samedi 30 novembre 2019

Holiday gifts, from a consumer's perspective

I often write from an investor’s perspective. Today, it’s gonna be from a consumer perspective. Because Christimas is coming and I believe that more people should know about which stores and companies have the biggest profit margins on what you're buying.
The indicator (net margin) is not perfect, but it’s nonetheless intersting:

Reitmans (RW&CO, Penningtons, Retimans, etc) : -1%
Costco : 2%
Walmart : 2,6%
Best Buy : 3,5%
Amazon : 4%
Canadian Tire : 5,5%
TJX/Winners : 10%
Apple : 20%
Booking.com: 30%
Microsoft : 32%
As you can see, low margins don’t always imply low costs for consumers. For instance, Reitmans doesn’t offer low cost apparel. I go there sometimes (RW&CO), and you can easily find some skirts at 100$. Despite these high prices, Reitmans doesn’t make money. That company is going right to a pitfall.

On the other hand, the relatively high margins at TJX/Winners (10%) may indicate that it’s not the place to go for apparel. Well, I go there sometimes and I think you should go there too for quality at a reasonable price.

In conclusion, net profit margins are your friend as an investor, but not necessarily as a consumer. 
 

mercredi 20 novembre 2019

Apple is now expensive

Being able to tell if a stock is cheap or expensive is something very difficult. It will take you years before getting there. And even after many years, you'll still be unable to be sure about your impression. You'll mostly get to a point of approximate comfort or discomfort with a stock. That's the best you can aim, in my opinion...

An example of an expensive stock is Apple (AAPL). The current PE is 22 and the FWD PE is 18. You've surely seen scarier valuation than that...

But historically, Apple's PE is way lower than that. See for yourself:

2009: 21
2010: 18
2011: 15
2012: 12
2013: 14
2014: 17
2015: 11
2016: 14
2017: 18
2018: 13
2019: 22

Last time the PE was this high was 2009. Let's add that, in 2009, Apple was a much smaller company. And the Iphone/Ipod was the new revolution (there's no revolution in sight these days).

Analysts expect 10% annual growth for the next 5 years. I think it's reasonable but I don't think we could expect much more for such a giga-cap.

Apple is still a great great great company. I wouldn't tell anybody to sell an entire position. But at the current level, I think a reduction would be appropriate for someone owning a big position.

But, do what you want. I don't care. What matters to me is my own portfolio. Fuck you.

lundi 18 novembre 2019

Ce que les meilleurs achètent

Here's another chronique about ce que les meilleurs achètent. 
 I'm not more excited about these investors than I was before, but, once in a while, we find something interesting among their stocks. And, in general, we can see if these investors think that the market is expensive or not (lots of buy, or no buy at all). Small clues to help us make our way through this merciless market.  
Let's begin with Giverny Capital from Montréal. I still like them. They don't do a lot of stupid things. Usually, they're pretty rational and their picks are interesting :
First, they started a new position with Progressive (PGR), an insurance company. It’s an interesting name that I’ve known via some old Sequoia investment letters. A long time ago, Progressive was a very big position for Sequoia (15% in 2006 and I think it was even bigger before that year).
PGR represents 2% of the american portfolio for Giverny. It's a significant new position. I don't like financial and insurance companies anymore, but that's one of the few names I'd be tempted to own, one day or another. But don't take my word as an advice and take a look by yourself.
LKQ is entirely sold. It was a big position for Giverny not so long ago so I guess they gave up on it. Mohawk is also almost completely sold (97% of the position was sold). It’s weird, given the fact that the stock is currently really cheap and Giverny boys have been fans of the stock for years.
Apart from Giverny, what did the others do?
Buffett did nothing significant other than reducing his Wells Fargo stake by 8%.
David Rolfe (the guy who owns almost all the stocks I like) was very active. He reduced almost all his positions but increased his Alphabet stake by 33% and his Electronic Arts stake by 55% and, finally, Alcon by 45%. He started new positions with NVIDIA and CDW. 
Chuck Akre did almost nothing significant except than starting a position in Brookfield Asset Management and adding a lot of shares to his minor Alarm.Com position.  
That good old Bill Ackman increased his Berkshire stake by 14%.
Many investors were very active. I don't understand this hyperactivity. Probably they don't understand it too, because as we all know, most of them improvise.  
And you, unknown investors, did you do something special during the last quarter?

jeudi 7 novembre 2019

Best managers in the world

Most great businesses have high net profit margins.

For instance, some interesting companies have 20-25% net profit margins. And an exceptional business like Visa has 50% net profit margins.
Imagine that you have a business and when you sell one unit of your merchandise, you get a 50% profit. Wouldn’t it be great? You’ll get profitability much quicker with that type of business than with a business like Ross Stores for which net profit margins are around 10%.
At the bottom of the scale, just before churches and non-profit organizations, you’ll find Costco with 2% net profit margins. And even with these ultra low margins, Costco still makes money. And every shop is always full.
As an investor, Costco doesn’t grow enough for me. It’s valuation is also very high. Nonetheless, their ROE is around 20 which is incredible for such a low margin business.
I think that it’s the business I respect the most, from an investor perspective. Not my favorite business model, but probably the best managers in the world. Who I am to say that? Well, getting such small profits (mostly membership) and building such an empire where everybody goes is, to me, the incarnation of skill and intelligence.

lundi 4 novembre 2019

Waiting for the next correction

Currently, the stock market (S&P500) is more or less at it's all-time high. 

I'm preparing for the next drop. Actually, I'm looking for a drop of the market of 15% or more. Then, I'll buy stocks. I may even use margin, for the first time of my life.

Because since 2008, I've only bought regular stocks. Never bought anything else. Never shorted a stock. Never used margin. Nothing else than stocks, sometimes bad stocks, sometimes good stocks.

So, here's what I'm planning to do at the next correction:

I'll probably use margin for the first time of my life. For those who don't know what a margin is, here's my novice view on it:

When you open a margin account, you can buy stocks with money you don't have, if you put a specific amount. For instance, I could put 5000$ and use a margin of 5000$ (ratio 1:1). I could go as far as 30% personal funds and 70% margin, but I wouldn't start too agressively.

With a margin, you pay interest on a debt you have to reimburse over time. But with the money borrowed, you can buy stocks and make a profit. However, as much the returns can be very interesting, a negative performance is also amplified and you could also experience a margin call, which is a kind of mini-apocalypse for a portfolio. It means that, if the value of your stocks drop a lot, the institution that offered you the margin may sell stocks without your authorization. 

Some people recommend to NEVER EVER use margin. Some other people believe that it's the only way to get great returns over time and to achieve some financial independance. I believe that the truth is somewhere in the middle. But five things are sure for me:

1- Never use margins if you're a novice investor. Use it only if you have good knowledges about stocks and investment.
2- Never use margins if you're insecure about the stock market or if you'll have trouble to sleep after using it.
3- Never use margins for other things than great quality businesses. 
4- Never use too much leverage. I plan to get a margin equivalent to 10% maximum of my portfolio. I'll start that way and I'll see over time if I expand it. Mistakes will be less harmful if I start slowly. 
5- The best way to use a margin (that's what I'm planning to do) is after a severe market correction. Because stocks will be cheaper and your return will benefit from the rebund of the market. Obvisouly, we never know how long or how big a correction will be, but after a 15-20% drop of the market, it may be a good moment and that's what I'll be looking for. 

For instance, Berkshire Hathaway would be a great candidate for a stock bought with leverage. You won't get a stellar performance with BRK, but the 8-10% annual return may be amplified by the use of leverage. At the opposite, If you use leverage with weed stocks, you're a stupid gambler and you expose yourself to very big losses. 

Any opinion on margin/leverage?

Some people use it?

jeudi 31 octobre 2019

8,5% VS 11,8%

8,5% VS 11,8% is the difference between the annual return of an investment on the TSX\S&P500 composite and the same investment on the S&P500 on a 39 years period (1979-2018).

Click on this link to see the reference: https://www.taxtips.ca/stocksandbonds/investmentreturns.htm

I don’t understand why some people don’t buy american stocks.

The best stocks are there and the exchange rate has almost an unsignificant impact on the long term. So why not putting all the chances on your side and hunt on the American market?

Of course there’s a few exceptional Canadian stocks, but apart these 8-10 great stocks, in my opinion, you should look south of the border. Try it, it won’t harm you. You’ll feel a little weird at first but you’ll get used to it.

And these supplimentary 3,3% will make an important difference on the long term. A much bigger difference than the exchange rate.



dimanche 27 octobre 2019

Portfolio review (october 27th 2019)

It's been about 3 months since my last portfolio review. 

It's time for the quarterly report.

Number of stocks held: 22
Average forward PE: 20
Average ROE: 48
Average Beta: 0,7
Cash held: 7,3% of the portfolio
Performance of the portfolio YTD: 22%
Performance of the TSX/S&P500 YTD: 13%
Performance of the S&P500 YTD: 19%

I have to admit that I'm pretty proud of the performance of my portfolio. There's probably a shitload of people beating my performance once again, but I still beat the canadian/american market by 9% and the american market by 3%. For my size of portfolio, I think it's a very good performance. And I have to tell that my biggest position is MTY which is going not that good these days (-15% YTD). And all of my stocks are large caps (more than 1B$ market cap). 

Whatever the stocks I own, it's been a pretty steady couple of investing years for me. I feel like I have found the stocks that correspond me the best, and more, the balance between all of them. The balance between risk and a predictable performance. I may be redundant here, but I now believe that finding the right balance is the most important thing to achieve. It takes years. And sometimes, you never achieve it, because you just don't really know that you do and you just look for posts like where somebody recommends you a stock or another.

I may sound a bit cocky with that post. But it's not the case. The next recession will hit me like it will hit everybody. But I'm pretty sure it will hit me less than most investors. 

Here's my top 5 positions: MTY, Constellation Software, Couche-Tard, Google, Carmax.

mercredi 23 octobre 2019

Get your thrill

Like every investor, I've never been inclined towards weed stocks. Whatever the weed stocks did on the market, I never thought it was a good investment, mostly on a valuation basis.

I wasn't that smart. Anybody could see that, with a valuation of 25 billion dollars and no profits, Canopy growth was a strange investment. Even if the stock dropped a lot over the last year, it's still vastly overvalued in my opinion.

Recently, I went to a poker game hosted by my famous anonymous friend whom I initiated to stock markets.

He told me that he sold (with a loss) all his weed stocks for which he was so excited last year..

He also told me that he sold his MTY shares some time ago. Such as his Biogen shares (that went up something like 20% yesterday). Such as almost every good company I told him to invest in, instead of weed stocks.

But he didn't listen to me. He tried to speculate everywhere. And he seems to have sold almost all his positions with a loss. But he continues to be on the market.

Frankly, I don't understand how he sees investment. Well, actually, I know. He sees the market as a big casino and he gets his thrill from ups and downs. That's what he's looking for.

It doesn't hurt anybody expect his finances. If that keeps him out of heroin, rape and rampage, it's not a bad thing, after all.

It may be a good thing for you too, investors who'd like to rape kids. Please, continue to invest in weed stocks and bitcoin if it's sufficient to get your thrill. It's better for everybody that way.

dimanche 20 octobre 2019

MTY Food: One of the best at a bargain price

Here we go again: MTY is at it's lowest price over the last 52 weeks.

Why? Because even if sales grew a lot in the last quarter, income didn't grow that much. Rising costs don't appeal to investors. But, after a 250 million dollars acquisition (Papa Murphy's in april), I don't think any rational person would have thought that everything would be wonderful after 6 months.

To tell the truth, I don't have a clue if that acquisiton was a good one. We never really know how things will turn in the short term. The growth of Papa Murphy's wasn't spectacular. Actually, if I remember well, it what a negative growth. MTY seems to be aiming at some kind of rationalization there.

MTY achievemenents is pretty good: EPS have doubled between 2014 and 2018. However, we never know if the trend will continue forever. But, that's the same for every company out there. Anyway, you better bet on companies that achieved something great than speculate on a company that never did anything good.

Everybody is praising MTY managerial practices. For instance, low compensation for managers and humble headquarters.Will Eric Lefebvre (the new CEO) will be as frugal as Stanley Ma? I can't be sure. But, at least, he's been in the company over the last 10 years, so he probably agrees with the culture. So, I give him the benefit of the doubt, even if I don't believe in him like I believe in God.

Actually, I don't believe in god.

Whatever the situation looks like, we should never own a position equivalent to 10% or more of a portfolio. But, to me, MTY is a rare case where a position could reach the maximum level. It was a great company 8-10 years ago and still is, in my opinion.

Well, my experience with Dollar Tree tells me that a permanent stock can become an indesirable stock overnight. But, worst case scenario for me is that MTY could stall for many quarters. I don't see it going much lower than it's current level though. At 15 times next year's earnings, it's a pretty good price for such a high grower. Many stocks with very low growth rates are selling for more than that.

There's not that much occasions out there with great companies. For me, two current occasions are Ulta Beauty and MTY Food Group. 

vendredi 4 octobre 2019

Respect the market

In the beginning, I thought that it was easy to find great stocks: just find something with a good ROE and a low PE and bingo, you're a great investor.  

But that's not how it works. A stock with a low PE is usually (90% of the time) cheap for some good reason. It may not be obvious at first sight and you may be tempted to buy the stock, but you should be careful. Take some time to think about it before buying it. I think that I'm giving a good advice here.

Lately, I've realized that I now respect the market a lot. The valuation given to stocks is usually correct, if we exclude the hype stocks like Shopify and Canopy Growth or some really depressed stocks that had some bad quarters in a row.

Let's take a look at two examples that explain, in my opinion, why we should most of the time respect the valuation of the market. Obviously, there's a bias there, because these are two stocks I know. But fuck, I'm doing what I can.

First example: Linamar (a cheap stock)

Share price october 2013: 34,50$
EPS 2013: 3,52$
PE 2013: 15
ROE 2013: 19
Net profit margin 2013: 9%

Share price october 2018: 61$ (currently 38$)
EPS 2018: 8,94$
PE 2018: 5
ROE 2018: 17
Net profit margin 2018: 10%


Second example: Intuit (an expensive stock)

Share price october 2013: 67$
EPS 2013: 2,83$
PE 2013: 28
ROE 2013: 27
Net profit margin 2013: 23%

Share price october 2018: 211$ (currently 263$)
EPS 2018: 4,64$
PE 2018: 41
ROE 2018: 65
Net profit margin 2018: 25%

Observations:

Both are good businesses in my opinion. We can't say that Linamar (auto components) is a bad stock. It's well managed, growth has been very good so far. But it's cyclical and related to the state of the economy. However, the current PE (5) is very low and I'd be tempted, even if I respect the valuation of the market, to say that it's undervalued right now. 

Intuit (tax softwares) is a great company. But I'd say that it's overvalued right now. There was a massive expansion of the PE over the last 5 years (50% higher).
 
However, there was a massive compression of Linamar's PE (66% drop) over the same period.

It's very strange to see that Linamar's PE has compressed that much with such EPS growth while the PE of Intuit increased a lot with a good growth, but not as spectacular as Linamar.

I don't really understand what has happened here with both stocks. But the market told us to be careful with Linamar 5 years ago and told us we could expect something good from Intuit 5 years ago (on a PE basis). That's exactly what happened.

That's sorcellery.

jeudi 3 octobre 2019

It's happening again

Are you like me? Every 4-5 years, I go through a cycle at work where I say to myself that some things are too crazy for me. I can't take it anymore. I need to retire. I need to stay at home and practice some hobbies, some sports and travel the world. I need to be an inactive citizen with active hobbies.

I'm currently right in the middle of one of these cycles. I won't tell why, because it's always a bad idea to reveal details on the web. These details would be shocking and funny at once, but I keep them for later.

Anyway, my feeling now is that I really need to own one million dollars as soon as possible.

mercredi 25 septembre 2019

Viemed (VMD or VMD.TO)

Jason Del Vicario recently went to BNN and talked about Viemed, a company from Louisiana that provides equipment for patients with pulmonary diseases.

Here's a few numbers:

Performance since the beginning of 2019: 84%
Performance since december 2017: 290%
ROE: 27
EPS: from 3 cents (2016) to 26 cents (2019) per share
Debt level: almost no debt
Current PE: 39
Forward PE: 21
Free cash flow growth: Steady growth over the last 2 years

These number are great. There are however 3 caveat: 
1- It's a small cap (280 million USD). I don't really like small cap nor shall you;
2- They missed the estimates over the last 2 quarters;
3- It's on the stock market only since december 2017 (very short track record).

If you can read behind lines, you'll understand that it may be a buy, but a small buy. A long track record is very important in my opinion, which isn't the case here. But, still, on paper, that company has a lot of things I'm looking for. 
 
A very rare case of an interesting small cap. 

dimanche 22 septembre 2019

A meeting with Jason Del Vicario

Last july, I'm walking across the Vancouver Bridge with some members of my family to visit the town (don't know the name of the bridge, but it's the main one). Just as the bridge is over, we cross a guy who's injecting himself something, probably heroin. It's about 7 PM. There's still sunlight. There's also a lot of trafic all around.

What the fuck am I seeing at a few meters from me, with my 9 years old son?

The last and only other time I saw someone using heroin on the streets was in january 1997, still in Vancouver.

When I saw that guy, in july 2019, I immediately thought about Jason Del Vicario, who represents Vancouver in my mind. I was going to write on this blog that he was responsible for what happens in his city, because he's the face of the town for me and many other investors from all across Canada. After all, which other celebrity is from Vancouver? Bryan Adams? Yes. But he's an has-been. Vicario is in his prime.

But I didn't write that. And I didn't even tell him that story yesterday while he and I sat together for a few hours at le Sacrilège in Quebec City (my favorite bar). Oh yes, ladies and gentleman, two of your favorite characters sat together in normal chairs, among normal people, taking normal beers, taking normal piss.

Here's 10 random facts about Vicario:

1- He talks a lot. My estimate is that he talked 80% of the time;
2- He's a nice guy;
3- His culture is wide. He has visited many countries. He went to Russia, Mongolia, China, Poland (Auschwitz);
4- He knows a lot of stuff about World War II and concentration camps;
5- He fishes salmon and smokes it by himself;
6- When he was younger, he played violin and piano;
7- He speaks a pretty good french for a guy who's from Vancouver;
8- He crossed the way of several heroin addicts in Vancouver and has his own theory about how to fix it;
9- He likes poutine;
10- He doesn't receive any money when he shows up on BNN.

I haven't met millions of investors but my opinion hasn't changed a lot over the last years. I still think that they're either very boring people (most of them) either degenerate people (a smaller percentage).

I don't know Vicario that much but he probably doesn't fit in any of these categories. He's an interesting guy and seems honest.

I now form a magical alliance with him in Vancouver and Be Smart Rich in Toronto.

vendredi 20 septembre 2019

How to get richer (you and your family)

1- Spending habits: Don't spend your money on expensive stuff that lose their value over time. It's the most important rule to follow, in my opinion. 
2- Stock market: if you're not an entrepreneur, it's the only place where your savings can double, triple, and so on. You should put the emphasis there. 
4- TFSA: Don't pay any taxable capital gains on your investments with that great invention. Invest on the stock market there.
3- RRSP: Prepare your retirement and get some tax exonerations from the government. It's a double good effect. You can get a bigger tax return and put that money on your next RRSP contribution. Don't pay any taxable capital gains there either. Invest on the stock market there.
4- RESP: The canadian government will add 20% of what you add in the account and the Quebec government (if you're a quebecois) will add 10%. You'll get 30% of your investment for free. The stock market can't beat that. Help your children and benefit from that generous governmental contribution. 
5- Credit Cards: I'm a little bit crazy about all these credit cards promotions. You won't get rich with these, but you'll get some interesting returns (some credits cards give a cash back of 4 or 5% on everything you purchase and some have even a better return for a few months). Some other will help you to travel for much less. I personnaly use many credit cards for that reason. For instance, in Alaska, almost all my hotel rooms were free because of points earned with credit cards. Also, the plane for 4 people was at the price of only one person. It's a great place to look for some interesting benefits when you're responsible and pay all your bills. 
6- Real estate investments: Not my cup of tea, because you need to put a lot of time, efforts and money there (after the initial investment, you still have to put money to pay taxes, services, janitors and so on). However, I know a few people who are really fond on that kind of investment. Personnaly, I only own my house and a forest land. I have no intention to invest more money in some land or buildings but it may be a good investment for someone with the right profile. 

That's what's easily accessible for you if you want to get richer. Try that now.  But first, save your money.

vendredi 13 septembre 2019

A return on 2019 picks

At the end of 2018, I picked 5 stocks that should do well in 2019, in my opinion. Here's my picks:

Alimentation Couche-Tard:  Up 29%
MTY: Up 4%
Five Below: Up 27%
Alphabet: Up 17%
Visa: Up 32%

Average performance: 22%
S&P500/TSX Performance: 16%
S&P500 performance: 20%

What strikes me the most is that, while I've beaten both the S&P500/TSX and S&P500 indexes, I realize how hard it is to beat them both. Just take a look at the 5 stocks I've picked. They're all great businesses, among the 5% of best businesses on the stock market in my opinion. 

I've only beaten the S&P500 by 2%.

These are not momentum stocks. These are buy and hold stocks. And while that expression looks honorable (like eternal love and eternal faith), very few people apply it. It's buy and hold as long as they keep growing at an interesting rate and as long as they don't do something stupid, like buying another company that doesn’t grow that much for 25 times earnings.

Really, most people should buy an index fund. That's a lot of work and reading to be able to beat the market by a slight margin without taking too much risks.

lundi 9 septembre 2019

Is it OK to gamble a bit with your portfolio?

Is it OK to gamble a bit with your portfolio?

Well, some people gamble ALL THE TIME with their portfolio. So, if you search just a bit, you'll surely find people who see the stock market as a casino. You're probably wiser than these people because you wouldn't read my blog if you were interested in diamond mines.

In my opinion, everything is a question of proportions. For instance, if you have a portfolio of 5000, 10 000 or 20 000$, you shouldn't gamble at all with it.

If you have a bigger portfolio, let's say 100 000$, you may gamble a bit. Like 5000$ for instance (5% of your portfolio).

But what is gambling? I don't know the exact definition. Because, in a way, investing is always a bit of gambling. But reasonable gambling is what we usually call "investing".

I'd say that buying stocks of a company that doesn't make money is not gambling, it's worse.

Gambling, to me, is the acceptable limit of investing: it's buying very expensive stocks that grow a lot and are making tons of money. You have many examples out there: Shopify, Amazon, The Trade Desk, Adobe, etc. These are all great companies, but very expensive companies.

Today, I bought some TTD shares for a very slight proportion of my portfolio.

I'm not saying I'm right. But I control the risk. That's the point of that post.

I don't see at all that stock as going to zero, but even if it would happen, I would just lose 1% of my portfolio.

Like many other things, it's only a question of balance. I'd never buy loads of shares of that stock given it's current price. And that kind of buy is something I wouldn't recommend at all for any new investor.

Instead, I would recommend to play safe, build something bigger, then take some very small risks, once in a while.

dimanche 8 septembre 2019

The little story of a tragic investment

In 2013, I was a shareholder of Questcor Pharma, a controversial company selling Acthar Gel, a drug that was very expensive, but very profitable for the company. 
But even if Questcor was aimed by Citron Research, the stock did mostly well and I managed to about double my money with it. Then, in 2014, Questcor was bought by Mallinkrodt. 

I kept my shares for a few months after the sale, but, soon, things looked not so good anymore, so I decided to sell all my shares, with an interesting profit. 

Things looked so-so for the last few years, but in 2019, things got awful. There's a big scandal now around several pharma companies which are blamed for their marketing practices which downplayed the risk of addiction from opioid-based drugs. Theses companies boosted the use of their drugs even if they knew that there was risks. And Mallinkrodt is one of them.

The scandal and the financial impact on Mallinkrodt are so important that the price of the stock decreased like crazy this year. For instance, on march 1st, 2015, a share of Mallinkrodt was sold for 126$.

These days, you can buy a single share of MNK for about 1,90$. 

A drop of more than 99% over the last 4 years and a half. Is that a good example of value destruction? Very few people could have done worse than that.
 
Some time ago, while the stock was much more expensive, Citron Research wrote that Mallinckrodt was heading to zero. It looks like they were right. 
The pharma sector looks like a sick and immoral place to invest money.  A lot of stocks have collapsed over the last 5 years, some from bad management, some from immoral decisions, some from bad conjecture and some from a mix of all that : Valeant, Concordia, Mallinkrodt, Allergan, Lannett, Teva…  Just take a look at a chart to see how bad it's been for all of them. 
I retain two lessons : 1- Avoid this industry (said that before, but I maintain my opinion) and at least, listen to Citron Research. Sometimes, they’re wrong, but, they are right slightly more often. 
I think I will build a hall of shame for all the greatest value destructors of the last 10 years. Please submit names. It would be a service to society to let that list be visible on my website.
On that list, there surely would be Mike Pearson (Valeant) and Mark Thompson (Concordia). Feel free to suggest some names.

samedi 31 août 2019

How to react to a 30% drop on a single day?

You write that you haven't written about a single bad investment idea over the last two years and, in a matter of hours, one of your stocks drops by 30%. That's how the market works. There's always something happening to make you feel humble when you think you've achieved a certain level. At least, it shows once again that a portfolio with various stocks in it with no stock representing more than 10% of the portfolio could help to avoid catastrophes. Some people only swear by a concentrated portfolio, to me, it's the perfect path to failure.

That 30% drop happened with Ulta Beauty (ULTA) last thursday in afterhours. Yesterday (friday), the selloff was official and everybody was making very funny jokes about "Ulta Beauty's ugly day".

What happened and how to react?

Well, ULTA missed estimates by 1,4%, which is very little. And they said that full year's earnings would be about 12$ instead of about 13$ (8% lower than expected).

About 16 million shares were sold instead an average volume of 1 million on a single day. Everybody felt like Ulta Beauty was plague.

How come sales have drop that much? What does it mean? Did Amazon or another online competitor stole some sales?

I don't know. Usually, companies don't tell where the money has gone.

But, let's take a look at ULTA's EPS over the past 10 years:

2010: 1,16$
2011: 1,90$
2012: 2,68$
2013: 3,15$
2014: 3,98$
2015: 4,98$
2016: 6,52$
2017: 8,31$
2018: 10,94$
2019 (estimated): 12$

Annual EPS growth from 2010 to 2019: 34%
EPS growth from 2018 to 2019: 10%, which is quite a drop. But it's positive nevertheless.

How looks Ulta Beauty now?

If we expect an EPS growth of 10% next year, the stock is selling for about 18 times next year's earnings. It's not that expensive for a stock with a ROE over 30. Also, the company carries no debt which is great for acquisition or share repurchase. It's recession-proof (cosmetics).

Ulta sells a lot of stuff. They’ve got everything you need in a single place and there's processionals to help you.

So, I don't know if it's a buy, but to me it's not a sell either. You have a lot of stocks out there with an higher PE than that, that don't grow more than that, have a smaller ROE and operate in a much more cyclical sector.

To lose a few thousand dollars in a matter of hours is always a shock, no matter how big a portfolio is. That's why we should always mitigate the risk in various forms (20 stocks or more, various industries, etc.)

jeudi 29 août 2019

The beauty of blogging

I recently had a converstion with Be Smart Rich. He seemed a bit disappointed about the fact that his blog didn't bring him a lot of money for all the advices he writes.

Sometimes, I feel the same. I say to myself that all I write here could help a lot of new investors to avoid making big mistakes. It could even help them to find great stocks (actually, over the last 2 years, I think that I haven't written a positive post about any truly bad stock. They were all from OK to excellent).

But, isn't that fucking world cold and sad enough like that? Do we really need to pay for everything? Can't we access something interesting for free sometimes?

I find some pleasure from blogging. I like to write about upper deckers and gross stuff. That's my revenue against all the advices I offer. You'll have to cope with my cunts and alaskan pipelines references.

And I like to despise publicly almost all investors out there. I feel like I am one of the few investors telling you to trust nobody. Most of them take themselves seriously and play a fucking game to seduce you. They'll tell you that they are up 200% this year with some stock but they'll never tell you that they're down 95% with 3 other stocks. Or they won't admit that the stock that's up 200% represents 2% of their portfolio. They suck. And they're not cool or even good people.

The only sect I'm looking to create with this blog is a sect of atheists. I'd really like you to join me in my beautiful sect where we believe in nothing: honesty of investors, companies (apart a very small minority) medias, politicians, friendship, love and life in general.

mercredi 28 août 2019

Keysight Technologies (KEYS)

Last may, I saw that Giverny Capital had a recent position in Keysight Technologies (KEYS) which is an equivalent of Ametek (AME) for people like me who like shortcuts. Last quarter, Giverny increased their position by more than 100%. They seem to have a lot of conviction in this stock. 

Let's continue a bit with my shortcut between AME and KEYS: Both provide many measure instruments (oscilloscopes, meters, generators, network tests, etc). These instruments are probably a bit different from one company to the other, but they're mostly electronic instruments used for various measures which aren't probably useful for someone like you and me.
 
There's no fashion there, unlike Apple, for instance. There's no government regulations (not an industry where consumers could be hurt or abused, like pharma or credit companies). It's a sector that's probably linked a bit to the general state of the economy (potential impact with a recession), but much less than banks and car dealers.

The growth is there. The margins are improving. While not great, the ROE is OK.

Estimated EPS growth is OK for analysts (around 10% per year). However, the company keeps on beating estimates by a wide margin (beaten by 10 to 20% over the 4 last quarters). So, it looks like we could be more enthusiastic about what's coming than what's estimated.  

 Here's the results of the last 4 years:

2016
Revenues: 2,9B
EPS: 1,95$

2017
Revenues: 3,2B
EPS: 0,56$

2018
Revenues: 3,9B
EPS: 3,24$

2019
Revenues: 4,3B (estimated)
EPS: 3,95$

KEYS was hurt by a big  income tax rate in 2017. I don't know why, but that explains the big drop in EPS. Apart from that, we can see that revenues are growing, year after year.

Currently, you pay 20 times next year's earnings for such a company. On Value Line, you can't see earnings predictability because the stock is a little bit too young (spin-off from Agilent Technologies about 5 years ago). But earnings predictability is between 90% and 100% for Ametek. So you could probably expect something similar. Paying 20 times next year's earnings for a stock very predictable is a fair price to pay in my opinion.

mardi 27 août 2019

Survey

Who's buying stocks these days?

Who's waiting for a correction?

In my opinion, the market is not too expensive, however, I don't see anything short term that could result in a substantial raise of the market. So, I believe that a portfolio that's 8-12% cash is not a bad idea at all.

What about you?

dimanche 25 août 2019

An upper decker

I just come back from a very nice trip to Newfoundland. What a beautiful province. I have to admit that New-Brunswick has made serious damage to my opinion about Maritimes. That province is by far the worst place I've been in Canada.

But Newfoundland is beautiful. The landscape, the houses, the sea, even the churches have something special.

Anyway, I'm not at ease of writing more than 4 sentences of praise. That's not the mission of this website. So, here comes the shit.

I've been in a motel in the middle of nowhere, in the north of Newfoundland. The kind of motel that's in the middle of a forest where only truckers pass. But strangely, there was a big beach party in the bar of the hotel the night we were there. At 3:30 AM, people knocked on the door of our room asking for one of their drunk friend. They kept on knocking so I went opening in my underwear and, after I closed the door, some guys made comments about my balls ("Were they nice? Did you grab them?"). I was fucking mad, so I dressed up and I went to the office, telling them that I was mad and it was inacceptable that many drunk people knocked on random doors at such a time. The owner finally came, probably drunkier than all these 25 years-old customers coming out of nowhere. He said to me that he'd refund me for that night the next morning.

The next morning, he and one of his friends, both fucking drunk, came to see me at 7:30 AM in the morning while I was having breakfast. Both smelled like shit. They were standing at 30 cm from my face while I was eating my toast, their smell ruining my breakfast. They apologized and asked me what I wanted. I told them that I wanted a complete refund.

After 30 minutes of a bad-smelling and incoherent discussion with two newfies, I understood that I wouldn't get a refund because the owner "had no control about what happened in the motel the night before". What the fuck. Where's the notion of responsability here?

Anyway. Do you know about Upper Decker?

If no, you're a normal person. Because few people read about scatophilie on the Net. I don't, but I know some people who do, so I have access to privilegied information.

An upper decker is the action of defecating in the tank of a toilet, causing it to clog. Usually done as a mean-spirited prank.

I've never done that, but I've planned to do it for years. Not to some innocent. But to some bad people. I didn't do it in that hotel, but that's exactly the kind of place where an upper decker would be appropriate.

Now, you know that it exists too. You'll never forget that it's a possibility you have when no other option seems possibile. 


jeudi 15 août 2019

A view on some less-known investors

Do you know about Pat Dorsey?

That investor is wild. It may excite some readers here looking for sensations because, what I can see after 5 years writing this blog is that very few people care for traditional stocks like Mohawk or Ross Stores. Most are looking for the next big thing, which is something I'm very suspicious about.

But I live to give. So here's what you're looking for, you fucking bunch of gamblers.

Here's the portfolio of Dorsey Asset Management:

Facebook: 21%
Avalara: 18%
Wix.com: 13%
Despegar.com: 10%
Alphabet: 9%
Paypal: 8%
eBay: 8%
Cimpress: 6%
ANSYS: 4%
The Trade Desk: 4%

There are probably a few names there that you don't know. But before getting to these names, I have to tell that the average PE ratio of that portfolio is very high. We're far from growth at a reasonable price. We're more in the territory of "very high growth at a crazy price". But the guy owns 10 stocks, so he probably benefits from some statistic rule saying that among 10 very high growth stocks, the majority will probably continue to grow a lot for some time. I don't know if there's a rule about that, but it helps me to keep some respect for the guy, thinking that.

The problem with that portfolio in my opinion is that it contains some stocks that don't even make profits (I'm talking here about Avalara and Despegar which represent about 28% of the portfolio). That's something everybody should avoid in my view: stocks that don't make money. Whatever how beautiful the future may look, if they don't earn profit now, I'm not tempted at all to anticipate that their management will be able to reverse the situation. That's the definition of speculation. But, again, most of you fucking assholes are excited about that kind of situation, so fuck my writings and let's buy these stocks with all our savings, and why not putting a mortgage on the house to get more money to invest in these?

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

David Rolfe of Wedgewood Partners has the portfolio that looks the more like mine. Actually, we look like cosmic twins. I own many stocks that he owns and I've been interested in owning most of the other stocks he owns. I'll follow him closely in the future.

Here's his top 10 positions:

Apple: 9%
Visa: 9%
Facebook: 8%
Edwards Lifesciences: 8%
Tractor Supply: 7%
Berkshire Hathaway: 6%
Booking Holdings: 6%
Fastenal: 6%
Paypal: 5%
Ulta Beauty: 5%

*********

Let's complete with the funny Bill Ackman. Because now, Bill Ackman goes Buffett.

Yes, after saying that Valeant wasn't worse than Berkshire that invested money in a sugar-water company (Coke), Ackman puts 11% of his portfolio in Berkshire. It's his way of admitting  that Buffett is better than him. Frankly, Ackman is the funniest investor alive. So cocky, so proud-looking but so inconsitent and incoherent. But still so cocky. He's the Bono of big investors.

mercredi 14 août 2019

Human rights now

China is preparing for a military invasion of Hong Kong. Because Hong Kong wants democracy.

We all know that most investors are heartless. If they can make money somewhere, they’ll go for it. 

For instance, they’ll invest in Alibaba or Tencent or any other chinese company that grows. What may slow them is that, in China, transparence is not a norm. And companies always belong to the state, in a way or another. But no other reason than that is evoked. 

Today, it’s time for many investors to stop thinking about money for a few minutes and start thinking about democracy and human rights.

It’s time to boycott as many chinese products as we can. It’s impossible to boycott everything, but at least, take a look at the origin of goods we buy. And buy something from any other country. Anyway, even if it’s a bit more expensive, it’s gonna last longer or gonna be better for your health or the health of your kids who play with toys full of toxic products made in China. 


China is an horrible country on a political level and it’s our duty to vote against it with our money.

And above all, it's time to see if that blog can have some impact on the economy of a 1.4 billion people country. 

vendredi 9 août 2019

Mohawk Industries (MHK) at book value

In a world obsessed by growth, by Shopify, by Amazon, by The Trade Desk, we sometimes forget old-fashioned businesses like tapestry and carpets. 

I know that very few people are excited about Mohawk. Nobody gives a fuck about that kind of business because it's not "the future". Also, metrics are OK but not great. Frankly, even me, I'm not that excited about MHK. But there's some stuff to like...

I've been a MHK shareholder in the recent past but I decided to sell my shares when I saw that growth slowed down a lot. That's the problem with a stock like Mohawk: it's a cyclical business. But it's one of the few great cyclical business. Which means that it eventually goes down, but when there's a rebound, it's a very interesting rebound.

It's important to note that, these days, you can buy a MHK share for around 115$. Which is about the book value of shares. 
 
Take a look at the book value multiple since 2009:
 
2009 BV: 1
2010 BV: 1,2
2011 BV: 1,2
2012 BV: 1,7
2013 BV: 2,5
2014 BV: 2,5
2015 BV: 2,9
2016 BV: 2,6
2017 BV: 3
2018 BV: 1,1
2019 BV: 1,1

 As we can see, the historical book value is much higher than the current level. I won't repeat the exercice for PE ratio, but it's currently 11 and the average over the last 10 years has been a little over 20. So, on a a book value and PE ratio perspective, the stock is about twice cheaper than it's historical average.

Of course, when a stock is so cheap, it's for a reason. EPS have started to drop. There's currently no growth for the stock. But it's a cyclical thing. Nothing indicates that the company will decline and vanish. It happens after a few good years.

 But EPS growth has been pretty good since 2009. See below:

2009 EPS: 1,53$
2010 EPS: 2,52$
2011 EPS: 2,92$
2012 EPS: 3,78$
2013 EPS: 6,55$
2014 EPS: 8,15$
2015 EPS: 10,20$
2016 EPS: 12,61$
2017 EPS: 13,61$
2018 EPS: 12,34$

EPS have doubled a few times over a 2 or 4 years frame (from 2009 to 2011, then from 2011 to 2013, then from 2013 to 2017). It's excellent. But they will surely drop a lot when the next recession hits us.

Also, the current debt level is pretty low which gives a lot of flexibility to the company to buy back their very cheap shares or to make an acquisiton. I think that Buffett could buy that company. However I believe Berkshire owns a tapestry company which could bring some conflict of interest. But there's very few great companies avalaible at 11 times earnings these days.

A very good idea, in my opinion, for a small position in a portfolio. Many insiders and superinvestors are also buying. Most of them are bad, but when they share my opinion, I can grant them credibility.

mardi 6 août 2019

Expensive and predictable stocks... Do you really need to worry about the PE ratio?

I once read some article about Giverny Capital saying that the guys working there usually didn't bet on an increase of the PE ratio for any specific stock.

It was a revelation for me. These guys seemed more inclined towards a stock that's expensive but that's always been expensive and highly predictable.

I had the idea of taking a look at 10 stocks with a PE ratio always high. It's not really a random list, because I know all these stocks. All of them are great businesses, with a great moat. But, even if it's not a random list, it's pretty varied.  You have softwares, healthcare, paint, clothes, chocolate, instruments, payment systems, analytical company, aeronotics parts and stuff for construction. I don't think you can be more varied than that.

Right after the ticker, you have the average PE ratio for the last 5 years, then you have the performance of the stock over the last 5 years:

Hershey (HSY): 30 (performance last 5 years: 70%)
Ametek (AME): 23 (performance last 5 years: 76%)
TJX (TJX): 21 (performance last 5 years: 95%)
FactSet Research (FDS): 27 (performance last 5 years: 127%)
Sherwin Williams (SHW): 26 (performance last 5 years: 145% )
Home Depot (HD): 23 (performance last 5 years: 165% )
Intuit (INTU): 44 (performance last 5 years: 239%)
Mastercard (MA): 35 (performance last 5 years: 256%)
Edwards Lifesciences (EW): 35 (performance last 5 years: 359%)
Heico (HEI): 34 (performance last 5 years: 428%)

These stocks have been expensive for a very long time. However, they've beaten the market easily.

Everybody should have a few of that kind of stocks in their portfolio. Perhaps not exactly these stocks, but stocks that share similar characteristics.

dimanche 4 août 2019

High Liner Food (HLF.TO), a tool to destroy our civilization

A few years ago, many analysts, including Jason Donville, had a positive opinion about High Liner Food (HLF.TO).

To me, it never looked attractive enough to buy some shares. It looked just like an OK stock, nothing more.

On june 19th 2014, a little more than 5 years ago, Jason Donville recommended HLF. At the time, the stock was selling for 24,54$.

Today, the stock is selling for 10,34$. A drop of more than 50% in 5 years. What a bad investment it's been.

I won't write anything about EPS, ROE, and the usual metrics. I will only state that at my local grocery, I often visit the fish departement and, among all the frozen fishes, when I see High Liner packages, I can see that almost all (if not all) are fishes from China.

Do you trust China food, even when it's not transformed? I don't.

These fucking chinese put paint in their milk. They feed their fishes with shit. I don't trust chinese stuff. I think my opinion has some credibility because I was in China last year and I've smelled a lot of bad smells there.

So, in retrospect, I don't think that we should feel proud about that company because it's canadian. Eating safe stuff is important. Chinese want to destroy our civilization. They want us to buy their spy phones and eat their fishes full of shit.

That's how they'll destroy us for good.

jeudi 1 août 2019

Portfolio review

Here comes the moment when you can compare your performance to mine and thus, have some respect or some disdain for my approach. After all, who can have esteem for an investor who gets a worse performance  than the market, year after year? Even if that person gave a kidney to some poor guy and was helping people dying from scorbut in Azerbadjan, I would laugh at him. You are what you achieve. Anybody can give a kidney (we have two), but few people can beat the market. 

Personally, I think some reorientation would do some good to people who can't beat the market. For instance, some guy wasn't good at arts. He became dictator and things went much better for him for many years.  

So, here's a look at my portfolio:

Number of stocks: 20
Cash: 12% of the portfolio
Average ROE: 40
Average Beta: 0,73
Average forward PE: 19
Performance of the portfolio (YTD): 21%
Performance of the TSX/S&P500 (YTD):  14%

I haven't lived that much emotions with my portolio this year. Don't get me wrong, I almost never feel euphoria with my portfolio, but I sometimes feel excited or feel bad after a sudden drop. 

Either because I want to buy more, either I'm mad because I just deployed money and I should have waited 24 hours. 

Actually, I've been waiting for the last 6 months for a substantial drop and I'm still waiting. That's why 12% of my portfolio is cash. I'd like to deploy this cash but I'm willing to wait. Because the best moment to buy is when everything goes down. And very few stocks go down these days.

All the stocks I own were in my portfolio at the beginning of the year. I've only sold two stocks (Lassonde and Enghouse) and I've kept the rest, adjusting some positions and keeping most of them intact. There's not a lot of action but I like it that way. It looks like each stock completes the other and that's the wonder of a well-balanced portfolio. You can own a stock with a PE of 30 but the position is small and is compensated by a bigger position of a cheaper stock. That way, you can stop listening to people saying that this stock is too expensive. 

Yeah, it's expensive, you fucking asshole, but it grows much better than everything else and it's only 2% of my portfolio, so fuck off. In fact, a stock is truly risky when it represents a large percentage of your portfolio. Otherwise, it's probably "riskier" to own only stocks with a PE of 12 than to own some expensive and some not expensive stocks. 

For instance, I own 5 stocks that I would qualify as expensive stocks and they represent 15% of my portfolio. These 5 stocks gave me the best returns among all the stocks I own over the last year or so. They were meticulosely chosen and they fit perfectly among all my other stocks so please don't interpret that as "buy as much expensive stocks as you can and you'll get rich". That's a stupid shortcut. 

Anyway, I'm beating the market by 7% right now. And you?
 

vendredi 26 juillet 2019

Google's latest results

The problem with businesses is that they are living beings. They eventually die. Almost all of them.

So, even if some businesses are extremely solid at one time, they eventually grow old, get cancer and die. 
 
I mean, I really like some stocks, but most of them ride a wave. They benefit from a certain fad which will fade. 

Google is in another dimension to me. OK, Google probably won't last forever, but among all my portfolio, it's probably the stock for which survival won't be a issue for a long time.

When I read, a few years ago, that Google build their servers close to dams, I realized that it was one of the strongest barriers to entry. Who could, overnight, start a company that will have sufficient funds to reach that level?

Their last results were out yesterday. What about a 20% growth for a 870 billion dollars company? Isn't it incredible? And don't forget that Google is the center of our world when it comes to Internet. It's a reflex. It's a no-brainer. You go on the Internet? You use Google. 

These results would be very good for a small cap. How could we qualify them for a giga cap? 

"Excellent" would be the weakest word we could think of.

mardi 23 juillet 2019

The fucking greatest name of a CEO

Do you know about Ameritrade Holdings (AMTD)? No?

Why? I wrote something about that stock a few months ago, saying it was a good company, if not great. How come do you come here if you don't remember what I write? Are you just looking for some random nasty words? You don't like my boring but great companies suggestions?

FUCK YOU.

Anyway, today, I read that the name of AMTD CEO is:

TIM HOCKEY

Yes. Like Tim Horton, but with Hockey instead of Horton.

THAT'S SO FUCKING HILARIOUS.

Please share below the name of a CEO which is funnier than that one.

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