“David, Sunday is for me the day to look at the weekly charts and to review the market and try to analyze my many mistakes. Your "the charts will tell us" is the only important rule to follow, but how difficult it is to follow that rule and not to keep hoping or ignoring facts and to be objective. I am long VW and Porsche, bought them too expensive, should have stepped to the sideline or even should have shorted them based on the chart action. Low P/E values and good prospects didn't protect me. Now would be the time to buy not to sell. The reason for writing to you is not the above mentioned but the following. Isn't this the perfect time or timing for Mario Draghi to increase the shrinking balance sheet being a headwind to the European economy and start buying government debt from Italy, now in a recession, from Spain with unemployment still over 20 pct, or even from France in exchange for needed reforms? Surely with the DAX down 11 pct and having an export orientated economy depending heavily on the health of the rest of Europe and the pain they are feeling from the sanctions their resistance to QE should be at a low point. Would appreciate your opinion very much; hope you are well and enjoy you audios, do not change them please best regards,”

David Fuller's view

Many thanks for your long interest in Fuller Treacy Money, plus today’s email which may be of interest to a number of other subscribers.

OK, you probably wish you had bought VW and Porsche several years ago, and that would have been a good idea.  Nevertheless, you bought value and certainly did not pay over the odds.  However, stock markets can be volatile and you have been temporarily caught out by a wildcard event – sanctions and counter sanctions over Putin’s disgraceful behaviour in Ukraine – which is hopefully no more than a lengthy medium-term problem.  This can just as easily happen to the best big name brains in the markets. 

The most important sentence in your email, in my opinion, is: “Now would be the time to buy, not to sell.”  Absolutely, because these are two of Germany’s world class automobile franchises and they are both oversold on a short to medium-term basis.  VW has an estimated p/e of 7.88 and yields 2.4%, according to Bloomberg.  Porsche has an estimated p/e of 6.60 and yields 2.93%.  Excellent value, not least relative to Europe’s 10-year bond yields, and these shares should do very well when as the global economy eventually recovers.  VW is an Autonomy and Porsche is close to qualifying in terms of global sales. 

Re Mario Draghi, I agree there is a strong case for additional stimulus, including QE.  Moreover, I think additional stimulus from the ECB is all but guaranteed.  Even if Putin causes more trouble for European stock markets, which he easily could, that is very unlikely to be a long-term factor.  Buy stocks when people are frightened, commence selling when they are euphoric.