vendredi 11 janvier 2019

10 years of investment on 100 lines

Almost every long-term investor will tell you that they've made huge mistakes that made them lose a lot of money. I've read that at the moment I started as an investor. And even if I knew it was a danger, I've made exactly the kind of mistakes that all these people were talking about. Because, at a moment or another, we're all tempted to go out of the official road and find a shortcut in the woods. And that's where we get fucked.

Last fall, it was 10 years since I was on the stock market. I thought it would be a good moment to look back and see the path I've been through.

It all begins in 2008 with my colleague/office neighbour who's a long-time investor. He talks to me about the market and I'm getting more and more interested. During the fall, the subprime crisis has begun. I open an account and my first buy is 49 shares of Scotia Bank. Then, some Royal Bank shares. In may of 2009, my portfolio looks like this:

Royal Bank: 35%
Scotia Bank: 25%
Transcanada Pipelines: 19%
Yellow Pages: 15%
Biosyntech (an obscure bio-crap penny stock now dead): 6%

I don't really know what I own at this time. Of course, I know that Royal and Scotia banks are banks. But how strong are these businesses? I don't know. I'm seduced by the thoughts of my colleague about "blue chips" in that turbulent period. When everything crashes and the apocalypse is ringing at the door, what's better than a big company that's gonna survive? Obviously, with some perspective, I can now see that if I'd knew how to find a great company back then, I'd have much more money now. But it didn't turn bad. It was an OK start but not much better than "OK".

In 2009, it's still the crisis. In march of 2009, the market reaches an absolute low and it's completely crazy to read all the articles about how long it will take for the market to recover. We don't know that the market will soon start to recover. We all think that it may stall there for a lot of time. Anyway, at this time, I have a relatively small portfolio, so, the apocalypse isn't destroying all my lifetime's saving. I'm zen, or so.

In 2010, I'm still easily influenced or even manipulated by what others think (actually, I'll be easily manipulated for many years to come). My portfolio now includes all the stocks of 2009 (minus Biosyntech which is now dead) plus Johnson and Johnson (I bought it because of my neighbour and because of a post of Bernard Mooney on and Cominar, because of it's juicy dividend (such as Yellow Pages). I know a bit about the sectors in which operate my stocks, but I still don't know what are their economic strenghts or weaknesses. I don't really care about it. I just want dividends first, than appreciation of the capital.

In 2011, the market has recovered a lot from the crisis. I'm starting to be much more informed about the market. I read a lot of stuff on the Internet and I've read some interesting books about investment. In may of 2011, my portfolio is as weak as the one of 2010, but at the end of the year, I own some good businesses, which makes me understand that I've learned some important stuff along the year about ROE, PE ratio and the very abstract notion of "a good business". I still own some crappy stocks but I also own MTY Food Group, Grainger, Boyd Group, Mastercard and Apple. I'll sell all these great stocks in the months or years that will follow. So, 2011 appears like a brief moment of discernment.

Early in 2012, I sell all my banks shares, which means that I sell what I don't understand (banks are hard to understand). It's a step in the good direction and it shows that I was knew more what I was doing, even if these banks weren't bad investments. It's also in 2012 that I discover Constellation Software which is by far my best investment of all-time. I buy 50 shares for a little less than 90$ each. I'm proud about that buy because, at the time, that stock wasn't very popular. Very few people talked about it and to me, it was obvious that it was a great stock. On my check-list (which I developed during that period), CSU scored incredibly high. Here's the top 5 of my portfolio in may of 2012:
Apple: 12,3%
MTY Food group: 7,4%
Advance Auto Parts: 7,2%
Intel: 6,3%
Boyd Group: 6%

In 2013, I'm heavily into high ROE stocks. In the beginning of the year, I own a very solid portfolio of great stocks. But, towards the end of the year, I discover the venture stock exchange (TSV) and I start to gamble a bit with crappy stocks like Macro Enterprises (MCR.V), Loyalist Group (LOY.V), NTG Clarity Network (NCI.V) and Rifco (RFC.V). At the end of the year, 25 fucking percent of my portfolio is on the Venture.

In 2014, I start this blog because I like Jason Donville and his picks. Now, he's my guru and I follow him like people follow Forrest Gump while he's running in the desert. Here's the top 5 of my portfolio in may of 2014, just a few weeks before the inception of this blog:
Constellation Software: 10%
Rifco: 9,9%
Cipher Pharma: 8,1%
CGI Group:  7,6%
Valeant: 7,3%

In 2015, I'm crazy about Valeant. Because a lot of people are. It's probably the period where I'm the less intelligent as an investor, because I have enough knowledges to do well but I don't use these knowledges. I rely on the opinions of so-called great investors. At less, in 2008, I had the excuse of little experience for making bad choices. In 2015, I don't have any excuse. Here's how my portolio looks in august of 2015, at the height of the Valeant madness:
Valeant: 15%
Constellation Software: 10,4%
CGI Group: 9,3%
Gilead: 8,5%
Portfolio Recovery and Associates: 8%

In 2016, it's a violent awakening. With the Valeant fiasco (and some other fiascos such as Concordia Healthcare), I understand that a lot of so-called great investors improvise much more than what we think. They look confident and even cocky in front of a camera, but they're not smarter than a guy who has read 5 or 6 classic investment books and has invested for 5 or 6 years. So, in 2016, I start to despise most investors which now appear like a fucking bunch of pee-wees to me (and still do, to this date). It's in 2016 that I almost close every orifice of my head to the opinion of others. And I go back to my approach of 2011-2012 with some adjustments. The shock is brutal and a lot of money vanished with it, but I'd almost say that it was necessary. There's nothing like losing 50 000$ to change your mind about something (well, perhaps that we learn even more when we lose 60 billion dollars like Jeff Bezos after his separation).

In 2017, my approach to investment has reached a mature level. I'll probably keep on getting better over time, but I really think that from this year, I really know what I'm doing. I put a lot of attention on forward PE ratio, ROE, Beta and predictability of the results. It helps me to build a very solid conglomerate of stocks that grow more than the market but are also not much more expensive than the market, with a smaller beta.

It's the approach I have to this date and it served me well. I know it may sound pretentious, but I'm convinced that I'll now beat the market most of the time. I've suffered enough to learn a lot.

I think that my advices would worth a lot of money to a new investor. I've lost so much money on the market, doing so many mistakes, that I really do think that, if a new investor would come to me directly, seeking advices, he'd probably do much better than all by himself.

In retrospective, it's hard to tell how long it took me to become a good investor. I think after 3 years, in 2011, I started to do the right things. But I tried another approach in the following years which served me badly. I became really independant-minded in 2016, after about 8 years. So, it's been a long journey.

And you, how long did it take to become a good investor? Or, if you're not a good investor, for how many years have you been learning?

jeudi 10 janvier 2019

How the market moves

It's so sad to see how these market drops aren’t based on solid stuff.

We hear and read some comments about a positive turn-around between China and USA and, all of a sudden, everything looks good again on the market.

I knew it wasn't world war III. But I'd expected it to last a little longer. Which is sad for me because I planned to put a lot of fresh money at work in the coming weeks. Now, it looks that I won't get the bargains I'd expected to get. Surely that Donald Trump will sooner or later tell some crap that will worry the market, but he's now halfway through his mandate, so he'll probably play a little safer now.

I really hope that we'll see once again the S&P500 at an annual low, because that's a buy signal for everyone in my opinion. That's probably the only moment when you can buy your favorite stocks without too much analysis. I like these no-brainer times which don't occur that often.
So, I hope that violent movements will continue even if it makes me believe that most investors are complete retards. Come on, Constellation Software was selling for less than 840$ on monday and two days later, it reached 915$, without any news. When such a quiet stock goes up that way in such a short period, it's because the market is driven by mindless hords of poultry.

dimanche 6 janvier 2019

Hypothèque, refinancement et REEE

For once, here's a post in french. It's a subject that may interest all canadians, but my perspective is from Quebec, so it's gonna be written in that beautiful poetic language where even swearing sounds like a melody. 


Je parle beaucoup d'actions sur ce blog, mais on oublie régulièrement que la situation financière d'une personne se compose d'autres éléments. Par exemple, possède t'on une maison et, si oui, est-elle entièrement payée ou est-elle fortement hypothéquée? Possède t'on un terrain? Possède t'on un condo en Floride? Et ainsi de suite... Tous les actifs n'ont pas la même valeur et ne sont pas associés aux mêmes frais d'entretien, mais ils contribuent tous à la richesse d'une personne. 

Outre mon portefeuille d'actions, j'ai une maison dont l'hypothèque restante représente environ 20% de la valeur marchande, ce qui est peu. J'ai donc le potentiel de refinancer substantiellement. 

Je peux donc aller chercher de l'argent aisément chez mon prêteur hypothécaire contre un taux d'un peu moins de 4%. Dépendamment de l'importance du prêt et de notre profil, le prêteur peut attribuer un refinancement sans exigences relatives à l'utilisation des sommes. Ainsi, l'emprunteur pourra rénover la maison mais aussi s'acheter une nouvelle voiture ou se faire refaire le visage avec l'argent. Et, bien entendu, l'emprunteur-investisseur peut utiliser cet argent en investissant à la bourse. 

Notons par ailleurs que les taux hypothécaires sont historiquement très bas, ce qui indique que même si ces derniers pourraient baisser, leur potentiel à la hausse est nettement supérieur au potentiel de baisse à long terme. C'est donc une bonne période pour emprunter sans se ruiner. 

Ainsi, j'ai récemment fait une demande de refinancement pour un petit montant. Rien d'exagéré (je veux que ma maison soit payée à court terme donc j'agis en conséquence). Mais je me suis dit que je pourrais contribuer au REEE de mes enfants pour 3000$ avec de l'argent emprunté à 4%. Le 3000$ investit dans un REEE (qui est un fonds commun d'actions) bénéficiera des subventions fédérales et provinciales de 30%. Ce qui donnera 900$ de bonus. Donc, 3000$ deviendront 3900$. Ensuite, le fonds commun qui reproduit la performance du S&P500 devrait selon moi aller chercher un rendement similaire à la moyenne historique, soit 10% par année en moyenne. 

J'emprunte donc de l'argent à 4% qui obtient automatiquement un 30% de rendement plus le rendement espéré de la bourse qui est de 10% de façon annuelle. C'est le meilleur placement qu'on peut faire (à part si nos enfants meurent en bas âge ou ne font pas d'études post-secondaires). 

J'investirai le reste de mon refinancement dans mes divers comptes. Je pense que cette stratégie est bonne. Je ne paierai qu'un peu plus de 1000$ d'intérêt sur la somme empruntée. Je figerai dans le béton mon taux d'intérêt pour les 5 prochaines années, ce qui sera presque suffisant pour payer le reste de la maison. Le REEE va être nettement gagnant à long terme et j'investirai à une période où la bourse est plus abordable.

lundi 31 décembre 2018

2018: A recap

For 2018, the Penetrator portfolio achieved a performance of 4%. 

The S&P500/TSX achieved a performance of -12%.

The relative performance of the Penetrator portfolio has been about 16%. 

The year has been an active one. Out of 22 stocks held at the moment of this writing, only 10 were owned at the beginning of the year. But the biggest positions have been steady. 

I've probably beaten the index because my portfolio is well balanced (learning to pick great stocks is not that hard, but learning to balance a portfolio is a bit harder, in my opinion). And my portfolio has also a low beta, which is interesting at any given moment but even more in times like these. A low beta is great because you manage to face the wind with less worries than many investors.

Talking about the wind, I talked recently to my friend whom I initiated to the stock market about 2 years ago with stocks like Apple, Biogen and MTY. At the beginning he listened to me. But then, he started to listen more and more to some gamblers. And he put a lot of money in weed stocks. These stocks went up and up and my friend was very excited about his performance. I said to him many times that I wouldn't put money there if I was him, but as a casino player, he put more and more money. And he felt that making money was very easy. But he didn't understand why he made so much money. 

And then, a market crash happened and his portfolio lost something like 40% of it's value. 

He said recently to me that he was looking for the right moment to sell everything. But, everyday, the market went lower and lower. So, his waiting made him lost 5000$ more every day. And his father, who lost maybe 10 or 20% of his very recent portfolio managed by his son decided to sell everything because he didn't have the nerve to face the storm. 

Probably that most people coming here are not in that situation. They know what they own. They know the sectors which are bubbles. They know that storms come and go, such as bull markets. But when everything looks easy, many people jump on the train and, after achieving easily a performance of 20%, they feel invincible, they listen more and more to people talking about gold, silver, bitcoins, weed... and they gamble more and more. And they lose 40% of their portfolio while someone who knows what he does manages to achieve a performance of something between -10 and 10%. 

I feel a bit bad for my friend because I realize he's not a real investor. He's a gambler and as long as he won't be interested in what he owns instead of the performance he gets, he's doomed to repeat his mistakes, or just sell everything with a loss and look at another way of making money. That's perhaps the story of some of your friends too...

With my 4% performance, I'm not that satisfied, but I've beaten the market by a wide margin. So, how could I be disappointed? And more, I haven't lived a single traumatism in 2018. No lesson learned the hard way. Experience serves, at last. 

So, here's what it looks for the Penetrator Portfolio, at this end of 2018: 

Performance of the portfolio: 4%
Relative performance VS the market: 16%
Number of stocks held: 22
Average ROE: 42
Average forward PE ratio: 18,7
Average Beta: 0,7
Average growth estimated for next year: 14% 
Predictability of the portfolio: 85%

samedi 29 décembre 2018

La petite histoire de Penetrator

It's 1995 or 1996. I'm about 16 years old. My sister works in a videoclub. 

On some quiet day, a friend and I go to visit her. I Don't know why but she takes us through the squeaky doors, (the porno section) (I just remember that my sister used to be fascinated by people renting porno movies because she often told me stories about some teacher or some bus driver renting porno on various occasions). 

Behind the doors, she shows me a VHS cassette which I'll never forget. 

Almost 25 years later, I still remember how I felt at the second she showed me the cover. I started to laugh and I still think it's probably the best cover in the entire history of cinema. 

I didn't do anything with that name then. But it stayed in my mind and reemerged later…

Later, around 2002, there was an online game on the Internet which I liked a lot. It was called "Lycos Fightclub" (it doesn't exist anymore). We had to chose a character and fight a friend who chosed another character. We had also to chose a victory call. My character was frequently called "Penetrator" and my victory call was: "You've been penetrated".

Then, nothing happened for the next 10 years. 

In 2012, I started a new blog and the first name that came to mind was "Penetrator".

I'm stuck with that name forever. Because, once you see the cover of the movie, you can't forget it.

That's the very deep story behind the name "Penetrator". 

lundi 24 décembre 2018

20 great stocks for less than 20 times next year's earnings

It's christmas time and there's no need to be afraid. At christmas time, we let in light and banish shade. And this time, christmas time offers us a good boxing day before time.

I'm essentially writing this for the future. Because I find it very interesting to look at current valuations, given the crisis we're going through. Most growth stocks are almost a bargain while there's some stocks that were growth stocks less than a year ago and which are now value stocks (see Mohawk and Bank of the Ozarks).

It'll be fun to take a look at all these valuations in one year...

So, here's the forward PE of 20 stocks which are among the best stocks you can find in North America:

Bank ank of the Ozarks: 6 (price to book value: 75% which is incredibly low, but maybe there's some issues here)
Mohawk: 9 (Book Value = 110%, which is very low for that kind of stock)
Apple: 10
Carmax: 12
Alimentation Couche-Tard: 14
Lassonde: 14
Facebook: 15 (adjusted for cash in hand)
Canadien National: 15
Dollarama: 16
TJX: 16
Richelieu Hardware: 16
Booking Holdings: 16
Sherwin Williams: 17
MTY Food Group: 18
Ulta Beauty: 18
Berkshire Hathaway: 18 (price to book value: 120%, which is the point of buyback by Buffett)
Google: 19 (adjusted for cash in hand)
Microsoft: 19
Visa: 20 (just slightly less than 20, actually)
Constellation Software: 20 (just slightly less than 20, actually)

vendredi 21 décembre 2018

How things will turn?

There's always people trying to predict what's gonna happen in the market. I never believe anybody, because nobody is always 100% correct regarding the market. And the better you are, the less you try to predict what's gonna happen.

There's some people like Angelo Dallas (in the comment section) who seem to deeply believe that things will get worse and worse. I don't believe that. Well, in the short term, it could get worse, but I'm a big believer of historical datas and in the long run, things will get better. I don't look 6 months from now, I look 5-10 years from now. And during that 5-10 years time frame, things will probably tend to their historical mean.

If we take a look at the performance of the market VS Berkshire coming with Berkshire Hathaway annual reports, we can see the performance of the S&P500 with dividends from 1965 to 2017. That's more than 50 years. And the annual returns of the S&P500 with dividends has been 9,9% (let's round the number to 10%). I don't believe that things are different this time. Yes, there are tensions between China and USA and between Russia and USA and between some other countries. But, is it worse than the cold war? Is it worse than Vietnam War? Is it worse than the crash of 1987 or the crash of 2008-2009? No. And everytime, the market recovered. A lot of people lack perspective. As human beings, we are very-short sighted. We tend to believe that what we see and what we live at the moment have a lot of importance. There's people like Donald Trump saying the most stupid things on twitter like: "Climate warming? It's never been so cold over the last 10 years here in Washington!" (or something like that). Just like if what that mofo saw through his window could have more significance than what's happening everywhere around the world. When you judge a phenomenon by what's happening in your city or your country that represents at best 5 or 10% of the emerged lands on earth, we could say that you're a dumbfuck. And that dumbfuck leads the most important country in the world. Fuck, if he can rule the USA, I could rule the earth. I should be Emperor of the emerged lands.

So, if we return to the performance of the S&P500 over the last 53 years, we can see that a negative annual performance has happened 11 times (11 years). Which means one year out of five. So, 4 years out of 5, when you have money on the market, you achieve a positive performance. That number alone justifies to stay on the market forever.

Then, if we dig a little deeper, we can see that, over the same 53 years, the performance of the market has been negative two or three consecutive years on only 2 occasions (1973-1974 and 2000-2001-2002). The market has never been negative for more than three consecutive years. Given these numbers, there's less than 10% chances that the next year's gonna be a negative one on the market.

I know that Trump is crazy and stupid and there's probably never been such a stupid president like that over the last 53 years. But a president doesn't control the economy all by himself. And given the fact that Trump believes that his efficiency is related to the performance of the stock market, he's surely gonna do everything he can to do something positive for the market (like concluding a deal with China). Perhaps that 2019 is gonna be a hard year, but the probability of 2019 being a positive year is more than 90%. That's how I see things. And if it's not a positive year, 2020 will compensate, and probably 2021 and 2022.  And I should achieve at least a 10% annual performance, if I project myself in 2028.

So, you have 90% of chances to make money next year. You really want to stay sidelines?