Recently, I read (and re-read) several books and other content about our biases and how these affect our investing decisions (mostly negatively). Over-confidence is one of the very common biases. My learnings about biases motivated me to revisit my Flow Traders analysis …
In my prior Flow analysis, I estimated Flow’s value based on a scenario-weighted expected value. I used scenarios since its value is very much dependent on a few key value drivers. At least that was and still is my current belief. At the same time, I do not know how these key drivers will develop over the short, mid and long-term. The modeled scenarios, represented four individual paths that could be (randomly) taken today. But switching paths was not possible afterwards.
To tackle my over-donfidence I introduced some randomness into my valuation model. My first approach, was to define five scenario-states per key driver per year until 2030. Then I performed a monte carlo simulation or rolled the dice and recorded the output (fair value estimates). This was already very helpful, illustrating (below) the randomness, uncertainty, range of likely outcomes and helped me Thinking in Bets. My results indicated a significant undervaluation for the majority of cases, mean and median, triggering the questions if I trust my own results and assumptions.
Next, I refined my approach and introduced probability distributions for each key driver per year to incorporate continuous random variables (key drivers) and changed the random variable market share to market share gains, to prevent erratic changes from market share from one year to the next.
My investment decision: Overall, I trust my model and my valuations estimates as being good enough. Despite the indicated undervaluation, I will likely wait for lower prices when the odds are even more in my favour. This should be the case when earnings are cyclically depressed by lower volatility. >> Please click here for my Flow Traders write-up (pdf).
What are your learnings from such modelling? Important learnings or disregarded as a waste of time?
Company-related posts are tagged with the company’s ticker FLOW NA.
Specific company write-ups, valuations are in the Flow Traders N.V. company category.
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Einen tollen Blog hast du da! Bin per Zufall auf dich gestossen (du hattest Kommentare bei einem Flow Traders Artikel hinterlassen). VIELEN DANK für dein PDF zu Flow Traders.
Ich sehe das wie du, die Aktie hat grosses Potenzial. Werde den Kurs weiter beobachten und bei günstiger Gelegenheit zuschlagen.
Dein Portfolio finde ich auch interessant, freue mich schon darauf, die Aktien selbst zu recherchieren und mir meine eigenen Gedanken zu machen.
LG Tobias
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Hi Tobias. Vielen Dank für die netten Worte! Viel Spaß beim Stöbern
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Did you find the link in a facebook investment group?
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Nein, habe mich für Flow Traders interessiert und habe online (Google Search) alle Infos zu Flow Traders durchgelesen und bin dann auf SeekingAlpha (“Flow Traders The Perfect Hedge Against Black Swans”) gelandet und habe deine Kommentare zu diesem Artikel gesehen.
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OK! Danke, fast gedacht dass von SA.
Aber momentan kommt so viel traffic von FB 😀
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Very late to see this but have you never looked at Virtu Financial (NYSE: VIRT) the only other listed liquidity provider?
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Hi. Not that deep. Still a (postponed) to-do!
I like FLOW’s specilisation of ETPs which should see structural growth for years to come, Europe behind US, also the smaller player (was reason looking @FLOW instead of BLK – not neccessary the right decision)
Have a primer/thesis on VIRT ?
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