dimanche 31 août 2014

Using the Magic Formula

I'm seriously thinking about using the magic formula (TM: Joel Greenblatt) in a near future.

This link show us that, from 1988 to 2009, the magic formula compound annual growth was about 24%.

Fuck. It means that in about 3 years, your money has doubled.

I've written a bit about it before, but this method consists roughly of selecting 20 to 30 stocks, of equal weight in your portfolio. You chose all the stocks for which the ratio between ROE and PE is the highest. And you repeat this exercice every year. That's the method used by Jason Donville for selecting a lot of his stocks.

Let's see some examples:

Forward PE: 15
ROE: 45

Forward PE: 16
ROE: 35
ROE/PE: 2,2

Those two would be good candidates for a magic formula portfolio because you get a good ratio (the ROE is at least twice the forward PE ratio). Jason Donville establishes that a ratio higher than 2 means that the company would be a good buy.

One of the biggest ratio you could get is the one of IBM

Forward PE: 10
ROE: 95
ROE/PE: 9,5

In these times where value is hard to find, maybe we should put our faith in magic. A lot of great investors are in a stand still mode. So, let's be humble and do the same as those rich mofos. Or, let's put all our fucking money in Berkshire Hathaway. Or, dare I say, let's put our faith in magic.

So here's a list of some stocks that could be great choices in a magic formula portfolio.


Cipher Pharma
High Arctic Energy Services


Gilead Sciences
Smith and Wesson
Ross Stores
Nu Skin (watch out, but very cheap)
Herbalife (watch out, but very cheap)

jeudi 14 août 2014

The negative investor

Holy shit. My small cap stocks suck big time these days.

I'm so fucking mad.

Loyalist Group, Macro Enterprises, Avigilon and NTG Clarity Network are almost all at their lowest price in a year. I'm so fucking mad about the TSX and the Venture.

Of course, I have some stocks like Constellation Software, Alimentation Couche-Tard, Cipher Pharma and Questcor that are almost all at their highest, and I've put much more money in these stocks than in the ones above.

That's what it takes to make you understand what a negative person is.

mardi 5 août 2014

What about Beta, bro?

Some investors are proud to tell us that they don’t use beta. They don’t give a shit about beta.
But what the fuck is a beta? An old videotape, just before the VHS? Oh shit, those investors are pretty up to date by letting down an old technology that’s been obsolete for 20 years.
But a beta is also a greek letter, a version of a software and maybe a lot of other very cool things.
In investment, beta exists too. So many fucking definitions of the same greek word, which is in fact a letter. Holy cunt.
So, in investment, a beta is a measure of volatility. A beta higher than 1 means that the price of a stock moves with more emphasis than the stockmarket. A beta lower than 1 means that the price of a stock moves with less emphasis than the stockmarket.
For example, if the beta of McDonald’s is 0,36, it means  that the price of the stock moves with less emphasis than the stockmarket in a normal day.
In his last ROE report, Jason Donville tells that he never watches the beta coefficient of the stocks in which he invests. But it appears that most of the stock he buys have low beta.
Come on everybody, wake up! I’d even dare to say, come on Jason, wake up!
If the price of a stock moves with more emphasis than the stockmarket, it’s mainly because this stock is affected by the economy in general. If a stock is affected by the general state of economy, it’s because it’s earnings fluctuate in relation with the state of economy. And if you're looking for stable growth like Jason Donville or a lot of other good investors, you'll be looking for companies that grow in a steady way.
So, if you buy a stock with a low beta, earnings are generally more predictable than a stock with a high beta. That’s why beta coefficient tells something and has some importance in my opinion. It GENERALLY (there are some exceptions) reveals that the earnings are stable whatever the state of economy is.
Below are the Beta of some stocks. You’ll see that healthcare stocks have a low beta. And construction related stocks have a high beta:
Alimentation Couche-Tard: 0,04 !!!
Berkshire Hathaway: 0,35
McDonald’s: 0,36
Merck: 0,39
Pfizer: 0,68
Valeant: 1
Deere: 1,29
Caterpillar: 1,59
Bombardier: 1,65 
Appreciate low beta's, bro.