lundi 12 février 2018

Visa and Mastercard

If you’re a little attentive when you read this great blog, you’ll know that Chuck Akre has a lot of money invested in Mastercard and Visa.

These stocks are not that expensive (22-23 times forward earnings) given the fact that:

  1. It’s an incontestable duopoly and nobody can’t deny the fact that cash is used less and less every year;
  2. Mastercard has an incredible ROE (70) and Visa has a good ROE (24)
  3. Both stocks have a low debt (about 4-5 times earnings);
  4. Both stocks have enough cash to buy back stocks or buy another company;
  5. Both stocks actually buy back stocks in a consistent way;
  6. Except for a scandal or a hacking of personal datas, what could you worry about with these stocks?
The stock market is full of average businesses, full of debt, with average ROE, with not so much cash, and they're all selling for 20-25 times earnings. A name has an importance and Visa and Mastercard have established names everywhere across the globe. That name alone worths at least 10 times earnings, without any numbers analysis.

Every day of my life, I fucking hate myself for having sold my Mastercard shares in 2012 after reading some stupid post by some boring guys in saying that Mastercard was overvalued. 

Imagine: I’ve paid my 11 shares 326$ each on september 29th, 2011 and I sold them for 473$ each a year later, very proud of me. From september 29th, 2011 until today, the adjusted price of the stock (split adjusted) went from 30$ to 167$. 

Almost six times my money. That 3637 CAN$ would have turned to 20 245 US$ and let me remind you that, at the time, there was parity between CAN$ and US$. So, I would have made about 20% more . And today, I wouldn't be tempted to sell my shares even if I'd made 6 times my money.

It's the same period where I sold my Boyd Group shares for about 14-15$. Great times.

6 commentaires:

  1. Ok. You convinced me. I bought MA at $170 and V at $118. Visa has always been a good trade for me. This is my first time buying Mastercard. But I think you're right. The real money will be made LONG TERM.

  2. I think this is a VERY useful post. Investing is like fishing... we all like to brag about the fish we caught or stock winners... but we never talk about the one that broke through the net or snapped off the line because we didn't tie the lure properly. It's human nature to focus on success and sweep failure under the carpet. Mistakes are only mistakes if we learn nothing from them. I think the mistake here is that companies that continuously churn out high ROE and have an economic moat (very wide in the case of MA and V) should be held and added to on weakness... until such a point that the moat or ROE figures start to deteriorate. I have a friend who sold CSU in the $300s because he thought it was overvalued. He gets tres fache and defensive whenever I mention CSU. He isn't introspective enough to admit a mistake and learn from it. He also sold ROST for the same reason at a price much lower than today's. I can't for the life of me understand why one would sell companies of this quality absent some massive negative event/news. They are difficult enough to find in the first place! Good companies tend to stay good and get better and vice versa for poor companies.

    I think the other important takeaway here is THERE IS NOTHING WRONG WITH BUYING BACK SOMETHING THAT YOU SOLD WHEN IT BECOMES CLEAR SELLING IT WAS A MISTAKE. As readers of this blog know, I manage money professionally. Given we run (relatively) concentrated portfolios, we have a downside protection strategy in place so as to avoid massive drawdowns in capital. I have two prices for every security we own... if the first price is breached, we sell 50% of the position, if the second we sell the rest... no questions asked. No room for personal opinion or bias (other than setting the stop prices of course). We have been stopped out of countless stocks (FB, MA, NKE, CSU, SJ, AMBA, VRX, CXR, CRH) over the past 4 years. Some, like VRX, CXR and CRH we have avoided massive draw downs in capital and so the system worked. Others like FB, MA, CSU, SJ and NKE have been head fakes and were in retrospect, mistakes. I make mistakes. It happens all the time. Warren Buffet begins every shareholder letter with a list of his mistakes. If he can admit them then surely we can too. Now, what's important here is that all of the mistakes have been corrected. We bought back FB, MA, CSU, SJ, NKE... many of the stops were in August 2015 when the Chinese devalued the yuan. When stocks turned around and broke through obvious resistance or onto new highs, we bought them back. I think many have a hard time buying back something at a higher price than they sold it at. This has been critical to our success and I can't emphasize this enough. The market doesn't give deux merdes if you're feeling pissed off at yourself because you sold a stock that in retrospect you shouldn't have. It's not going to wait around for you to get over moping about selling it at a low price. Stick your ego in the poubelle and buy it back.

    If you'd like to hear about my investing mistakes, please set up a new blog and I promise to effortlessly fill 4-5 pages. I think it's important to admit error, learn from it and move on. I can't emphasize enough how important a post like this is. Well done Mr. Pene.

  3. Oh and Dollarama was too expensive at $40... good stocks tend to always be expensive. And for good reason. My current screen of the Canadian stock market has 27 stocks. This is less than 0.01% of available investments.

  4. The great Vicario is way too modest. Here's a pro with a concentrated portfolio of very high quality stocks and a strategy for not getting destroyed by the oncoming train. You see a light in the distance coming at you very fast and you don't know if it's the headlights of an oncoming you get out of the way. When the danger is gone, you get back on track. No mistakes were made when you limited the possibility of ruin. You could have made a mistake not buying back in. But you did not make a mistake there either. Getting stopped out is not a mistake. Buying back in is not a mistake. You are passing off sound strategy as "mistakes" based on outcomes.
    Here are the real mistakes (something a pro like Vicario will not make):
    1. Making a bad trade, seeing the stock go down and NOT getting out as you start taking a serious beating.
    2. The mistake of selling a great stock way too early and NOT buying back in.
    Since Vicario passes off his SOUND STRATEGY as "mistakes", I want to include a couple of my own examples to clarify:

    Case 1: I'm reading the penatrator blog and there's an entry about how amazing the numbers are for Smith & Wesson. At the time, they were cash rich and boasted a very high ROE and a very modest p/e ratio. I buy Smith and Wesson (now AOBC). I buy at the very top for around $30. Hillary does not win the election and my gun stock starts to tank badly. by the mid 20s, I'm out. (I could have held thinking I know better than the market but my gun stock now goes for about $11). Without the risk of tougher gun legislation that would come with a President Hillary Clinton, the gun makers have been slashing prices, margins are destroyed and sales are way down. The market was right and I would have been in a world of trouble if I held on because last year Smith and Wesson had such a great ROE and impressive financial stats.

    Case 2: I sell Constellation Software at $520 and I do not buy back in at a higher price (the stock is up another 60% since then and this was not that long ago). It just seemed expensive at $520.

    The trade that cost me money is a "success" in my mind. The second trade of getting out of an amazing stock early is a huge blunder in my mind.

    The trades that I am most proud in my investing career involved buying Valeant and Concordia. I saw my mistakes so fast that I MADE $5 on Valeant and lost "ONLY" about 10% of my investment in Concordia. To buy Concordia at $44 and get out by $40 and then see it under one dollar? wow. Huge success. Others way smarter than me did not fare as well. Taking a loss on a diving stock that could ruin your portfolio is not a mistake. Not letting your very best performers run usually is a mistake. Not buying back a great stock after the dust settles or danger is averted is a mistake. Vicario is not making too many (if any) mistakes these days. He also has the ability to help make you rich with microcaps, small stocks, mid caps or large cap stocks. His picks are not concentrated or limited by the size of the company.

  5. I hear what you’re saying Angelo and I appreciate the kind words. I guess what I’m trying to say is that even the best laid plans/strategy inherently have “mistakes” built into them. I accept I won’t sell at the peaks or buy at the troughs and I accept that I will get unnecessarily stopped out of stuff that I’ll wind up having to buy back at higher prices in exchange for avoiding massive losses in the likes of VRX and such. And speaking of CSU... they had an excellent report last night and the stock continues to chug higher. I didn’t listen to the call this morning (5am my time) BUT I’m willing to bet there were fewer than 5 analysts participating. Just think about this for a second. Here is the #1 performing stock on the TSX for the past 10 years. Here is a CEO who is clearly a capital allocating magician who never talks to media or analysts... the quarterly calls are the ONLY chance to hear him talk and there are 5 analysts on the call. Companies like RY, ECA, TRP have dozens... theses guys maybe 5. It’s a crime but also leads me to conclude that CSU is misunderstood and under appreciated... and I wouldn’t be shocked if we saw $1000 in 2018.
    I have 50% of my kids’ RESP in CSU��