog, so stay tuned!

Special Feature: Flow Traders’ Heavy Swings

The volatility in my portfolio was very high, with Flow Traders ($FLOW.AS) ironically being the prime example (for those who don’t know, Flow Traders is a liquidity provider in Exchange Traded Products, earning money in times of high volatility).

Flow Traders’ price increased to almost €35 intramonth (an increase of almost 10%) but suddenly fell back again to around €31 when the cboe announced new plans to curb the advantages of volatility and high frequency traders. Yet the impact of this plan is uncertain (it is still a plan, after all) and Flow Traders still has to announce earnings over Q2 including a probable announcement of a historically high dividend.

Volatility is still much higher than the levels in 2019 as there is still a lot of uncertainty ahead. As long as this uncertainty remains, I will hold on to Flow Traders as the largest position in my portfolio.  

Earnings Announcements, Part 1

A lot of companies in the portfolio announced their quarterly results in July:

Given that we just had one of the worst quarters in recorded economic history it is good to see that some of these companies did well, or at least not as bad as investors expected.

Signify and Unilever reported earnings that were very well received by the market. Signify’s earnings were so good that it made me wonder why they actually cut their dividend.

Publicis, Hello Fresh, Suez and Veolia reported results that were received with a mixed response. Personally, I thought the results of Publicis and Hello Fresh were very good and those of Suez and Veolia were a little disappointing. The market seems to partially disagree with me and rewarded Hello Fresh with a negative monthly return, and Suez with a positive monthly return.

Then there is only one stock left. JC Decaux reported a loss over the second quarter and is the company that so far has been hit the hardest in the portfolio. As I bought it somewhere by the end of the month I luckily avoided the largest pains. I will cover this stock later in more depth to decide the way forward with this stock. Again, stay tuned!

Earnings Announcements, Part 2

The following portfolio companies will announce their quarterly results in August, which may once again shake up the portfolio quite a bit:

  • Ahold Delhaize ($AD.AS): August 5th
  • Nikon ($NKN.F): August 6th
  • Ebara ($EAR.F): August 11th
  • Flow Traders ($FLOW.AS): August 14th
  • Koninklijke Boskalis Westminster ($BOKA.AS): August 20th

Stock Scorecards


For the first time in a few months I plan to add some money to my stock market account again instead of my savings account now that most of the financial impact of covid becomes public. Who knows what I will research next, and what might become the next BeursWolf investment case.

A New Golden Age

Let me start by making a confession: I invested heavily in gold in the summer of 2018 as I thought stock markets were overvalued (yes, this was a common opinion even back then) and there was simply more upside in gold. It took me quite some time to tell people around me that I had actually done this, especially because I had just told them I also invested in Tesla (and I did not want to get kicked out of the family just yet).

Looking back this entry point was incredible for both gold and Tesla, but for this story I want to focus on gold. I want to start with a short introduction on gold and how its price developed over the past 100 years. Then, I want to show you what has changed for gold over the past months (believe me, this data is incredible) and share my view on what might happen next.


The information ON THIS WEBSITE is not investment advice and does not relate to your personal financial situation, your knowledge and experience, your investment planning, investment goals and investment horizon, and your risk profile and risk tolerance. Therefore, when making financial decisions, please contact a financial advisor and do your own research. THIS BLOG IS FOR ENTERTAINMENT PURPOSES ONLY. You are responsible for your OWN investment decisions.

An Introduction to Shiny Metals

In ancient Egypt, other empires, and even in the United States gold has been used as a currency, leading to gold its current reputation as the original store of value (as the common saying goes: “gold is money, everything else is credit”).

The properties of gold – its scarcity, shiny looks, malleability and longevity (it does not corrode nor rust) – make it a metal that has the power to take control of people’s minds. Today, gold is even used as an industrial commodity as it is one of the best conductors for electricity. Just think about the way gold is part of our language (golden opportunities, being worth your weight in gold, etc.) and lore (Midas, pirate treasures, etc.) to see how important this metal once was in society.

Gold has been discussed a lot in the academic world of finance. It has been described as a lot of things, but something the academic literature can agree on is that gold is a terrible investment. Gold may be seen as a store of value, a hedge against inflation, or a commodity by the finance community, no study has been able to prove any of these properties useful for an investment portfolio. It has only been proven that gold is an inflation hedge on the long-term. However, this ‘long-term’ is often so long that it extends the time horizon of most portfolios or even a lifetime.

Even Warren Buffett once shared his opinion on gold. He sees gold as an asset that does not produce cash flows, and thinks gold is therefore not worthy of an investment. In short, gold will remain gold and will only make you money if you manage to sell it to someone else at a higher price. Are you willing to take that risk?

I am not going to debate science and one of the greatest investors of all time. Yet I think every controversy offers an opportunity. Thus, with the gold price nearing all-time highs, I thought it was time to take another good look at the price of gold.

“Every controversy offers an opportunity”


Explaining the Gold Price Chart

Historical gold data going back to the 1920s is hard to come by, so for a start I will use images of two charts from – one inflation adjusted and one not inflation adjusted – and a chart from with historical real interest rates.

In these charts, one of gold’s flaws becomes visible immediately: its volatility. The academic literature emphasizes this quite often, as this leads to lower risk-adjusted returns. Personally, I think this can be explained along the historical timeline, which I have divided into five periods. To understand these, it is important to see what the real interest rate has been doing over the same time period, which is why I added that chart to the mix.

1. Misery and Prosperity around a stable Gold Standard

In the first part of these charts, you can see that the not inflation adjusted price is hardly going anywhere (aside from the strong uplift around the great depression). This is because of the gold standard and the Bretton Woods system, of which the latter was in place until President Nixon ended the system in 1971.

The gold standard meant that each US dollar could be exchanged for a fixed amount of gold. The Bretton Woods system slightly changed this into a system where all foreign currencies had a fixed exchange rate to the US dollar, while the US dollar could still be exchanged for a fixed amount of gold (before this system, many global currencies had their own gold standard, which explains why so many central banks still own so much gold). This explains the incredible stability (and the declining inflation adjusted trendline) in part one, despite real interest rates and inflation showing extreme ups and downs over the same time period.

By ending the Bretton Woods system, the US dollar and all other global currencies tied to it became fiat currencies (a currency issued by the central bank without underlying assets – or intrinsic value – gaining its value from the collective trust in the institution that issues the currency). I personally think this caused gold to become a competitor to the US dollar (and with that US Treasuries) as they were no longer complementary but substitutes for one another (in terms of safe havens), which brings us to part two.

From part two onwards, an important relationship to understand is that US Treasuries become more attractive than gold as a safe haven when the (nominal) interest rate is above inflation (i.e. a positive real interest rate). This will drive down the demand for gold relative to US Treasuries and the US dollar. The other way around, US Treasuries are unattractive when inflation is higher than the nominal interest rate (i.e. a negative real interest rate). This will in turn (at least in theory) drive up the demand for gold relative to US Treasuries and the US dollar.

P.S.: If you want to learn more on the specifics of the history of gold, I can highly recommend you to watch some YouTube videos from Mike Maloney (just make sure you are not sucked into the conspiracy theories).

2. The Experimental Decade

After the Bretton Woods system ended, a decade of stagflation followed where inflation was high and real interest rates were more often negative than positive due to slow economic growth, altogether meaning that the US dollar lost value over time. As gold is perceived to not be directly influenced by inflation nor interest rates, and the emotional component of gold might still have held a place in people’s hearts at the time, this caused gold to soar to its highest inflation adjusted price point to date, at above $2,200 per troy ounce. This gold rush ended at the beginning of the 1980s.

3. Globalization and US Dominance

Even though the Bretton Woods ended, the US dollar was still the world reserve currency, meaning that most of the global transactions take place in US dollars. For example, when Japan and South Africa would exchange goods or lend money to one another, they were likely using US dollars instead of their own respective currencies (the US dollar was an independent third party means of exchange). Also, the petrodollar system meant that all exchanges involving oil had to take place in US dollars, leading to further dominance of the US and the US dollar in the global economy.

It should then not come as a surprise that in these decades of increased global trade, the introduction of the internet and high economic growth, gold lost terrain relative to the US dollar as the demand for US dollars skyrocketed. The real interest rate being in positive territory for decades meant that owning gold lost you money compared to owning US Treasuries. As the fiat currency system proved itself over this period (and the emotional attachment to gold also may have worn off a little), the gold price plummeted to an inflation adjusted price of below $400 (and a not inflation adjusted price of below $300). But then, something incredible happened.

4. Crisis and Financial Engineering: A Golden Resurrection

From 2000 to 2011, the gold price went from below $300 to above $1,800. Just imagine that an asset class that was once known for its stability went up six times in just over a decade. The first part of this rally can be explained by the dot-com crash in the stock market and the negative real interest rates (and historically low nominal interest rates) that followed afterwards.

Looking at the previously described history you may have expected that the gold price should have retracted from 2003 onwards as nominal and real interest rates started to move up again. However, this was not the case as 2004 marked the introduction of a new financial instrument for gold: the exchange traded fund. State Street Corporation introduced their gold ETF in 2004, making investments in gold more accessible to the public. As storing gold could also be centralized through exchange traded products (or these products did not have to be backed by physical gold at all) the storage and distribution costs associated with gold became less of a downside as well.

Gold gained global demand and started its rally to a not inflation adjusted all time high of above $1,800 in 2011, which was further boosted by the 2008 financial crisis and a new phenomenon that puts it in today’s era: excessive money printing.

5. Unchartered Territories?

I think we can safely say that gold was overbought in 2011, causing much of the pullback despite the real interest rate still being negative. Global equity markets started to show strong recovery signs, meaning that investors confidently shifted their funds back into the stock market. The nominal interest rate also started to pick up again, leading to further headwinds for gold as US Treasuries were, again, a more attractive alternative as a safe haven in an investor’s portfolio.

Yet, under the surface the money supply of US dollars was expanding. Many people (including the previously mentioned Mike Maloney and the notorious Peter Schiff) predict doomsday scenarios resulting from this practice. However, the increase in the money supply has not yet lead to a sharp increase in inflation, according to economists (the quantity theory of money) as a result of low velocity.

When looking at the graph depicting the M1 Money Supply from, there does not seem to be a direct relationship between the money supply and the gold price (especially since the gold price stagnated after 2013, while the money supply was still heavily expanding). Finally, at the end of stage five we can see that the decrease in nominal interest rates seems to have caused another upward move in the gold price, almost back to the previous all-time highs.

Personally, I think a true catalyst for even higher gold prices would be an actual increase in inflation – and not just money printing itself – as this will truly push investors away from holding cash (US dollars) and US Treasuries.

China and COVID-19: What’s Next?

The United States is undoubtedly losing its dominant place as the global political and economic leader. Global trade slows and multilateral relationships are replaced by (trade) disputes with China and bilateral relationships. As the US takes a step back on the world stage, the US dollar may suffer for it. And that, probably combined with the increase in the money supply, is exactly what we are seeing now.

Usually in times of uncertainty, and with a lot of uncertainty caused by a pandemic, the US dollar gains value as a safe haven. But as this was the initial response in March with gold losing relative to the US dollar (in a true panic sell), investors may have found a replacement for the US dollar. Gold.

Gold Demand

When the market crashed in March as a result of COVID-19, the gold price dropped in line with the stock market. Soon afterwards the gold price recovered, faster than the stock market. What is interesting to see in the chart below is that the gold price return in Euros in 2020 used to be almost consistently higher than the return in US dollars. Over the past month, the divergence completely went the other way around, implying that the increase in gold demand may be caused by a sharp decrease in the value of the US dollar.

Another interesting observation is that the steep increase in the gold price over the past week looks similar to the sharper increase just before the market crash at the end of February. This is pure speculation, but it looks like uncertainty is on the rise again in the investor community.

The previous chart also shows that gold returns year to date are between 20% and 25% depending on your native currency (Euro or the US dollar). These returns are unusual for gold and can be explained by the increased gold demand, which is truly incredible to see.

These charts show the price and volume of gold futures over the course of 2019 and 2020. In 2019 and the years prior, the volume would be almost negligible, with some seasonal end of the month spikes below 400,000 (the pattern is explained by the underlying nature of the futures contracts). In 2020 this volume pattern changed completely. The seasonal pattern might have been there in the beginning of the year, but after the market bottomed at the end of March, the volume spiked up to over 200,000,000 (far over 500x the 2019 peak in November). Barely visible on the chart, the volume on the last depicted trading day in 2020 (22nd of July) was over 200,000,000 again.

What does this all mean? If I could predict the future, I probably would not be writing this blog. My best guess would be that the downturn in the markets we have seen over the last couple of days might very well not be the last volatility of this summer, and if the flight to safety is not going to be into US dollars but in gold, it is very likely that we are going to see new all-time highs in the gold price. The other way around, it could also be that this is the start of a devaluation of the US dollar, which would bring us only further into unchartered territories.

In short, I personally think history shows three catalysts for higher gold prices, of which the first two are present and we might have just seen a start of the third:

  • Slow or negative economic growth (lower expected returns of stocks)
  • Low nominal interest rates (lower expected returns of US Treasuries)
  • Inflation and negative real interest rates (devaluation of the US dollar)

An Attempt to Value Gold

To close this post, it is worth mentioning that it is very hard to intrinsically value gold. Do you calculate the price based on a historical price point and extrapolate to today using inflation? Do you take the global wealth and divide it by the amount of gold? Do you just look at the production or extraction costs of gold for an indication of its value? All these methods have their shortcomings, which are similar to the problems in trying to value something like Bitcoin. In the end, it is worth what people want to pay for it.

Just as an exercise (for fun) we could take an approach through the US dollar M1 Money Supply today and the estimated amount of gold that has ever been mined:

  • The M1 Money Supply according to the previously shown graph is approximately 5,250 billion US dollars
  • The amount of gold ever mined is estimated at 190,000 metric tons, or 190 million kilograms

Using these numbers, we end up at $27,632 per kilogram of gold, or $859 per troy ounce (31.1 grams), which is over 50% below today’s gold price. Now you probably think that gold is overvalued and I am wasting time writing this piece, but remember that the Bretton Woods system could only be used for the gold that was actually owned by the US government.

The Wall Street Journal once reported that the US government owned around 6,200 tons of gold but that the actual number remains unknown. Another source reports 261.5 million troy ounces, or around 8,133 tons of gold. Using this 8,133 figure, we end up at a staggering $645,518 per kilogram of gold, or $20,076 per troy ounce, which is around 10x today’s gold price.

So I guess the question still remains: what is the actual intrinsic value of gold? The bottom seems to be significantly lower than today’s price, but the ceiling can hardly be defined either.


The gold price has historically seen more volatility than people may expect from a store of value, but I personally think this can be perfectly explained by the macro-economic trends and monetary policy. As higher interest rates are not in sight and negative interest rates may even be introduced on a wider scale, and uncertainty is still on the rise, I think the current economic and monetary circumstances will sooner result in higher than lower gold prices.

However, there are no clear fundamentals to show what the intrinsic value of gold should be, meaning that there is no clear roof on the gold price and only a questionable bottom price, which is significantly lower than what you pay today. Therefore, it is up to you to decide whether this metal earns a place in your portfolio. Personally, I am taking some gains out of my gold holdings because I do perceive an ever higher price as an ever higher risk given the past volatile performance of this shiny metal.

I am going to use Warren Buffett’s input to summarize this historical view in a more cryptic manner (hint: the first sentence applies to times of economic prosperity).

“The weakness of gold is that it will always be just gold. The strength of gold is that it will always be just gold.”


Five Steps to Financial Freedom: The BeursWolf Way

I have been following financial social media accounts for years. There are great YouTube channels, Twitter accounts and finance blogs that teach you about the basics of finance and that can bring you excellent new investment ideas. However, as of late I noticed these channels increasingly gain more followers, use more clickbait and love to mention one specific topic more than ever before: Financial Freedom.

In a pursuit of financial freedom, I see a lot of people on social media focusing on dividend investing, growth investing, product flipping, affiliate marketing and a lot of other initiatives (hustling?) to try to achieve the magical end goal: passive income. Apparently, the definition most people assign to financial freedom is a life where you don’t have to do anything because the money automatically comes to you (and you no longer have to actively work for it).

But is that actually what financial freedom means? And how ‘SMART’ (Specific, Measurable, Achievable, Realistic, Timely) is this goal for the average person? And most importantly: would you actually be satisfied if you were a product flipper or affiliate marketer for a living?

My Definition of Financial Freedom

Personally, I define financial freedom as a life where you are not restricted to do something you want because of money (you don’t have), or where you have to do something you do not like to do because of money (you need). By that definition, I achieved financial freedom just over two years ago.

Six years ago, I was temporarily living abroad and I was strapped for cash. I had to pick the activities I could do over a weekend, limiting my opportunities to enjoy my time in a foreign country. That is the moment where I realized that money was in control of my life and that I wanted to become financially free.

When I was back home I started a new job and a new life. I budgeted, saved, and invested. It took me four years to build an investment portfolio and a savings account that equaled twice my annual expenses. Continuing that trend, my portfolio and savings currently stand at just over three times my annual expenses.

My Freedom and My Options

You are probably thinking right now that I still have to work in order to sustain my current lifestyle, and you are absolutely right. The secret to my financial freedom is that I absolutely don’t mind doing that because I found a job that I absolutely love. The best part is that this job also enables me to save 50% of my income each month. This means that every year, excluding any investment returns, I save one additional full year of expenses. For every year I enjoy doing my job, I don’t have to work one later (if I ever wish to completely stop working, which I don’t want to at all).

This personal situation actually offers me a range of opportunities that I would define as financial freedom. If I would become very sick, I would not have to worry about money for the first three years, not taking into account any social benefits. If I would lose my job, there is social security to support me and I have enough savings to last until I find a new job that I love (or I can even start my own business). I can even decide to quit my job myself, start to work fewer days a week, or I can decide to move abroad, and start a new life again. The world is open for me to explore, and money is not a limiting factor. That is my definition of true financial freedom.

What About You?

You may be someone who is just reading this for fun, or you may be someone who is trying to achieve financial freedom yourself. Whatever your definition of financial freedom (or financial independence, which I would associate with a passive income that covers all expenses), I think the best thing to do is to start small. Here are some steps you can take to get started with your personal financial planning.

1. Define financial freedom for yourself

The first step would be to define financial freedom for yourself. The way I went around doing this was to ask myself the question: what do I want life to be?

Try to imagine that life for yourself. What would you need to get there, and more specifically, what financial resources would you require to live that life? That’s your end goal.

2. Break your financial end goal down in SMART goals

Your end goal ideally is SMART, so you can break it down into smaller SMART sub goals, which you can reach in shorter amounts of time. An example for the first year could be to save 20% of your income and to read a book about investing.

I believe leaving some room for error is important here, as it allows you to sometimes deviate from the path to do something spontaneous. This just happens in life and it should not make you worry about your financial goals. Carpe diem.

3. Build tools to track your progress

Use Excel or a Google Spreadsheet to build a model you can use to track your progress on, for example, a monthly basis. Think about monthly budgeting, investment planning (and tracking), or schedules to pay down your debt.

A fun way to motivate yourself to track your progress is to sometimes reward yourself. For example, when you did not overspend your budget in a month, buy something you like or plan a dinner with a friend you haven’t seen in a while. This way your life improves both ways.

4. Act on change

The hardest part of setting ambitious goals and to act on them is that it is sometimes necessary to make changes in life. These changes can be hard or easy, but remember to always continue to do the things you love.

Keep in mind that saving money does not always save you money, depending on what you decide to spend less on. I once decided to stop my audiobook subscription, finding out that this was actually the source of a lot of inspiration for my work and investments. I started noticing that saving money on audiobooks actually cost me money (and joy) in the long-term.

“Saving money does not always save you money”


Something that can help you in making these decisions is to make a spouse, close friend, or a family member part of your plans. They will understand and support (or challenge) you when you need it the most.

5. Allow for change

Everyone who once made plans in their life knows they probably won’t stay the same, and that is fine. When your life changes, for better or for worse, absorb the change into your plans and move forward from there.

If you were following your plan, you should be resilient enough to get through a downturn without too many problems. If your life changes for the better, for example because you made a promotion, don’t be afraid to increase your living standards if that makes you happier, and change your plans accordingly.


The secret to financial freedom is that it is actually more attainable (on the short-term) and more fulfilling than most of the role models make you think. Financial independence may be a nice goal as well, but can you truly ever be financially independent? Remember that nothing in life is guaranteed, and some changes just cannot be predicted.

Thank you for reading this post, which I would like to fittingly end with a BeursWolf Quote.

“Money is in service of your life, your life is not in service of your money”