lundi 17 septembre 2018

A safe way to invest in pot?

A few weeks ago, Robin Speziale got bullied on his facebook page for his investment in Canopy Growth (WEED.TO). If my love for Robin wouldn't have been unconditional, I'd probably have participated in this exercice.

Everybody with little investment knowledge knows that these weed stocks are valued like if they would be the next big thing after the Iphone and, more, be very very lucrative businesses.

Two things that pot isn't. 

At this moment, Canopy Growth has a market cap of 14,5B$, which is equivalent to the market cap of Carmax (14,1B$). The difference is that Carmax is an established business with great revenues and Canopy Growth is a new name that makes no profit. Or, on a canadian level, Canopy has almost the same market cap as Lassonde + Stella Jones + Metro. That's fucking crazy.

Even if everything that touches weed is crazy, there's probably a safe way to play marijuana. Well, nothing is never entirely safe, but there's a business that has invested a lot of money in WEED.TO but has great revenues even without weed.

The company is Constellation Brands (STN). They sell mostly beers and wines (Corona is one of their products).

These numbers show how great this company is:

Forward PE: 20
Current ROE: 26
Average ROE last 5 years: 25
Annual Sales growth last 5 years: 22%
Annual EPS growth last 5 years:  37%
EPS growth last year: 72%
Debt level: high
Stock performance last 5 years: 257%
Stock performance last 10 years: 896%

The only problem with this stock is the debt level. Everything else looks great. Because that company is not dependant on pot to make money. And people will always drink alcohol and even more in recession times.

Constellation Brands now owns 38% of Canopy Growth via these investments:

In august, 2018, they invested 5B$, buying shares for 48$
In october 2017, they invested 245M$, buying shares for 12,80$.
A share of WEED.TO is currently selling for about 63$.

The history of the stock market is full of companies trying to find growth in crazy ways. I'm not sure that Constellation Brands isn't on thin ice. But, at least, they're not dependant on pot to make money and they're gonna survive even if Canopy Growth goes bankrupt tomorrow.

So, it would be stupid to have a 10% position on that kind of stock, but 2-3% of a portfolio would be a funny ride besides your boring Berkshire Hathaway. 

mardi 11 septembre 2018

When a stock is "really expensive" VS just "expensive"

When a stock is selling at a PE ratio of 30, nobody can argue: it's expensive. 

When is it too expensive VS just... expensive?

Here's what I think:

There's 3 types of expensive stocks:

1- The stocks that haven't proved nothing yet but for which there's a lot of excitation. Most of these companies never made any profit, or a very small profit. There's no garantee that the stock will make money in the future. We're talking about marijuana stocks, some techno stocks (stuff like Snapchat and Twitter), anything with a crazy hype.

2- The pharma stocks. I really liked these stocks in the past. That was my favorite sector. Now, not so much. I've came to understand that everything is very unstable with these stocks. They're very sensible to politics, to some scandals (a drug sold for too much, an expired patent, a new promising patent finally going nowhere…). So, there's some speculation with these stocks. Some of these stocks may be selling for 30 times current earnings today but they may easily drop to 15 times earnings overnight because of some political announcments.

3- The traditional business in expansion. We're talking here about Buffalo Wild Wings, Texas Roadhouse, Five Below, Dollarama, Ulta Beauty, MTY Food Group, Carmax, and many others. That category of stock does something very simple: it replicates a model that works, over and over. If 100 stores produce 100 million dollars, we could predict that 200 stores would produce 200 million dollars. There's nothing else (almost) to consider. Usually, these stocks are always expensive but their PE ratio stays at a steady level. These expensive stocks are less expensive than the 2 precedent categories because they usually retain their value in the long run.

If I'd understood that 5 years ago, I'd be much richer now.

Better late than never. 




...
Now that I think about it, there's probably many other categories. Otherwise, where could I put Visa and Mastercard? 

But, anyway, the three categories above are frequently considered by investors.

samedi 8 septembre 2018

My idols

I really like crazy people. I like people who revolt against the system. I like Alex Delarge in Clockwork Orange. The guy is a real psychopath, but at least, he tries something different to do with his life.

And I've realized lately that almost all the bands I like have been taking drugs and acted crazy in a way or another, for a big part of their carreer.

The Beatles took loads of drugs. Syd Barrett, the first singer of Pink Floyd went crazy after taking too much LSD (he had some mental issues too, but LSD didn't help at all), The Cure took LSD and many other drugs, the guys in The Police took cocaine, and the list continues like that endlessly.

Let's talk about the Replacements, an obscure american band of the 80's. For me, they're a kind of hybrid between Nirvana and Bryan Adams (anger, but great melodies). These guys were always drunk and they took cocaine to stay awake longer to take more beer. They were nasty with everyone including their fans, journalists and music businessmen who could have made them way bigger. They had a huge potential but they shot themselves in the foot on more than one occasion. That's not brilliant, but that's fucking bold and they deserve at least a bit of fascination for that.

I suppose most investors worship Warren Buffett with his simple life and "dancing on his way to work" lifestyle. I don't. I find this boring. I'd rather play my guitar, scream on the microphone, smash my guitar at the end of the show and party like a real mofo. And do this night after night. That's a fucking statement. That's the biggest statement you can do. Perhaps it wears you out after a few years, but I'd like to try it for 2 or 3 years.

A psychiatrist would probably say that I'm not in peace with myself, seeking destruction and rebellion. It's perhaps true. But I've always been like that. And Steve Jobs has always been like that. And all the people I find interesting have been like that.

Nietzsche, Beethoven, they were all fucking crazy or weird or they stank or whatever. Napoleon was excited when his wife didn't wash for a few days. Man, that's fucking disgusting. But he almost invaded all Europe.

Normal people are the worst people to have around you.

Some people believe that life is made for creating things and be nice and kind. I believe it's also made to destroy things.



mardi 4 septembre 2018

Naspers (NPSNY)

If you're about my age, when you read "Naspers", you think "Napster".

You remember Napster? That great software you could use to download every song in the world in the beginning of this century? Oh my god, I've downloaded so much songs on the ultra fast Internet access of the University while I was supposed to listen to some teacher.

Well, Naspers is not that at all.

Naspers is a kind of south-african conglomerate which first caught my attention when Sequoia Fund started a position, a few months ago. I took a look at it and I wasn't that seduced at first sight.

They're in Internet medias, TV medias, Internet access, print medias and some other stuff. But, their most exceptional asset is a stake of about 150 billion dollars in Tencent, which is the China equivalent of Google/Facebook/Everything.

Having been in China recently, I can tell you that this country seems very self-centered (thanks to communism). So, I believe that chinese are conditioned to obey, respect and believe in what they're taught to obey, respect and believe. And Tencent is probably one of these things.

I'm not convinced that it's a trustable company because everything outside our great occidental civilization raises scepticism for me. You can never really trust accounting practices in our country, what could it be in Africa or in Asia?

But, today, after the big drop in Naspers, I was very tempted to start a small position in that stock. Why a big drop? Because of some late results but mostly (it seems), because of the big big drop of the Rand (which is the money used in South Africa). For instance, it looks like the rand has lost about 20% VS the canadian dollar over the last 6 months. That fucking country looks like it's going into a fucking abyss. 

But, anyway, what a growth! Most numbers look great.

Current ROE: 59
Average ROE last 5 years: 33
Annual EPS growth last 5 years: 71%
Annual sales growth last 5 years: 3% (???)

Given the estimates, it looks like the stock is selling for something like 15 times next year's earnings, which is crazy. So, it's a matter of trust.

What do you think about that stock? Let's create a negative or positive hype all together. 

vendredi 31 août 2018

10 advices to save a lot of time and a lot of money when you begin

I know that many ideas here have been written in the past. But it's a post that I plan to submit to Robin for his new book. You can follow Robin on Facebook via this link.

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

The hardest thing for new investors is to know where to invest.

What's a good company? What's a good CEO?

Both are very important, but, for beginners, they're both hard to evaluate.

We can't know these things instinctly. That's why most people follow the first person they can: A journalist on TV, on a website, on the radio, a workmate or a neighbour. And there's no warranty of quality.

Your duty as an individual investor is to seek autonomy as soon as possible. I know it sucks, because we like to make as little efforts as possible to get what we want. It's gonna take years, but my advice is to read about the stock market like you would read about another topic of interest: Rock and roll, movies, hockey, football, etc. You won't be good if you're not passionate about it. Nobody gets good at anything if they're not passionated about it.

If you don't get the autonomy I'm talking about, you'll be manipulated in a way or another. You'll read people trying to pump their penny stocks, which can be done easily if a moderate audience swallow everything they say. Or you'll buy the big names that analysts sponsored by big companies will try to sell you. These big names may not be bad picks, but they may not be great picks either.

You won't get that autonomy easily, so, if you find some people that look honest, stick with them for a while. There's not that many of these people in the investment world.

To help you a little, I have "5 never-invest rules" and "5 essential to invest rules".

Let's begin with the "5 never-invest rules": 

1- Never invest money on a stock where there's a lot of controversy;
2- Never invest money on a penny stock;
3- Never invest money in an industry which is declining;
4- Never invest money on natural resources; 
5- Never invest money on a company that carries too much debt (for instance, 50% of their market cap or more);


And here's my "5 essential to invest rules":

1- Search stocks with a beta lower than 1 (lower than the market) (precision: many people seem to think that this metric is useless but I believe in it)
2- An historical return on equity (ROE) over than 15, and, ideally, higher than 20;
3- A forward PE between 15 and 25 (of course, if you pay 25 times next year's earnings, the growth has to be exceptional and the historical PE of the stock must have always been high);
4- Annual EPS growth of at least 10% over the last 5 years;
5- A high predictability of earnings.

If you apply the "5 never invest rules" and the "5 essential to invest rules", I think that your chances of getting a great selection of stocks are high.  I can't imagine someone going bankrupt while applying these 10 rules on a 15-20 stocks portfolio. 



jeudi 30 août 2018

Amazon

I'm completely mystified by Amazon. The stock just reached the 2000$ mark, which means that it has doubled over the last year (about 980$ a year ago). And we're talking about a stock with a market cap of about 1 trillion dollars.

Oh yes, my droogies. Amazon is the second biggest market cap in the world, just after Apple (which had a 40% return over the last year... not bad either). That's completely crazy.

What is funny about Amazon is that it's PE multiple has contracted instead of expansed over that period, which is the exact opposite of what should have happened.

OK, Amazon is a case apart because of it's stratospheric valuation. It's just less stratospheric this year than it was last year. It means that the company has made a great job of improving it's earnings.

And there are still people investing on the Venture, with penny stocks, thinking that's where you can the most easily double your money.

I'm not that a fan of Amazon, but I'd put money on it anytime before I'd put money on any penny stock.

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

Remember the famous last words of Bernard Mooney: "I have one regret: it's having overlooked exceptional companies because of their price". That sentence can be applied to Amazon, but probably to many other examples that we all have in mind. 

samedi 25 août 2018

Toronto

My great friend Robin isn’t aware about it because we simply didn’t talk to each other for the last months...

But I thought that I could go for a weekend in Toronto this fall. I’ve never been downtown Toronto and I’ll soon be 40, so, why not while I’m still alive?

If I go there, I want to drink beers with you. Yes you, the unknown person reading my brilliant posts while you take a crap. It could be something else than beer. We could even smoke a joint after mid-october because it’s gonna be legal then.

Or sing in some karaoke bar. We could sing Bohemian Rhapsody and I’ll let you the honor of singing the « Gallileo Figaro » part. It could be completely sick.

The only obligation for you is to write me a short email (masterpenetrator@hotmail.com). If nobody is interested, I’ll probably stay home and watch some shit on Netflix.