Phoenix Double Signal

Buys by the recipe we back-tested for the return from a real crisis. What is looked for first is the crisis itself: at least two consecutive fiscal years with a loss, and in the latest of them at least one sign of balance-sheet distress as well — negative operating cash flow, current assets below current liabilities, equity that is negative or has fallen sharply, or a cash balance that no longer covers four quarters at the current rate of cash burn. A purchase only happens once at least two DIFFERENT signs of life come together afterwards, either in one set of annual accounts or spread across two consecutive ones: operating cash flow is positive again even though the bottom line is still a loss; revenue accelerates out of stagnation; net debt, meaning financial debt minus cash, falls without new shares being issued for it. Only a return achieved under the company's own steam is bought: anyone who paid for it with fresh shares or by selling off half the business does not enter the portfolio. Purchases start from 100 million dollars of revenue — that is the only revenue base on which the signal carried in the back-test; below it, the signal lost money. Banks, insurers and financial services companies are excluded. Only shares our own deep-dive analysis rates green are bought — yellow or no analysis at all is not enough. New positions are added once a month. Selling happens without a fixed holding period, namely as soon as a share drops off the list because its latest set of annual accounts no longer carries two signs of life. That is exactly the exit that produced the best figure in the back-test: 21.13 percent per year against 20.23 percent for a fixed twelve-month holding period, and against 10.46 percent for the S&P 500 including dividends. The other side belongs to the picture: barely half of all crisis companies ever reach another profitable year, and the typical single position returned only a good 5 percent over twelve months — the annual figure comes from a few multi-baggers. If the list holds no green-rated share, the portfolio stays in cash.

This portfolio buys shares.