lundi 18 septembre 2017

Portfolio review, september 18th, 2017

I sometimes ask myself about other guys who are 35-40 years old. How do they occupy their time?

I don't think I refuse to grow up, but a big part of me is very conscious of the fact that time flies. I want to live a mature, yet a reasonably wild life. Thus, I sometimes go out with friends and I try to live special moments. But I have a limit: I would never do something dangereous or violent. I just enjoy telling crap to people. But gentle and harmless crap. I like playing a part and seeing reactions.

It's probably the thing I like the most in life. I wonder what a normal 35-40 years old guy prefers the most?  Playing hockey with his kids? Doing Sudokus?

I have a young friend which has a lot of potential. He's 15 years younger than me but he's funny, intelligent, curious and wild. He also admires my way of seeing the world and tries to do the same as me, sometimes.

But he's a little too much looking for experiences. For instance, recently, he told me that he snorted coke on a toilet in a gay pub.

I was disgusted. How could someone snort cocaine in a place that received so much dicks and smegma and AIDS? I have nothing against gay people but I don't want to have anything to do with their dicks. Can you imagine the content of the dick of Freddy Mercury mixed with something going in your nose?

SHIT, YOU MUST BE PUKING BILE RIGHT NOW.

Ok, now, let's take a look at my portfolio. My performance so far in 2017 have been a little disapointing given the fact that my biggest positions have stalled and given the fact that the US dollar has lost about 7 cents (my US stocks represent about 50% of my portfolio).

Alimentation Couche-Tard: 8,1%
Constellation Software: 6,9%
CGI Group: 6,7%
Linamar: 6,1%
MTY Food Group: 5,5% 
Tucows: 4,8%
Hardwoods Distribution: 3,8%
Stella Jones: 3,3%
Knigh Therapeutics: 3,2%

Ross Stores: 6,4%
Bank of the Ozarks: 5,4%
Novo Nordisk: 5%
Dollar Tree: 4,8%
Biogen: 4,6%
LKQ: 4,5%
O'Reilly: 3,5%
Credit Acceptance Corp: 3,3%
Disney: 3,2%
Mohawk: 3,1%
Middleby: 2,5%
Bioverativ: 0,9%

Cash: 4,4%

Average ROE: 29
Average forward PE: 16
Average Beta: 0,8

jeudi 14 septembre 2017

The average price of your shares

A few years ago, Bernard Mooney wrote something about the average price of your shares as an indicator of the quality of your portfolio.

It's surely not the best way to evaluate a portfolio. After all, many stocks went from pricey to cheap overnight (AIG, Valeant, Blackberry and many many others). Nonetheless, usually, a pricey stock is better than a penny stock.

Only crazy fuckers will say that a penny stocks portfolio could be solid. I always face palm myself when I read people writing that they have some great fucking idea investing in a super new penny stock. All I can say is that you don't get lifetime products in a Dollarama. You can't prepare your retirement with products from a Dollarama. Because that's what penny stocks are: cheap worthless stuff, 9 times out of 10. If you consider yourself as a serious investor and a large part of your portfolio is occupied by stocks under 1$ (and even under 10$), you surely had some problems with your ombilical cord at birth. Admit that you're only a gambler.

One of my first advices to any new investor would be to avoid the Venture at any price, whatever the ROE of a stock is. Don't think you are smarter than the market. You can't do well if you buy cheap shit. Don't buy cheap fucking shit. If you do it anyway, fuck you. Lose all your money because that's what you deserve.

Ok, so, if I take a look at my stocks, my cheapest is Knight Thrapeutics (about 8,50$ CAN).

I have a few "hundred dollars stocks":

Constellation Software (685$ CAN)
Biogen (320$ US)
Credit Acceptance Corp (265$ US)
Mohawk (250$ US)
O'Reilly (210$ US)
Middleby (120$ US)
Disney (100$ US)

Most of my other stocks are priced at something between 40 and 80$.

Please, don't take this post too seriously because there's nothing that rationnal here. The main argument here is not that pricey = quality... but cheap = crap.

Those inclined towards these stocks are not investors. They're pee-wees. Bantams at best. 



jeudi 7 septembre 2017

Keep it simple like AC/DC but don't choke in your own vomit

I like AC/DC. They always keep it simple: three or four chords songs with lyrics about only two topics which are sex and hell.

See for yourself:

Hells Bells
Highway to Hell
You Shook Me Hell Night Long

They've done that for 40 years and it still works. They won't be worshipped as geniuses in the history of rock and roll but they should be remembered for a recipe that works again and again by just singing about sex, hell and sex in hell.

As an investor, we should do the same. For myself, I try to do that. I'm always looking for the simplest yet best recipe to apply to find a good investment.

For a while, I thought that ROE was everything.

Lately, I've found out that growing free cash flows was a great indicator of performance.

And more recently, by analyzing some rare but great investors, I've found that combining these two factors (ROE + growing free cash flows) was the best thing to do to find winners.

I've took my spreadsheet about the great stocks I follow and I've added the A-B-C-D factor.

A is a stock with growing free cash flows over the last 5 years without any exception
B is a stock with growing free cash flows over the last 5 years with one or two years with a decreased followed by an increase
C is a stock which isn't steady with free cash flows
D is a stock with some negative free cash flows

I know I've written about that in the last few months, but I've improved my view.

Try that. Try to find growing free cash flows for 5 years. You'll find it very hard. But once you'll find them, you'll see that, in the long run, these are the best stocks. Combine that with a high ROE and you've got an handful of winners. Almost none of these stocks will do badly in a long period of time.  You may find an exception here and there, but if you build a 20 stocks portfolio sharing these similarities, you may see something like these five "A" rating stocks.

They're almost all expensive. But that's probably the only stocks for which you shouldn't bother paying more. 

Priceline (PCLN)
Credit Acceptance Corp. (CACC) 
Constellation Software (CSU.TO)
Boyd Group (BYD-UN.TO)
Enghouse Systems (ENGH.TO)


mercredi 30 août 2017

Robbing a beggar

Have you found ways to make money with Hurricane Harvey?

Not me.

Here's the only way I've found to make money lately. Very little money in an absolute way, but maybe a lot of money in a relative way.

Yesterday, I went out to play some music in a bar where I sometimes go. Between songs, I go out with a friend who smokes and we speak mostly about music in general and the making of "Trout Mask Replica" in particular. That's a completely fucked up album made in 1969 by Captain Beefheart. It sounds mostly like a pile of noises. But many very big music fans rank it as one of the best albums of all time, like my friend.

The recording of the album was crazy. Beefheart forced his band to disguise themselves during the sessions. And they had no money. So they rationed food and they had something like a can of beans each day for all the band. Even if you don't like this music (which is my case), you should read a bit about the story of that recording. You'll get to another dimension.

Anyway, we're talking and laughing about that album and suddenly, a beggar comes to us on his bicycle:

Beggar: Do you have some spare change?
My friend: No
Me: No. You, do you have spare change? Because I need it too.
Beggar: I only have 25 cents.
Me: Ok, I'm gonna take it.
Beggar: Ok, here it is.

And the guy actually gave me his quarter.

And he goes to see other people outside the bar to ask them for money.

That's the craziest money I ever earned.

Much more memorable than 10 000$ mare on the stock market.


samedi 26 août 2017

The price to pay

About 3 years ago (july 2014), Dollar Tree announced it was planning to acquire Family Dollar.
  
About one year later (summer 2015), each Family Dollar shareholder got 79,55$ for each FDO share they owned (59,60$ cash + each stake of 4 FDO shares got transformed into one DLTR share).
Given the fact that FDO EPS was about 2,50$ in 2014, DLTR paid a high price. More than 30 times FDO earnings. And FDO wasn't growing like a stock that should be selling for 30 times earnings.

At the time it happened, I said to myself that it was expensive but exciting.
The integration can’t be fast and very effective when you're doubling the size of your business (it was a 9B$ transaction) by buying something that doesn't grow that much for 30 times earnings. 
 Managers weren’t wise to pay that price. That's exactly the opposite of what Couche-Tard managers usually do. 
DLTR managers were probably nervous that Dollar General would buy Family Dollar. So they raised their offer and they paid a generous price.

I was tempted a couple of times to sell my shares. But I liked the sector. And I thought the transaction was promising.
As seen below, it took time for the market to recognize the benefits of the transaction:  

***************

Price of DLTR shares, August 2014 : 53$ 
EPS released in august : 0,59$

Price of DLTR shares, August 2015 : 76$ 
EPS released in august : (0,46$)

Price of DLTR shares, August 2016 : 83$
EPS released in august : 0,72$

Price of DLTR shares, August 2017 : 80$
EPS released in august : 0,98$

****************

If it wasn’t for this week’s soaring, the price of DLTR shares would have been the same as in 2015. 


Yes, it took time. But this week, the results were great. DLTR beat estimates by 12 cents (14%) which is great. After a few years of stalling, DLTR is going in the right direction.

My advice would however be to sell a stock when a big acquisition is going for a high price. Just sell, and keep a close look. Jump back in the train if it goes well after a certain time.

mercredi 23 août 2017

John Malone and Liberty Media (FWONK)

My 14 months daughter eats hair. That's true. She crawls everywhere in the house and when she finds some hair (my girlfriend has long dark hair), she takes it and then she puts it in her mouth.

My girlfriend told me that my daughter also eats grass and that she once tried to eat a spiderweb.

These fucking babies are so crazy and stupid!

Us, investors, are much more rationnal and wise. That's why we eat transformed food flavored with cancer and we invest in Valeant.

For some people, the ultimate level of intelligence and wisdom is John Malone. Let's precise that these people are investors because if you go on the street and ask who John Malone is, I bet you a handful of dark hair that nobody will answer correctly.

Personnaly, I don't know the guy. That's why I made a little research about him and his creature, Liberty Media, which is a stock I wrote about recently (it's a new position of Sequoia and Giverny Capital).

Who is John Malone? 

Age: 76 (born in 1941)
Citizenship: American
Personnal wealth: 7,8 billion US$
Nickname: Cable cowboy
Chairman of the board of Liberty Media

What is Liberty Media?

Liberty Media owns interests in a broad range of media, communication and entertainment businesses. Below is a list of most known entities that are part of Liberty Media and the ownership percentage of Liberty Media in these positions.

Atlanta Braves: 100%
Formula One: 100%
Sirius XM: 68%
Live Nation Entertainment: 34%

These 4 businesses are great. A sport team, a huge car's race festival, a satellite radio company and the largest live entertainment company in the world (many famous bands and artists are associated with Live Nation, such as Shakira, Katy Perry, Roger Waters, Bruno Mars, etc).

Entertainment is, in my opinion, a great sector to invest, as long as it could resist to technology evolution. Which is the case here, at least for the next few years. 

Some sources on Internet are relating that John Malone has achieved to compound capital at an annual rate of 30% for about 25 years. I'll say they're right because agreeing with any Internet source is the easiest way to live your life.

Malone has the reputation of being a low cost operator focusing on long-term after-tax cash flow instead of short-term accounting profits. If you take a look at FWONK numbers, you'll see it's not that easy to understand. Personnally, I think that the accounting is a little bit complex. Malone likes depreciation and spin-offs a lot. That's what he uses to create value. That's super great to read, but harder to analyze.

Three years ago, many people said that Michael Pearson was an unbelievable manager with lots of skills for value creation... although Valeant accounting practices were complex. I'm not saying here that Malone is similar to Pearson. But I like to see clearly into numbers, which isn't the case with Liberty Media.

Nonetheless, I believe that this stock is a conglomerate of great businesses and that we should look deeper into it.
 


lundi 21 août 2017

Sequoia fund investor day transcript

My favorite financial reading of the year is out:

Sequoia fund's investor day transcript.

It's gonna be easy for me today because I'm only gonna copy some main ideas about the transcript. These are all facts that I like and that I agree with.

There's a little bit jerking-off here and there in the transcript. But we're all humans. Who never wanted to cum in public?

First of all, on june 30th, Sequoia's top 5 holdings were:

Berkshire Hathaway: 11,3%
US Treasury bills and cash: 8,7%
Mastercard:7,7%
Alphabet: 6,5%
TJX: 5,9%

Between december 2016 and march 2017, Sequoia reduced their stake in Berkshire from 17% to 12%. Berkshire is still a great business but growth shouldn't be spectacular.

They are very focused on owning high-quality companies and they measure it by the return on equity of their portfolio which is significantly higher than the ROE of the S&P.

The PE multiple for Sequoia is about 10% higher than it is for the index. They believe they own first rate companies and management teams, which deserves at least a small premium to the Index.

The market is smart. Business quality is clearly well appreciated. High quality business rarely trade for truly bargain prices. But businesses do periodically trade  at a discount to their intrinsec value (INTRINSEC VALUE: A concept as vague as god or love, in my opinion).

Priceline is a kind of duopoly with Expedia (such as Mastercard and Visa). It's expensive but it deserves a premium valuation because the growth rate should continue to be very high for the next years.

O'Reilly has a very sustainable moat on the commercial side of the business. They have by far the most efficient distribution system in the business. The company can deliver a part in a garage in a matter of minutes, which isn't the case at all with Amazon.

Credit Acceptance Corp (CACC) has a different business model than other lenders in the auto industry. Their ROE is high (in the 30's). They also have a very shareholder friendly management team (they bought back more than 50% of the shares since 2005). The founder of the business is the most important shareholder. Personnal note: I like that stock even if analysts seem to hate it.

Mohawk is a cyclical company (related to housing market). It has however changed a lot and is now very well positioned for the future. There is no other flooring company that has the product range, the geographical exposure and the management talent that Mohawk has.

Many home runs for Sequoia have been midcap picks (TJX, Fastenal, Mohawk, Idexx). They mainly look in that space for investment ideas.

And much more about Google, Carmax, Liberty Media and others...