Greek Week Updated. An 11-Year Review

In my research and investing I stress three things: people, structure, and value.  I look for companies that are controlled and managed by quality people, have corporate structures that align minority and majority shareholder interests and trade at valuations that are below fair value if not outright cheap. Some eleven years and change ago I travelled to Greece, invested in a handful of Greek stocks and posted about the experience (see here).  This post is a follow-up to the trip.

At the time Greece’s financial and economic meltdown was headline news. Images of riots in Athens filled TV screens while news flow centered on its overextended banks, economic decline and possible EU succession. It seemed like a vicious cycle of bad news reports pushing the market down, which caused further panic, which pushed the market down, etc.

By the time I went in late June 2012 Greece’s headline index, the Greek ATHEX Composite, had fallen by nearly 89% in USD from its November 2007 high; and was down about 53% in the previous 12-months.  In other words, it was a very ugly environment.

Been here before I started to look at Greek equities because it reminded me of the 1997/98 Asian financial crisis. In particular Indonesia, where I first started looking at equities in 1989. The crisis in Asia turned into what was possibly the best time ever to buy Indonesian stocks. Like Greece in 2012, stock valuations were very inexpensive, there was very little market activity, and news flow was dreadful with each article seemingly painting a bleaker and bleaker picture as time went on.  

Over the next few decades, Indonesian equities, particularly those of quality companies, had a stunning run. From its 1998 bottom, the headline JSX index increased by over 14x over the next ten years. Quality companies did better. Some 8% of Indonesia’s listed companies went on to become USD 100-baggers. The blue chip ‘big’ cap stock Astra International was up over 200x (see here).

Greek portfolio My July 2012 trip to Greece was time and money well spent. It would have been easier and far less costly to just invest in the US listed Greek ETF (GREK) or the two USD listed ADRs, than to spend 10-days in Athens visiting companies and talking to anybody and everybody who could tell me about the background and reputation of Greek companies and business families.

The methodology for selecting stocks is the same I use currently. I buy stocks based on the three key criteria stated in the first paragraph of this and most of my other posts. Good people, alignment of interests between minority and controlling shareholders, and generational low valuations. At the time I went, Greece was the world’s least expensive market trading at 3.6x its last ten-years inflation adjusted PE ratio. At these levels, and with all the negative news, just about everything was value so I could concentrate on quality (people and structure).

I invested in six stocks after my trip. They were Jumbo (stock symbol BELA), Public Power Corporation (PPC), OPAP–Greek Organisation of Football Prognostics (OPAP), Motor Oil Hellas (MOH), Hellenic Exchanges (EXAE), and Folli Follie (FFGRP). I dabbled in others, but this was my core long-term portfolio. They were initiated at equal weights.

    Jumbo is a retail chain of toy stores that also sells other household items. It’s family founded and still run and managed by its biggest shareholder and founder, Apostolos Vakakis (https://www.e-jumbo.gr/)

   Public Power Corporation, now known as the PPC Group, is Greece’s leading electricity producer and supplier. The government has been divesting since 2016, but retains a 34.1% stake (https://www.dei.gr/en/)

    OPAP is the largest gaming/betting company in Greece. In 2013 the Greek government sold its remaining stake to a private equity fund (https://www.opap.gr/)

    Motor Oil Hellas is one of Greece’s largest oil refining and petrol retailers. It’s controlled by the Vardinogiannis family (https://www.moh.gr/en/)

    Hellenic Exchanges, better known as the Athens Exchange Group, operates Greece’s stock exchange (https://www.athexgroup.gr/)

    Folli Follie is a retail chain of affordable luxury items such as jewelry, watches, handbags and other accessories. In 2018 it was revealed that the group’s management inflated sales and profits via fake documents with the founding and major shareholders, the Koutsolioutsos family, reaping the benefits (https://www.follifollie.com/cm-en/)

Readers should note that while I initially bought the stocks above, I did not hold this portfolio over the last eleven years. Most of the money I earned from “Greek Week” was invested in a fund I started in 2017. It uses virtually the same methodology and process I used to select stocks in Greece and elsewhere. Buy quality companies (good controlling shareholders and aligned structures) during a crisis (value).

I do however want to know how my stock picks did over time and I thought readers could benefit from a long-term perspective. In other words, the stock picks are real but the returns are - unfortunately for me - hypothetical.

Decent returns despite a big mistake  As seen in the adjacent charts and graphs my six-stock Greek portfolio did pretty well. Based on just share prices alone, its 11-year CAGR was 14.9%, or a total increase of 360.3%. Not bad and better than the S&P500 over the same period of time, which had a CAGR of 11.5%. 

Note that this includes 130bp per annum of transactions and custody fees. This is what I paid in the most recent quarter on my last remaining holding at my Greek broker. The high percentage is due to the small amount remaining in the account and the fixed/minimum payment for custody, VAT, and transaction fees such as receiving and reinvesting dividends.  Without these charges the six-stock portfolio's CAGR increases to 15.7%. 

Please note that the remainder of this post will disregard custody and other fees.

Including dividends received, and factoring in Greece’s 15% dividend withholding tax, the hypothetical return increases to 491.3%, with a CAGR of 17.5%. Another way to put this is that sticking with the core six stock portfolio over the last eleven years, and just sitting back and collecting dividends, the initial USD10,000 invested turned into USD59,100.

Reinvesting after-tax dividends further boosted returns. About 140 basis points per annum could have been added to the returns by simply collecting after-tax dividends and buying stock in the same company after the dividends were received. While 140bp doesn’t seem like a lot, over 11-years this amounts to USD8,043 or 80% of our original investment. The CAGR from this simple after-tax dividend reinvestment strategy would have been 18.9%, or USD67,100. 

Note that these calculated returns include a 100% loss in one of the six stocks I selected. Folli Follie turned out to be cooking the books and its price crashed to virtually zero when the fraud was exposed in 2018. The CAGR return of a five-stock portfolio, without Folli Follie, would have been 20.9%, for a hypothetical total of USD80,600.

Note that in all scenarios, the core portfolio return was much better than US listed Greek ETF, GREK, which is not too far from where it was eleven years ago. Its lethargic performance is mostly due to the abysmal showing of Greek banks, which were a big proportion of the ETF and still are at about 30%.

In retrospect, the best decision I made was not investing in Greek banks. Banks are inherently leveraged and when things go bad at banks, they really go bad. This happened in Greece with the banks going through several recapitalizations. Stock prices of the big four Greek banks fell by over 99% between then and now.

Coulda, shoulda done better While the return of my core portfolio was not bad, it could have been better. The best performing holding, Jumbo, was just the 15^th best performing Greek stock over the last eleven years. The best, and one that I was a aware of at the time, was Epsilon Net, a software company whose share price is up nearly 200x in the last eleven years. Another IT company, Quest Holdings, is the second best performing stock in Greece having risen by 45x in the last eleven years. Other tech companies dominate the list of the ten best performing stocks over the last ten years. The growth in technology over the last eleven years did not pass Greece by. Nor did it pass over more savvy investors than myself. 

Contrast to Turkey. As noted in the original blog post the neighboring Turkish market was hitting all time highs when I was in Greece in 2012. I didn’t go there, but suspect the mood in Istanbul was much better than the depressed mood in Athens at the time. I don’t remember anybody recommending Turkish stocks, but I distinctly remember that almost nobody was recommending Greek stocks. However, things go in cycles and this certainly happened in both countries. Over the next eleven years the Turkish market, as measured by their headline BIST100 index fell 28.9%.

Learnings

• People, Structure, Value. A key takeaway from the trip and this review is that my core investment strategy works.  While this is just one example, I’ve used the same strategy elsewhere and it appears to be effective, with my handpicked portfolios outperforming most comparable headline indexes and ETFs.
• Choose a good time frame. One reason the portfolio looks good is that Greek stocks have had a good run recently.  The Athens index has been one of the world’s best, rising by 44% so far this year and 58% in the last 12-months alone. If we had done the same exercise one year ago, the portfolio’s dividend reinvested CAGR would have been just 12.9% instead of 18.9%. Holding tight in just the last year added USD33,570 to our hypothetical returns.
• Hold long and strong.  Psychologically, it would have been hard to hold Greek stocks over the last eleven years. During this time there were numerous protests, government changes, and a tremendous number of articles and news shows about how poor and hopeless the situation in Greece had become. In 2013 a big index provider relegated Greece downward from a developed to an emerging market. Investors had to put up with four years of capital controls which made it near impossible to get money out of Greece (June 2015 to Aug 2019). As can be seen in the charts, after a very nice two-year run, the next seven years were humbling with most stock prices below their recent high water mark.
• Dividends matter, especially if they’re reinvested. As noted in the text above, dividends reinvested increased the returns. Shares bought with dividends this year, will earn even more dividends next year, and so on, and so on. In the last eleven years after-tax dividends received from Jumbo and OPAP were 171% and 193% of each stock’s respective purchase price.
• Don’t be a dividend hog. The best return of the six stock portfolio, PPC, did not pay any dividends. This is ironic as typically utilities - such as PPC - are bought for their steady yield. This is what I call a ‘double negative’.  An out of favor sector/stock in and out-of-favor country.  Who would ever want to buy a government owned, non-dividend paying utility in a seemingly bankrupt country going through a financial crisis?? It was amazingly cheap on a 10-year average PE and DY; and was also very inexpensive on a market cap to power supply capacity. Double-negatives don’t always work – they can and do go bankrupt or get delisted – but when they do it can be very sweet.. 
• Be cognizant of global trends. Of the top ten performing stocks in Greece in the last eleven years, half were IT or technology related. Globally this has been one of the best performing sectors and so it was in Greece.
• Don’t buy frauds. Not much to add here. I made decent money on Folli Follie as I sold a year or so before the fraud was exposed. It’s good to be lucky, but this was making money for the wrong reason. I sold for two reasons. First, was the lack of people in their stores. Second, the great John Hempton (see here) thankfully noted that Folli Follie was a fraud as their numbers didn’t add up.
• Avoid banks. As noted above the stock prices of Greek banks were abysmal over the last 11-years. Please see this Financial Times article which does a much better job than I in explaining why banks are very risky investments (link is here).

15 July 2012 - 15July 2023
(USD)
Name	Total Return	CAGR	Asset Value 15 July 2023 ($10,000 start)
Portfolio With Fees (Without Dividends)	360.3%	14.9%	46,031
Portfolio (Without Dividends)	396.2%	15.7%	49,619
Portfolio (With Dividends)	491.3%	17.5%	59,132
Portfolio (With Dividends Reinvested)	571.8%	18.9%	67,175
Portfolio Excluding Folli Follie (With Dividends Reinvested)	706.1%	20.9%	80,610
S&P 500	232.0%	11.5%	33,200
BIST100 (Turkish Headline Index)	-28.9%	-3.1%	7,110
Greece Hellenic Petroleum (Now Hellenic Energy Corp.)	166.2%	12.1%	26,620
Lamda Development	371.2%	19.4%	47,120
Alpha Services & Holdings	-95.2%	-28.0%	477
National Bank of Greece	-99.5%	-39.3%	47
Eurobank Ergasias Services & Holdings	-99.8%	-45.5%	23
Piraeus Financial Holdings	-100.0%	-60.4%	1
	CAGR	CAGR with dividends reinvested	Total Dividends Received/ Initial Investment
Jumbo	22.0%	25.7%	171.2%
Public Power Corporation	23.4%	23.7%	3.7%
OPAP	13.8%	21.2%	193.4%
Motor Oil Hellas	14.4%	18.1%	126.3%
Hellenic Exchange	7.3%	10.7%	70.0%
Folli Follie	-100.0%	-100.0%	12.9%

Many thanks to Smith Lee ChengChung (李正中) for crunching the numbers, preparing the visuals and help with additional research. Smith will be a year four student at National Taiwan Normal University this Fall where he’s an English major.

Disclosure: The above is written for entertainment purposes only and should not be relied upon for anything at all, especially financial and investment advice. One should assume the authors have financial interest in one or all of the companies mentioned in this post.