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?

7 commentaires:

  1. Interesting post Penetrator…My investing history follows your timeline pretty closely…

    It’s the summer of 2008 and after months of looking at the inverted yield curve and swearing I’ll stay out until it looks better. I impulsively do a u-turn and dive into the markets in late July 2008. But I didn’t put everything in but I did commit a rather large sum of money (maybe a third of my net worth)…It all went into three stocks…Sunlife, Rogers and Toromont.

    The market crashes But I stick it out. In March 2009 I notice that the momentum of market breadth is showing a huge divergence from the market indexes and I figure that the bottom was in…I was right but being right about it made me a little arrogant. I figured I knew more than I actually did.

    Eventually I sold Sunlife but held Rogers and Toromont for years. Toromont turns out to be an outstanding investment but in a moment of impulsiveness I sell it thinking I’ll buy it back later. It doesn’t happen and it gets away from me. Why did I buy Toromont in the first place? I read an article in the GlobeandMail back in the nineties by Edward Clifford extolling the virtues of the company. I vow someday I will own it even though I didn’t know anything about it.

    I lose my job in late October 2009. I move out to Pickering in Dec 2010 to live with my brother and his family in order to cut costs. I will never work again. I was in my late fifties, single, no car, no mortgage and no responsibilities.

    I put half my assets in the market in Dec 2010 and live off the other half. And I got lucky it was a bull market and I bought Brookfield Infrastructure in the summer of 2010, it is a big position and the best move I will ever make in the market (up till now anyway). I also buy a big position in Brookfield Renewable Energy. Another good move…I bought them because they were both spin-offs (I had already read Joel Greenblatt’s book on investing in Spin-offs. I read a lot of books at this time and kept coming across Bruce Flatt’s name (CEO of Brookfield).

    I too discovered and followed Donville but I had bad luck following his picks. They all cost me money except for CGI but I know it’s my fault, not his. It’s my money and I’m the one who has the responsibility of investing it.

    Along the way I made some terrible mistakes that involved two things…acting impulsively and investing in companies I didn’t know enough about. After half way through 2014 it gets much tougher for me to make money and I have to start pulling money out of my RRSP to live. At this time I make some truly horrible moves (too numerous and painful to mention). But I’m working out at home and reading metaphysics and am surviving and am basically okay.

    Currently I’m coming off a rough couple of years. Bought an ETF that shorted the Russell 2000 but sold bought and sold it about six months too early. Lost money there…Currently I feel good, I’ve narrowed down my portfolio and will live with the volatility. To me volatility is not risk, its noise.

    I’ve learned from my mistakes and with all the free time I’ve had over the last few years I have also expanded my interest into meta-physics. The market is a fascinating place but it can also be dangerous if you don’t know what you’re doing. My strategy at this time of my life is to focus on dividend growth stocks.

    I still have my favourites on market call but it’s a very narrow list now.

  2. It looks like Penetratror initiated a "baton rompu" or broken club? discussion.

    I am still considering myself as an apprentice DIY investor. Until recently, I was saving money and working my ass of to pay and deserve the partnership in the employee own engineering company I work for since 2003. During that time, I was investing my money blindly in funds without checking.

    I decided in 2017 to open a brokerage account. My strategy was simple. Invest in BRK and in royal bank. Two months later I started to open two positions in mining company because at this time, as a mining industry professional, it was the only type of business I know well. I also opened a position in Home Capital after having read an article that this company lost more than 80% of its value and it must rebound. After two months of that, my conservative strategy of investing in BRK and Royal Bank became a money hole. Some lost, thanks god my investement was low.

    Then came a parental leave in late August where I had quiet time to read. I realized that I was investing without any logic and it is time to read and be informed. I had the chance to read soon in my investing career "Investir en bourse et s'enrichir" de Bernard Mooney. I learned how to detect quickly bad companies and identify strong potential as companies. The recipe was easy to learn: Consistent revenue and profit growth of more than 15 %, ROE above 20, right pricing and depth below 4X annual income. Peter Lynch books were also inspirational for me.

    I like this blog because it is a place where I can talk about how you are making money freely without making anyone jealous. Although it is acknowledge that growth is the key, I appreciate that the posts are rational and often are oriented towards risk mitigation. It helped me a lot to make the right adjustement at the right time

  3. I became an above average investor when I stopped listening to the 'right way' of investing. All the BS about diversification, sector allocation blah blah blah. In 2014, I approached my clients with a simple proposition 'I'm going to invest your money like I invest my own; here is the process... I believe so much in it that I'm going to reduce your regular management fee and institute a performance bonus such that some of my income is now tied to how your investments are doing'... 98% of clients stuck with me and my book has gone from $30m to $120m in 4.5 years... most importantly I love what I do and really enjoy 'work.'

    1. You’re the 1% Vicario. The 1% of people really liking their job.

  4. PS I'll be on Market Call next Monday FYI. The 6pm EST show.


  5. Congratulations Penetrator. In your first ten years you mastered what stocks to buy and when to add to your positions (ideally when the whole market has corrected very sharply).
    You also have another skill: POSITION SIZING. You have done a blog entry on position sizing.
    In the next ten years you must focus on RISK CONTROL and WHEN TO SELL to become a complete investor like the great Vicario over here.
    Advice about stock investing that just covers what to buy is like those info-mercials on HOW TO BUY REAL ESTATE WITH NOTHING DOWN. As if BUYING a property is the only thing that matters.
    You are buying the best companies which seem to have a SUSTAINABLE advantage and predictable earnings and growth. But nothing lasts forever. For example, some people made very good money investing in major supermarket chains, and now Walmart owns 20% of America's grocery market. And how about that destroyer of worlds Amazon? What damage can they do to your retail stocks in the years ahead? Will Couche Tard be able to compete with Amazon go stores (where you just walk in, grab what you want and just walk out...and they send you the bill online and take the money from your credit card).
    Here is an article with a brief analysis of Amazon go:

  6. Belle réflexion et belle introspection ! Bravo. Très intéressant à lire.