I have been long on premium German carmakers for some time now, on the basis that a weakening Euro and a growing China would make premium European brands a good investment. This makes the recent news of the VW scandal a fascinating moment for me.
I’ve held BMW and Daimler (Mercedes), but not VW. My omission of VW was deliberate; not because I think Golfs are less premium than 3-series and C-classes, but because I have never liked the shareholder governance at VW.
As soon as I read the VW news I sold my entire BMW and Daimler holdings. This proved to be a timely call, because both stocks have fallen by over 10% since I sold. I don’t normally sell holdings and I do still consider BMW and Daimler to be good long term bets. But my gut told me that where there is smoke there is fire, and that the Germans hunt in packs, and whatever VW is being pilloried for is probably going to splatter its near rivals too. So until the dust settles, I’m going to sit the sector out.
But the wider point here is my original decision to avoid VW. I know it is too early to claim full vindication here (though I am certainly not the only investor to make this subjective call – VW’s has traded at a ~20% discount to less-premium Renault, for instance). Why did I decide shareholder governance at VW wasn’t good enough for me?
There is a lot to like about VW. It has large family holdings – which is usually good for a long-term outlook and dividend policies. It has scale, and a pretty clear strategy. It is ‘based in the right place’: Germany == Automobiles.
However, there are also some big red flags about VW: Continue reading “Dodging an automotive bullet”
FIRE v London 