Investing in undervalued securities worldwide

Weekly Update 19 February 2024

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Bank of America published an interesting research report today which argues that European banks have become “too stable” for the good of the European economy.

Over the past couple of years, European banks have had to contend with interest rates that went up 4.5%, a spike in energy costs due to the Ukraine war, and recessionary economic conditions.

Yet loan defaults have hardly spiked, and banks have lost very little money to people not being able to pay back their debts.

Why is this?

Fundamentally it is because following the Global Financial Crisis in 2008-9, European banks became much more cautious. They scaled back their riskier trading businesses and hardly grew their loan books.

An example of the banks’ cautious lending approach is that 25 years ago, UK banks lent out all of their deposits. Today, they lend out only 75% of deposits, keeping the rest in safe securities.

In addition to the banks’ own caution, regulatory reforms have also played a role in limiting losses. Banks hold more capital against bad times and are subject to more stringent behavioural rules than before.

The end result is that banks have become safer than before.

The flip side of this increased regulation and safety is that investors, perhaps irrationally, remain wary of banks. Bank of America in its report argues that relaxing regulations would help bank valuations recover, which would allow them to lend more freely and thus grow the European economy.

Relaxed regulations would be a positive scenario for European banks in the short run, but I am not unhappy about the current strict regulations either. If banks are safe, a larger allocation to them can be made in the portfolio than if they were still as unsafe as before 2008.

European banks pay juicy dividends and buy back their shares at a good pace. They have shown their resilience against adverse conditions over the past couple of years. I am happy to hold them as long as their valuations remain abnormally low.

2024 performance
@triangulacapital +2.7%
$SWDA.L +3.8%

Portfolio changes
Mapfre was sold following poor earnings. It was replaced by Shell.

Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.

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eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 51% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

eToro (Europe) Ltd., a Financial Services Company authorised and regulated by the Cyprus Securities Exchange Commission (CySEC) under the license # 109/10.

eToro (UK) Ltd. is authorised and regulated by the Financial Conduct Authority (FCA) under the license FRN 583263.

Your capital is at risk. Other fees may apply. For more information, visit

Pietari Laurila is not a registered investment advisor and does not offer investment advisory, fund management or wealth management services.

Triangula Capital is a brand name, not an incorporated entity.

This page is provided for information purposes only. It is not a recommendation to copy the Triangula Capital strategy or to invest in any fund or security.

2009-2020 performance figures are from Pietari’s personal Interactive Brokers account. They are time-weighted returns calculated in accordance with the Global Investment Performance Standards (GIPS).

From 2021, performance is calculated by eToro.

Past performance is not indicative of future results.

Track Record

It is often said that past performance is not a guarantee of future performance.

That is true. But there is also some evidence indicating that portfolios that performed better in the past, do perform better in the future.

“[…] top-decile prior-alpha funds produce annual future alphas of about 150 bps, net of fees” Source

Risk warning: That is only one study. In general, past performance is not indicative of future results.

Aligned Incentives

Pietari invests the majority of his net worth in the strategy. This ensures that his interests are aligned with investors who copy the strategy.

“Funds with high-incentive contracts deliver higher risk-adjusted return, and the superior performance remains persistent. The top incentive quintile of funds outperforms the bottom quintile by 2.70% per year” Source

Risk warning: Pietari holds accounts with multiple brokers and may therefore have a conflict of interest when deciding which accounts he should trade in first.

Unconstrained Investments

The strategy has fewer constraints on its investments than traditional mutual funds.

The strategy portfolio can be invested in stocks, bonds or cash and these allocations can vary over time.

Compared to traditional mutual funds, the strategy also:

  • holds fewer securities
  • trades more
  • avoids following the index

Each of these points has been shown to be an important predictor of portfolio performance.

“We […] find that portfolio concentration is directly related to risk-adjusted returns for institutional investors worldwide” Source

“A one-standard-deviation increase in turnover is associated with a 0.65% per year increase in performance for the typical fund” Source

“We find that truly active funds significantly outperform closet indexers. Further, we find that the truly active funds are able to outperform their benchmarks on average by 1.04% per year” Source

Risk warning: Concentrated portfolios with few positions can suffer large losses if bad news arrives about any of the companies in the portfolio.

Cheap Stocks in Cheap Sectors

The strategy invests in geographies and sectors where values have collapsed due to macroeconomic problems.

Within these geographies and sectors, the strategy overweights stocks that trade at low valuations on measures such as price-to-earnings or price-to-net asset value.

Every stock in the strategy portfolio must also be a good company, with no obvious red flags or long-term threats to its business model.

The aim of the strategy is to maximize returns, even if this means taking more risks than usual.

Risk warning: The strategy portfolio tends to be concentrated in risky stocks, which means that its losses in any market downturn will likely exceed those of the market index.