Reklambanners förhandsgranskas inte på något vis av bloggen och kvalitén på det som marknadsförs är milt sagt varierande. Vid börsintroduktioner rekommenderar jag alla läsare att titta på min checklista för att utvärdera sådana erbjudanden (länk).

fredag 12 augusti 2016

The peculiar nature of the Swedish stock market

I prefer to focus on the Swedish and Nordic stock markets and therefore pay relatively little attention to American, British or other English-speaking blogs. Attentive readers may however have noticed that I follow one English speaking blog named Expecting Value. This blog post is partially a follow up on a comment I made on his blog (link) so unlike my normal writings this post will be written in English.

As an investor I try to focus on companies with an attractive combination of growth and dividends (explained here). Finding companies that are cheap enough (ie, providing a high yield) while still displaying attractive growth characteristics have however become increasingly hard on the Swedish stock market which have encouraged me to look at alternative markets for some of my investments. In one case this have led to the purchase of a UK-based company (Judges Scientific) and I am currently going through some exceptionally cheap Norwegian companies together with fellow blogger and Atea enthusiast Långsiktig Investering.

During this process I have come to realize that just like on many other topics Sweden is a rather extreme country regardless of if we compare ourselves to our Nordic neighbours or the rest of Europe. Swedes invest roughly 20 % more money in the stock market per capita than culturally similar countries and more than twice as much per capita than people in the major European economies.

The proportion of equity held by individual shareholders is however rather similar in Sweden and the UK due to the Swedish stock market pulling well above its weight when adjusting the total market cap for population size. Below is a table showing the total market cap of the London Stock Exchange and the major Nordic stock exchanges as well as the market cap per capita (sources: UK, NASDAQ Nordic and Norway).

UK Sweden Denmark Finland Norway
Market cap (B£) 2313 526 286 161 172
Mkt cap/capita (£) 35524 54803 50926 29561 33846

This mean that Swedes invest roughly twice as much per person compared to UK citizens but have access to a domestic stock market that is only 50 % bigger per capita. For large companies the influence of this high level of competition between individual investors is insignificant as large institutional investors travel the earth and invest where valuations are deemed attractive. But for microcap stocks I am starting to suspect that there is a significant difference between Sweden, the UK and perhaps more significantly Norway which have an extremely low level of activity from individual investors.

In Sweden the enthusiasm for the stock market among small investors now mean that even small IT-consultancy firms routinely trade at valuations above P/E 10 or even 15 (Provide IT with 13 employees currently trade at P/E 15.5). Many of these companies seem fairly healthy in the current economic climate, but the miniscule size of these companies mean that they are impossible to invest in for traditional fund managers who routinely seek an ownership of less than 10 % in passive investments.

I am not sure on how to handle this situation as I can see some benefit in the higher liquidity provided by small individual investors selling and buying shares in Swedish microcaps. Furthermore it is very hard as an individual investor to conduct proper due diligence of foreign companies. As an investor focused on a rather focused portfolio (10-15 companies) this mean that I am reluctant to travel abroad without very strong incentives. But with a diversified portfolio of high yielding microcap stock with good growth characteristics may be an attractive alternative rather than accepting the currently low yields in Sweden.

A small example regarding liquidity

When I published my analysis of Data Response ASA (link) the daily turnover of the stock went from 25 000 NOK to  630 000 NOK where the largest net purchaser of the stock was Avanza Bank (a niche bank with a high proportion of all small stock investors). As a result the total valuation of Data Response was increased by 15 MNOK which mean that the stock immediately became 2.5 % more expensive.

For me as as a tiny investor this low liquidity is not much of a problem as the size of each company in my portfolio is far lower. But for a fund manager it would be impossible to build a sizeable position over the stock market as the stock price most likely would increase far beyond the margin of safety if someone tried to buy shares for 100 MNOK.

15 kommentarer:

  1. Just a comment.

    One problem with the swedish individual shareowners welth is that it is uneven distributed (as I guess is also the case for Denmark).
    So the "average shareholder" in Sweden is not comparable to shareholders in other countries.
    But how this influence your investment case, I don´t know :-)

    (95% of individual shareowners own 2.5% of the total market cap in Sweden. The average individual portfolio is 120 kSEK and 50% of individuals have less than 28 kSEK)


    1. it is most certainly true but I don't think it affects the comparison much due to two reasons.

      1) Even the richest individual investors tend to be small enough that investment in small cap stocks in the 100-500 MSEK range are viable.

      2) The unequal distribution of wealth is also true for other countries.

  2. Thank you, this is interesting.

    Perhaps one reason is that we up in Sweden relatively early got good competition among stock broking firms targeting smaller investors (i.e. Avanza and Nordnet). When I compare to investing using foreign institutions (I have lived outside Sweden), fees etc. are significantly higher.

    We were once also forerunners in the mobile (phone) industry...


    1. Avanza and Nordnet have most certainly had a massive impact on the market and I think the privatization of Telia also might have had a positive impact even if it also scared a lot of people away. Essentially the older generation got scared away by a poor purchase and younger people grew up learning that stocks are a way to invest money.

      Regarding the mobile industry the situation is a bit complicated. Ericsson is not making a huge profit but they and Huawei are the only two companies well positioned for 5G. So we are stil forerunners but not making a huge profit from it. What worries me more is that we are lagging behind Germany on Internet of Things and automation in the industry where they have some huge projects.

      But hopefully the Wallenberg foundations might save us in the area thanks to the ambitious Wallenberg Autonomous Systems Program (

  3. I get a feeling that the pace of growing interest among swedes for stock markets are increasing yoy, with the long perspective my own interest developed I detect noticeable effect on liquidity in small caps over the pace of years which in turn had a favourable effect on investments in smaller Cos. Nice article btw. :-)

    1. Nice to get that piece of the puzzle supported by someone with your level of experience, thanks!

  4. maybe your stock market is relatively overvalued?
    When back at normal levels you are in the range again?

    1. I feel that the small cap market most likely is overvalued which is why I have been looking at companies in Norway lately. But the large cap companies dominating the market cap have gotten much cheaper since large year. OMX-30 (30 most traded companies) is currenyl valued at an P/E 16 and 4,2 % yield for 2016.

      So to get the Swedish stock market into range again we would see P/E 11 and over 6 % yields on average. Rather I think we have historical reasons for the relatively large market cap of Swedish companies. Sweden got a small local market and a history of exports/imports. For companies to go global it have therefore been necessary to raise capital to start earning money on the global market. Combined with horrible inheritance taxes in the 70s and 80s that forced comapnies like H&M to go public this mean that a high proportion of all large Swedish companies are traded on the stock market.

  5. Do you know any articles or blog posts on European super investors? Would also be interested to know about success stories of European individual investors. I am full time investor based out of India interested to know about investors in other countries.

    1. Now that you mention it I realize that I have never actually read anything about a European based investor with a solid reputation. I got some books in Swedish about Swedish investors but the best I can come up with is links to some good strategy sections of the best corporate investors in Sweden.

      I also like Didner &Gerge but their english page is not very good even if you may retrieve som good companies from their portfolios.

  6. Do you know any articles or blog posts on European super investors? Would also be interested to know about success stories of European individual investors. I am full time investor based out of India interested to know about investors in other countries.

  7. Thanks for a great blog, I wrote a post on my blog on a related topic

    1. Oh dear, it is worse than I imagined. May I hotlink some of your images and then point to you for further reading on the topic? I was planning to make a post on why "everyone" is beating the index.