Why I sold my Couche-Tard shares

Today, I finally sold all my Couche-Tard shares.

It took me many weeks to sell because I've loved Couche-Tard for years. I still think that it's a good company. Probably not great anymore, but still good.

Sadly, Couche-Tard had changed: Fuel selling wasn't as trendy as before. Buying other convenience stores wasn't even that appaling for Couche-Tard. They thought about diversification through Dollar Stores instead. Which was a big source of ?????  for me.

Why should I stay with Couche-Tard if that company thinks that Dollar Stores is the place to be? Why shouldn't I sell my Couche-Tard shares to buy Dollarama or Dollar General instead? And what about the future of fuel? What about electric stations? Couche-Tard would maybe adapt it's model, but maybe not. A changing industry is not the easiest place to be. You may believe in the company, but the fog is thicker than before. And I don't like fog. I prefer to pay more for less fog (whatever Buffett says about overpaying for a cloudless sky. Yeah, that’s probably why he didn’t buy anything in March 2020).

That's mostly why I sold Couche-Tard. 

Some years ago, I wrote a post about my "permanent holdings". 

Couche-Tard was among that list. Yeah, "permanent" my ass. Most of the stocks listed on that post have been sold. 

Number of stocks and concentration: A look at 10 superinvestors

In the past, I've written a lot about superinvestors transactions. But much less about superinvestors diversification. That's what I'm gonna do now. 

Diversification is very important. Concentration is important too. You have to find balance. 

A portfolio of less than 10 stocks seem pretty risky to me. Saying that every stock represents 10% of the portfolio, each stock may have a very significant impact on the performance of the porfolio. The impact may be great but it may also be bad. For me, it's too concentrated. For others, it's perfect to stay focus that way. My recommendation would be to chose that strategy only if you understand very well the stocks you own. 

On the other hand, I find ridiculous to own 50 stocks and more, whatever the size of your portfolio. Even if you manage 100 billion dollars, owning 50 stocks is a loss of time and energy. Usually, when you find a manager with so many stocks, you can see a lot of 0,5% and 0,1% positions. What's the use? My opinion is: If you have enough faith in a stock to buy it, then buy it for a significant portion of your portfolio. If you're not comfortable with it, then just don't buy it.

So, I've gathered informations about 10 superinvestors via www.dataroma.com. Below, we can see how many stocks a specific investors owns in his portfolio. We can also see the level of concentration of the portfolio.  

Bill Ackman: 7 stocks. Top 3 represent about 50% of the portfolio. 

Pat Dorsey: 9 stocks. Top 3 represent about 50% of the portfolio. 

Bill and Melinda Gates Foundation: 21 stocks. Top 3 represent more than 60% of the portfolio. 

Chuck Akre: 28 stocks. Top 5 represent about 50% of the portfolio. 

Sequoia Fund: 29 stocks. Top 10 represents about 50% of the portfolio. 

Seth Klarman: About 40 stocks. Top 10 represents more than 60% of the portfolio. 

Warren Buffett: About 50 stocks. Top 3 represent more than 60% of the portfolio. 

Daniel Loeb: About 70 stocks. Top 10 represents about 50% of the portfolio. 

Lee Ainslie: More than 100 stocks. Top 10 positions represent about 50% of the portfolio. 

Thomas Gayner: More than 100 stocks. Top 10 represent more than 40% of the portfolio. 

We can see that almost all of these investors have more than 50% of their money in 10 stocks or less. That's a high concentration, in my opinion. 

Buffett is a strange case. While Apple represents almost 50% of his portfolio, he also owns a load of very small positions. Why being so concentrated on Apple and so diluted on so many very small positions? I don't understand. 

What's your ideal size of portfolio and your ideal level of concentration? If you haven't thought about that before, it's time to do it. Because it makes a big difference on your performance. 

Netflix (NFLX)

I just took a look at what superinvestors bought during last quarter. And I've seen that Sequoia Fund bought Netflix. Actually, that's a big buy for them because it's a new position representing 4% of the fund...

So, I've taken a look at Netflix... to see that it was indeed a great company.

We may think that Netflix has some serious competition with all the other streamers that are coming in the market. I have to admit that I don't know that much the streaming market, but I've tried a bit of Amazon Prime Video and I wasn't that seduced by it. 

I haven't tried Apple +, but I've heard that the offer wasn't that wide. Anybody could do a little critic of what they've experienced on various platforms?

Anyway, anybody who has bought Netflix 5 years ago has made more than 5 times his money. And anybody who has bought Netflix last year has made about 50% his money. 

Here's a few observations:

The growth rate is still very high. 

They make profit;

The ROE is very good (30);

Forward PE is OK (42);

The debt level is high, however, it's mostly long term debt.

The cash flows are negative, year after year (probably because they reinvest a lot of their CF), it's strange, but probably logic; 

The brand is HUGE. It should be even bigger in the future. Because everybody has nothing else to do than watching stuff on their computers. The habit will stay, after the pandemic. Netflix is like Apple: for a lot of people, it's a no brainer. And I think that it's the main advantage of Netflix. It's already in the head of hundred of millions of people, all around the world as an easy and cheap entertainment. And I'd bet that it's gonna be there for many years. 

So, i'm positive about that stock. 

Paypal (PYPL)

On january 30th 2020,  I bought my first Paypal (PYPL) shares. I paid about 115 US$ each share. At the time, Paypal was expensive. The current PE was about 50, but the growth was great and the prospects looked great too. 

We laughed at COVID in january 2020. Everybody thought that it was a fucking scam. I thought that too. 

LOL! COVID. LOLLLLLLL! 

So, the pandemic was never a criteria for me in buying Paypal.  

Sometimes, you pick a good or great company and great circumstances happen, thus magnifying your returns. That's what happened with Paypal, thanks to the great and wonderful pandemic. 

Very quickly, people started to make more and more transactions online. And Paypal benefitted a lot from that trend. The trend was still there, but online transactions got crazy. 

To understand better, let's take a look at the EPS since 2016: 

2016:   1,16$

2017:   1,49$

2018:   1,74$

2019:   2,09$

2020:   3,58$

Compound annual growth from 2016 to 2020: About 32%

Last friday, my PYPL shares hit 300$ each. They almost tripled on a single year. Now, the current PE is 66 and the forward PE is 52. That's still pretty expensive, but it was expensive one year ago, when the stock was selling between 100 and 115$. So, I'd dare to say that somebody who bought the stock one year ago could be still be interested in buying it today. Because it's not much more expensive now and prospects look even better than last year.  

Paypal, while being very expensive, isn't that much a trendy company. It's not like Bitcoin or Tesla. There's no hype around it. So, the rich valuation doesn't seem to be pumped by a gigantic boner. It's always strange to pay 50 times the earnings, but some stocks have always been expensive and seem at the right place to continue to perform. 

Anyway, I like Paypal and it's now one of my biggest stakes. 

Dishonesty

What I like about my blogger situation is that, while I don't get any pay, any recognition, any groupies, any privilege and so on... I however can say what I want about any stock and any fund manager. And I can be honest about what I do with my portfolio. I can say that I've done shitty things and say that, if I had any courage, I'd hara-kiri when I'm beaten by the market by 20%. 

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

In this period of post-mortems about performance in 2020, we can read a bunch of letters from money managers. 

This year again, I'm pretty upset to read that some managers that I respect are comparing their performance with some imaginary index. Tell me who can really be sure that any fucking made-up benchmark is reliable? 

I don't give a fuck if you're 100% techno or 100% banks. Compare yourself to the market. Even if the market is not made of only banks or only tech companies. The market reflects the average performance that anybody should expect when investing on the market. That's all. 

OK, now, let's take a look at some canadian funds. Let's remind that the S&P500 performance for 2020 has been 16%. 

Giverny Capital (Quebec): 12,9% and they compare themselves to an abstract index that did 15%

Medici (Quebec): 11,9% and they compare themselves to an abstract index that did 10,8%

Barrage Capital (Quebec): 25,9% and they compare themselves to the S&P500

Donville Kent (Ontario): 22,4% they vaguely compare themselves to the S&P500

While I respect the first two funds and while I'd never give my money to the last two funds, I have to admit that these last two seem more honest to me. But maybe they're more honest because they beat the S&P500? Who fucking knows?

Let's think about the average investor who doesn't know anything about the market. All he wants is to make money without any effort. That guy just takes a look at the information given by the fund and, he's got it in the ass. Because he believes that his fund did better than the made-up index that did 3% (while the S&P500 did 15%). 

I know that a fund manager may say that some stock he holds isn't represented on the S&P500, so he should take another part of another index and blah blah blah. But I don't care. Once you've started manipulating multiple indexes, you make it more and more opaque. 

The great Google

Some time ago, a guy on Twitter asked "If you had to own only one stock, which one would it be?". I said Google. 

Of course, it would be a very bad idea to own only one stock, whatever the level of love or worship you have for the CEO. But, to me, Google is close to the perfect stock

It's a monopoly, it's central to all our lives, the trafic on Google and Youtube is huge and a competitor would have a lot of difficulty to appear and beat Google. They'd probably have to bomb Google offices to achieve some success.

 Earlier this week, Alphabet/Google released it's earnings, and they were fucking great.. 

During the last quarter, their EPS went from 15,35$ to 22,30$. That's a 45% increase. For a HUGE company, it's quite an achievement.

In 2011, EPS were 15,10$. In 2016, they were 18,27$. In 2020, they were 59,15$. 

Plus, the company has very little debt and about 137 billion dollars cash.

Another obvious story. I have no merit. I just took a look at the numbers, thought a few minutes about the business model, and I understood that I had to buy some shares. 

Yes, it's a 1,4 trillion dollars company. Yes, shares are sold for more than 2000$ US. But the forward PE is only 26. Which is very cheap in my opinion for such a strong and dominant company. 

Yesterday, I wrote a post about Topicus. Frankly, would I pay 50 times the earnings for that company which seems nice but which I don't know too much about? Plus, the growth is estimated to be 18-20% per year. 

Hey, there's Google just in your face. For only 26 times the earnings (substract the cash and you'll get it for 23-24 times the earnings). Why fucking  paying twice the PE of Google for a company that's growing in a similar way and that may very well be not as solid?

There's something just besides you that proved long ago that it works very well and will continue do to for a long time... Probably.

Shhhhhhhhhhh (edit)

Shhhhhh!

Here I am. Behind the bushes. No, I'm not jerking off. I don't do that anymore because it may be misinterpreted. I'm here because I'm watching Topicus (TOI.V) IPO very discreetly. I don't want to make too much noise about it, because I don't want the price to go up. 

Mark Leonard did everything to keep that IPO as quiet as possible. The information about Topicus hasn't been promoted, the numbers are in Euro, the shares are issued on the Venture exchange (crappy stock exchange full of shitty stocks, plus, a fucking index that wasn't solid enough to allow the trading of the shares last monday... so the trading only began on tuesday). It looks like he did everything possible to avoid a madness around the IPO. 

What's the right price to pay for Topicus shares? Did you spend a bit of time trying to figure what would be a good price? No? You were too occupied watching Netflix? Yeah, me too. But I stopped for 10 minutes and tried to see what price I would pay for Topicus.

After all, Constellation Software didn't gave me hundreds of Topicus shares. TOI.V represents only 0,5% of my portfolio. I'm not interested at all in keeping such a small position. Either I sell it entirely (because it's valuation is too high) or either I buy a lot of shares to own a full position (3-4% of my portfolio). 

The Great White North Triangle (Jason Del Vicario in Vancouver, Be Smart Rich in Toronto and me in Quebec city) had a lot of conversations about Topicus. We all have our own views about it, but we're all at least a bit excited about Topicus. The other guys value TOI in a different way than me, but not that far. 

In my opinion, a price under 50$ would mean a PE of 30 or so. Which would be an OK price, given the level of growth of the company (18-20% a year). But at the current price (about 60$), it's too much. 

Because there are some stocks like Facebook and Google that are growing at a similar pace (and maybe even a little more than that) that are sold for a cheaper PE. 

But people like brand new things. They want a new pair of shoes or a new stock. Or they want to fuck a new girl. It's as simple as that. Don't lie to yourself.