mercredi 14 novembre 2018

Permanent stocks (new ones)

In august 2016, I wrote something about permanent stocks. A permanent stock is a stock with which you have a romantic relation. You're faithfull with them. You believe in them. You think about them at night. You wanna punch the face of someone saying nasty things about that stock.
At that time, I wrote that my permanent stocks were Alimentation Couche-Tard, CGI Group, Constellation Software, Ross Stores and Dollar Tree.

Dollar Tree went in the trash while all the others are still in my heart.

Some other stocks have entered my heart in 2018, by the moment Dollar Tree was out.

I'm talking about MTY Food group, Boyd Group, Google, Mastercard and Booking Holdings. I see them all as very solid businesses that either operate in a kind of monopoly or duopoly (Mastercard, Google, Booking Holdings) or that are very efficient operators that couldn't get down overnight because they're either very diversified or offer a product that won't fade away (MTY and Boyd).

It goes without saying that I would love to share a moment with the CEO's of these companies. Everybody knows that very rich people spend their time doing some very degenerate stuff like doing coke and make 3 weeks orgies with gay people with AIDS. When you're that rich, you can't do what other people do. You have to reach another level, and usually it's a level besides or over the law. So, perhaps that some of these CEO's do that kind of stuff. Actually, when I take a look at the picture of an highly respected CEO, I always say to myself that this guy has probably a lot of sperm in the ass.

But that's what makes them excellent. So, what's wrong there?  

dimanche 11 novembre 2018

Very high growth stocks

There's different growth stocks.

There's growth stocks that don't make money and that operate in a sector where everything has to be proven but for which there's a lot of excitation  (ex: cannabis stocks).

There's growth stocks that don't make money. Their sales are growing a lot but they don't earn profits (ex: Shopify, not so long ago).

There's growth stocks for which sales are growing or users or consumers, but they don't make a lot of money (ex: Netflix).

There's growth stocks for which sales are growing a lot, such as earnings (ex: Five Below).

All of these kind of stocks are usually selling at a very high PE ratio. You'll be very lucky if you can find one of them at a PE ratio under 25. Actually, some of them don't even have a PE ratio because they don't have earnings. LOL. Isn't it funny?

No, it's not. 

I keep a place in my portfolio for some high growth stocks, but it's not a large place. When these stocks disappoint, the reaction of the market is merciless.

It's a question of balance. When you have one of these high PE stocks in your portfolio, you should compensate with a lower PE stock.

Let's take a look at The Trade Desk (TTD): a new stock that's selling for a crazy price (about 100 times 2018's earnings).

Pros:

  • They operate in e-commerce (ad buyers), which is a nice sector;
  • The company doesn't carry debt. It's a major pro because if you're looking for a sustainable growth, a large debt would make it much more difficult;
  • These last quarters, the company has achieved an incredible growth rate of about 50% each quarter. That's fucking crazy; 
  •  Their return on equity is over 20, which is great for such a young company.

Cons:
  • You need an incredible growth rate to get that stock at an intesting price. Actually, the growth rate should be 100% per year to make it affordable in my opinion (let's see the evolution of the PE with a growth rate of 50%): 
    • 2018: 100
    • 2019: 68
    • 2020: 45
    • ... You have to look for 2022 to find an attractive PE, which is too far for me;
  • Datas about the stock are only avalaible since 2016. It's a major con and only young investors may not pay attention to that very important (lack of) information;  

I think that TTD is an interesting stock. But the short track record should be the reason to stay away for a moment. Another way of keeping an eye on it may be to put 1% of your portfolio in that stock and watch how it goes. Or look elsewhere. For instance, you could get Five Below with a PE twice lower and similar EPS growth (but lower sales growth). 

vendredi 9 novembre 2018

On the throne

Robin Speziale has written a new book. It's called "Capital Compounders" with a long subtitle: "How to beat the market and make money investing in growth stocks". 

Your life is limited. You have only a few decades left to live now (if you read this blog, you're probably in your 30's or more, so, probably something between 2 to 5 decades to live). That's not so long. And perhaps you currently have a cancer that's not been discovered yet (which is something that I have in mind most of the time), so bad surprises are just around the corner. And if it's not a cancer, maybe your girlfriend will leave you. Or you'll lose your job. Or your kids will need special help because they will have special needs. You'll surely fall into one of these categories sooner or later. And it's gonna occupy your mind full time.

That's why you have to be interested about your finances right now, when you're in a situation where you're not too distracted about other problems. But first, you have to know as much as you can about the stock market to do the right moves. And you have to invest that 1000$ you've managed to save during last month. Because when you'll be 60 years old, it will be too late. 

So, you have to read about the stock market even if it's boring as fuck. Incredibly boring. Yeah, You'd rather be back from work, lay down on the couch, drink a beer and watch that fucking drama crap "This is Us" on Netflix with that fucking enormous 400 pounds girl.But it won't get you anywhere. They're all fictional characters. But the weight of that girl is not fictional.

So, you should read the new book by Robin. And invest your money following his advices. Because you'll float when you'll be liberated from financial preoccupations.

We all float down here.

The book is good and interesting. It features a lot of advices from Robin which should be read. There's also some articles written by great bloggers like Penetrator and Be Smart Rich...

So, you should read that book. However, for me, the masterpiece of Robin will always be Market Masters, because there's an incredible load of work behind that book and tons of interviews with the greatest investors from Canada and some others not so good from some other countries (Bill Ackman). I recommend that book first and foremost. Then, the new book would be a great addition, after that one. 

Anyway, both books deserve to be on your throne. 

lundi 5 novembre 2018

Buying something with 100 billion dollars

When you have 100 billion dollars on hand and you're Google, you can't buy random stuff because you operate in a specific sector.and your purchase will be judged severly if it's too creative. But when you're Berkshire, you don't have to respect any kind of logic because you already own candy shops and railroads.

So, with about 100 billion dollars, what could Berkshire Hathaway buy? (100 billion dollars = about 20% of the value of the holding). 
The last big acquisition of Berkshire was Precision Castparts for 37B dollars, on august 10, 2015 (2 years and a half ago). What were the characteristics of that stock? 
  1. A company with a huge moat (parts for aeronautics)
  2. A stock with a fair PE on an historical basis (about 18 times next year's earnings which may look expensive, but for Precision Castparts it wasn't that expensive even if Buffett said it was expensive)
  3. A highly predictable stock
  4. A stock with growth prospects
If Buffett wants something that will have some impact on Berkshire, he probably won't buy a small or medium cap stock. So, even if Francois Rochon has said in the past that Carmax (KMX) would be the kind of stock that Buffett would buy, with a market cap of about 12B$, it wouldn't make a big difference on Berkshire.
So, let's speculate…
I believe Buffett will buy a big company (50B$ and more) that experiences some slowdown and is thus avalaible at a cheap price. Buffett rarely buys expensive stuff. So, here's a list of cheap medium or large caps with highly predictable earnings. I suggest a few not-so-large-caps because I think they're very cheap at the moment and they fit with Buffett's style. Carmax is among them.
Booking Holdings (BKNG): Forward PE = 19       predictability = 80%
Marriott (MAR): Forward PE = 19                         predictability = 60% (a little low for Buffett)
Cognizant (CTSH): Forward PE = 14                      predictability = 100%
NVR Homes (NVR): Forward PE =12                    predictability = 80%
Mohawk (MHK): Forward PE =11                         predictability = 80%
O'Reilly (ORLY): Forward PE = 18                          predictability = 100%
Carmax (KMX): Forward PE = 14                          predictability = 95%
 
I know that Buffett very rarely buys outside of the US, but here's two canadian stocks which I believe would fit with Buffett style and that are not that expensive.
Couche-Tard (ATD-B): Forward PE =  15      predictability = 85%
CCL Industries (CCL-B): Forward PE = 17     predictability = (not on Value Line but good anyways)

Buffett won't gamble with something that's not 80-100% predictable (according to Value Line). I'm sure that all the stocks above are liked by Buffett.

Feel free to add some ideas.

jeudi 1 novembre 2018

Coming to Toronto

When I was young, I read in one of my school’s book that Toronto was the most cosmopolitan city in the world. It was full of people from everywhere. It was so different from where I come from, which is a small city in the suburbs where everyone is white and everybody speaks french.

With 2 billions people or so, Toronto is an exotic place for me. Full of yellow people who speak Italian and practice sodomy. Everyone knows that cosmopolitan cities have wild sexual practices.

So, I’m a bit excited because it’s official: I will be in Toronto on November 24th. With my special friend Robin Speziale. And you, yellow and black and blue people from Toronto. Because smurfs are surely from Toronto. It’s so cosmopolitan.

Do you want to get drunk with Robin and I? If you’re interested, we invite you at a bar which I don’t know which is called « Fynn’s temple of bar » on 489 King Street west. If it’s a shitty place, feel free to tell it to Robin and make him feel bad because he’s responsible for that choice.

Let’s get there around 8 PM and let’s drink all through the night. Don’t be shy to come alone. I’ll know nobody except for Robin.

You’ll all be impressed by my French accent. I promise you. And if you don’t give a shit about me, you’ll have plenty of other people to talk to.

November 24th
8 PM
Toronto Downtown
You and me
Beers and dance

mercredi 31 octobre 2018

Expressions I don’t use anymore

Screaming buy
Undervalued
Overvalued
Priced for perfection...

These are some of the financial expressions I don’t use anymore or that I’ve never used. Why? Because they’re all easy formulas for something that’s not that easy to evaluate.

Let’s take two examples. Two great companies which operate in a duopoly industry and which are very predictable: Mohawk Industries in the carpet corner and Mastercard in the electronic payment corner.

Mohawk Industries (MHK): After a couple of disappointing quarters, MHK has fallen to it’s lowest price in 5 years. It’s currently selling for 10 times next year’s earnings which is exceptionally cheap  for that company. The average PE ratio has been around 18-20 for many many years even if it’s a cyclical company. But for the short term, I don’t see how things could improve that much. After all, many other construction-related stocks have been hurt a lot. But I trust historical datas and I’m sure MHK will be back to the 18-20 PE level in a few years. In other words, there’s no momentum there for the moment but it will be back like Rocky has been back stronger after his defeat. It’s probably gonna take the same time that it took between Rocky I and Rocky II.

Mastercard (MA): That one has been expensive for many years. But results have been great for years and it’s dominating position has improved steadily. It’s currently selling for 25 times next year’s earnings. But when you have a moat like Mastercard, when your ROE is that high (in the 80’s), when your growth is still spectacular (15-20% per year) and your debt level is low, how could you deserve a valuation of 15 times earnings?

So, these two are selling for a price they deserve. I think that Mohawk deserves a price slightly higher but that’s just my opinion.

Not any of these two deserve to be qualified of overvalued or undervalued or priced for perfection or whatever because when you compare them with other similar stocks (in a similar situation) they have similar valuations.

mercredi 24 octobre 2018

Busting the limits

If you're like me, your contributions to your TFSA and to your RRSP have been done many months ago. And all the money has been invested. So, now, you see the 9% decline of the S&P/TSX over the last month and you say to yourself: "Fuck, how come I've already invested all I could?".

Well, maybe it's time to bust your limits.

With your RRSP, you can invest 2000$ more than what you're allowed to without a penalty. It gives you a little flexibility in times like these.

And with both accounts (TFSA and RRSP), for every month you have put more money than what you're allowed to (excessing the 2000$ flexibility you have with the RRSP, in that particular case), you may have to pay a 1% penalty (may have to pay, because I think the governement won't bother you for a few dollars, but I may be wrong). For instance, if you've put 5500$ in your TSFA already and you decide to add 1000$ on november 1st, you may have to pay taxes on the 1000$ that's over what you're allowed to.

Precisely, you'll have to pay 1% for each month where you've busted your limit. So, in that case, you'd have to pay 20$ for 2 months of an excess of 1000$.

I don't know if the market will continue to drop and if it's the right moment to invest, but it's interesting to know that, by the end of the year, if we want to put some extra money in our registrered accounts, the penalty isn't that heavy.

Obviously, a market drop in the beginning of a year wouldn't be a good moment to apply that strategy.