The end of the great challenge: Penetrator VS Donville

On january 30th 2016, I wrote a post titled "The great challenge: Donville VS Penetrator". 

Let's compare our mutual performance, from february 1st 2016 to december 30th 2016 (11 months).

Donville picks:
CGI Group: 7%
Home Capital Group: 10%
Concordia Healthcare: -93%
Constellation Software: 21%
CRH Medical: 97%
Average return: 8,4%

Penetrator picks:
Canadian Pacific: 16%
Valeant: -86%
Knight Therapeutics: 54%
Couche-Tard: 1%
Allergan: -27%
Average return: -8,4%

Penetrator 2 long shots:
Ten Peak Coffee: -39%
Rifco: 40%

Man, I really suck. I've been beaten by Donville by 16,8%. I'm so ashamed.

Let's take a look at some other people results:

Gavin:
BPY.UN: 0%
TOT: 9%
GUD: 54%
ATA: 19%
TNC: 37%
Average return: 24%

Etienne Pouliot:
HCG: 10%
HLF: 34%
MTY: 65%
GIB-A: 7%
WJA: 25%
Average return: 28,2%

Twotime:
AGN: -27%
CLR: -1%
ESL: -8%
ATD.B: 1%
KXS: 33%
Average return: 0%

Chet:
CLR: -1%
CBL: 105%
GS: -11%
ITP: 55%
SJ: 4%
Average return: 30,4%

Unknown:
BX: -1%
IEP: 12%
IBM: 33%
WMT: 3%
WYNN: 30%
Average return: 15,4%

Dean A (it looks like this guy didn't understand the rules)
GIB.A: 7%
CSU: 21%
CRH: 97%
GUD: 54%
WCP: 67%
DEE: 125%
FRU: 35%
Average return: 58% (Wow, but he had 7 picks instead of 5)

Value Man
ATD.B: 1%
GIB.A: 7%
CCL.B: 36%
BYD.UN: 37%
SJ: 4%
Average return: 17%

In retrospect, as you can see, you're all better than Donville (except for Twotime) and you're all much better than me. You're the ones that should have a blog. What the fuck are you doing here? You'll only learn to do poorly if you keep coming here.

I've always thought that "nothing changes on new year's day" like U2 sang. But this time, something will change on new year's day. Not something significant in the history of humanity, but something significant in the history of this blog. I'll come back with my picks for the year ahead in a few days...

Happy new year everybody.

2016: The toughest year of my investing life

2016 is not over yet, but I think that it's OK to analyze how things went.

That year was probably the toughest of my investing life. I've made plenty of bad investments in the past, but not with such sizeable positions as this year.

I was probably a better investor in 2011, 2012, 2013 and 2014 than what I've been in 2015 and 2016. The good thing is that I don't have to find a way to get better. I just have to go back to where I was before I lost my mind, paying too much attention to what superinvestors and insiders do. Most of them are pretty bad and I now know it (I have a very good memory for that kind of things). Just take a look at that fucking Bill Ackman with his crazy investment in Shitpotle Mexican Shit. That guy is going deeper and deeper on the territory of vanished credibility. I'm so ashamed to have believed in him.

Yes, 2016 was a very very tough year for me (Valeant, Concordia and Allergan have all been major mistakes, but only Valeant hurted badly my portfolio). I'm still amazed by the fact that my portfolio went up about 1% this year with such terrible stocks. All those fucking stocks had a shitload of debt and I bought them even though I knew it. I've been very very very stupid and I deserve what happened to my portfolio.

On the positive side, I made some good investments with Knight Therapeutics, Tucows, Biogen and United Therapeutics. My shift towards François Rochon had some benefits (Bank of the Ozarks did pretty well after Trump's election, Disney did well and Mohawk didn't really move). So, it wasn't a terrible year on every aspect.

If you compare that 1% return to the total return of the S&P 500 which has been almost 13%, you'll see that my portfolio sucked big time. I don't expect fascination from readers and Bay Street. I don't expect promo material like cups and T-Shirt written "Don't fuck with Donville-les-bains" to appear in retail stores. 

To my eyes, I did good. To your eyes, I hope I've sucked. I hope nobody worships me like some people keep worshipping Donville.

I'm determined to never repeat that kind of decisions and investments. Just watch me.

Girls with tatoos

You may remember Robin Speziale (the guy who wrote the book "Market Masters"). Maybe you don't remember him. But anyway, here's a story about him and I.

Last weekend, Robin came from Toronto to Montreal. I met him there, in a pub called Ste-Elisabeth.

I didn't know what to expect. Probably a serious guy who tries to look older than he is. But I was wrong, the guy is pretty cool. His approach is respectful, like a good interviewer. However, he has opinions. And many of them look like mine. Man, he'll never write his opinions on his books because they punch. But I was happy to meet the guy behind the book and see who he really is. We talked about many topics: investing, investors, Amber Kanwar, our families, Pink Floyd, Adolf Hitler and girls with tatoos.

At some point during the night, we go to the second floor and we sit besides some strange people. For instance, at my left, there's a cute blonde surrounded by three guys with ugly mustaches. I'm not always very subtle. That night, I'm surely not.

- Do you like blondes, Robin?
- I don't care, I'm open to any kind of hair.
- I think blondes are usually dumber than brown girls.
- Why?
- Take a look at that blonde. How could she be intelligent, sitting besides three douchebags like that?  How could an intelligent person stand three guys with such ugly mustaches? You never noticed that many blondes hang with superficial people or douchebags?

At my right, there's a girl with an arm full of tatoos. The kind of arm where there's little skin left.

- Do you like tatoos Robin?
- Yeah. It's OK for me. And you?
- No, it looks filthy. 

At this moment, the girl besides us decides to cover her arm with a sweater. Robin seems to find that funny and awkward at the same time. Did she heard us? I don't know. She's about 1,5 meters from us, but the music is loud.

Then, there's a waitress and Robin sees a tatoo on her leg. I tell him to ask her what it means. That poor Robin knows very few french words so I tell him what to say. So, when the waitress comes back, he asks her:

"Quelle est la signification de votre tatoo?"

And she answers some shit about a protecting angel. An angel to protect her against what? Against her father maybe.

Robin and I agree that most girls with tatoos carry a lot of baggage (history full of bad experiences). Robin is more polite than me and he may disagree a bit here, but, last year, I had a yoga course with many teachers and most of them were girls with tatoos. I came to realize (via Facebook and via what they said during the class) that many of them seeked some spiritual force because their life had been full of shit. On facebook, I saw that many of them had problems like alcoholism, a violent boyfriend or a father who beated them and/or raped them. Each tatoo is a memory of those difficult moments, like when they lost their virginity at 2 years old.

From that moment, when we saw a girl with a tatoo, we began to think that she was raped by her father.

It was getting boring in that bar. So we went to the "Foufounes électriques" (Electric Butt), probably the most dirty bar in Canada. Man, you should take a look at those fucking restrooms. They look like a dump. Like a fucking place where people go to take heroin. The walls look full of AIDS.

The restrooms of "Les foufounes électriques"

So, we start to play fucking snooker, because we couldn't get the pool table. I ask a girl who passes by about the level of action in the bar and she tells me that she doesn't know the bar. She's there to date a boy via Tinder. She proposes to play snooker with us. I accept, but I tell her that she should join Robin and me in a team against her date, who's gonna play alone against us. She accepts the deal, claps my hand and go to bring back her date.

She comes back with a guy who looks like a total douchebag. The guy clearly just wants to fuck her because he's always touching her, laughing like some retard and he plays snooker like a fucking lame (even worse than me) and he gives her some stupid advices about how to play. 

Robin sees that there's a tatoo on the arm of the guy and tells me to ask him what it means. So, I ask him and he tells me that it's the name of his daughter.

I go back to Robin, telling him: "It's the name of his daughter and he probably raped her".

And soon after that, it was time to say goodbye. 

Psychology is now a more complete science, thanks to us.  

Not so great ROE stocks: Enghouse Systems Limited (ENGH.TO) (Part IV)

Man, it's so fucking cold outside today in Quebec City. Right now, (10 PM), it's about -20 celcius degrees and -30 degrees with the fucking wind. I don't know for fahreneits but it's probably something like -200 or -300 degrees.  What a fucking country. And it's not even winter yet. Oh Canada. Terre de nos aieuls. Fuck you Canada. 

Today, we go once again with a favorite IT stock of Jason Donville: Enghouse Systems.

I remember that the first comment I read about that stock was probably when Donville said that Enghouse was a kind of baby/junior Constellation Software. I remember taking a look at the numbers of Enghouse without understanding how that business could really be a baby/junior Constellation Software. It's surely a good company, but amazing as Constellation Software? Surely not.

As before, let's take a look at my favorite numbers: 

Beta: 0,34 (very low = very interesting)

As we can see below, the growth is great and steady:

2011 EPS: 0,66$
2012 EPS: 0,80$
2013 EPS: 0,92$
2014 EPS: 1,11$
2015 EPS: 1,17$
2016 EPS: 1,74$
EPS growth from 2011 to 2016: 163% (great growth)

Very few stocks achieve that kind of growth.

Actual ROE: 17
Average ROE last 5 years: 15
Debt VS earnings: About 3,5 times (low debt level)

Shares: Very little dilution. Almost nothing for the last 5 years.

Momentum indicators:
Sales growth last year: 10%
EPS growth last year: 49% (the last results were out today and the 49% growth is truly amazing). 
Some interesting momentum here.

Actual PE: 30
Forward PE: 26
Average PE last 5 years: 30
The actual price is high but normal when we look at the average price over the last 5 years.

Competition:
Constellation Software performance last 5 years: 688%
Enghouse performance last 5 years: 390%
Kinaxis performance last 5 years: 364%
Open Text performance last 5 years: 187%

I really like ENGH. If it wasn't for it's astronomic price, I'd probably buy that stock. But I simply can't buy a stock with a forward PE of about 26. Even with Novo Nordisk, which is a stellar ROE stock, I didn't pay this price. Probably that someone will write a comment saying that it's a cash flow machine and blah blah blah. That's always the kind of comment I get when I say that a stock is too expensive for me.

I'd really need a big big correction before buying that stock.

Not so great ROE stocks: Open Text (OTC.TO) (Part III)

Today: Open Text (OTC.TO). One of the favorites IT stocks of Jason Donville.

I've always thought it was pretty strange that Donville liked OTC and said whenever he had the occasion that he invested mainly in high ROE stock. LOL. Then, why did he invested in Valeant, Concordia, Pulse Seismic, Delphi Energy, Directcash Payment and Open Text? LOL. He was surely joking. Market Call is such a funny program.

Let's first say that OTC is actually buying Dell EMC's enterprise content division, for 1,62B$. It's a big acquisition because OTC has a market cap of about 10B$. There will be dilution, increase in debt and a lot of cash will go for this acquisition. In other words, the balance sheet is about to change a lot. But here are the actual numbers.

Beta: 0,76 (which indicates a good stability)

As we can see below, the growth is in fact very steady:

2011 EPS: 1,06$
2012 EPS: 1,07$
2013 EPS: 1,26$
2014 EPS: 1,81$
2015 EPS: 1,91$
2016 EPS: 2,33$
EPS growth from 2011 to 2016: 120% (great growth)

Few stocks achieve that kind of growth.

Actual ROE: 49 (significant tax benefit for the last quarter, so the number is impacted a lot)
Average ROE last 5 years: 13 (shit, this is low)

Debt VS earnings: About 10 times (medium-high debt level)

Shares: A little dilution and a little buyback here and there. A little more dilution, though. But not in an abusive way.

Momentum indicators:
Sales growth last year: 13%
EPS growth last year: 2116% (significant tax benefit for the last quarter, so the number is impacted a lot)
Some interesting momentum here.

Actual PE: 9 (same reason as above: fucking tax benefit).
Forward PE: 19
Average PE last 5 years: 28
On an historical basis, the actual price is appealing.

Competition:
Constellation Software performance last 5 years: 688%
Enghouse performance last 5 years: 390%
Kinaxis performance last 5 years: 364%
Open Text performance last 5 years: 187% (take note that OTC is actually the cheapest stock of that category, which wasn't always the case).

I like OTC. The beta is low, the growth is good, the sector is defensive. However, the ROE is pretty low and the debt is high. I'd wait to see what will happen with the acquisition before buying that stock. But I believe it's gonna be at least OK.

Not so great ROE stocks: Ametek (AME) (Part II)

Let's now take a look at another Giverny Capital big position: Ametek (AME). That stock represents about 7,1% of the fund, which is a lot.

It's surely a great stock, huh?

I'm sure most people don't know about this one, just like LKQ.

That business is a manufacturer of electronic instruments and electromechanical devices for many industries (defense, aerospace, medical, oil & gas, etc).

I'll use the same metrics as I did with LKQ.

Beta: 1,16, so there's more volatility here than on the market.

As we can see below, the growth is very steady:

2011 EPS: 1,58$
2012 EPS: 1,88$
2013 EPS: 2,10$
2014 EPS: 2,37$
2015 EPS: 2,45$
2016 EPS: 2,30$
EPS growth from 2011 to 2016: 45% (OK, but not so good)

I don't know why the EPS decreased from 2014 to 2016. Maybe they did some acquisition? I don't really care because (SPOILER ALERT) the rest of the analysis shows that it's not such an interesting stock.Why dig when you don't have a great feeling of ecstasy?

Actual ROE: 16
Average ROE last 5 years: 19

Debt VS earnings: About 7 times (medium debt level)

Shares: A little dilution and a little buyback here and there. So, at the moment, the number of shares  is about the same as in 2011.

Momentum indicators:
Sales growth last year: -5%
EPS growth last year: -13%
No momentum here. 

Actual PE: 22
Forward PE: 21
Average PE last 5 years: 22
On an historical basis, the actual price is normal.

Competition:
Honeywell performance last 5 years: 121%
Siemens performance last 5 years: 21%
AME performance last 5 years: 78%

I don't really like that Ametek stock. The historical performance has been only OK. The actual PE and the forward PE aren't appealing. There's no momentum in recent earnings. There's no interesting buybacks.

I wouldn't buy that one. 

Not so great ROE stocks: LKQ (Part I)

It's hard to erase what you've learned and what made sense to you.

I've been a big fan of high ROE stocks for some time now, so it's been automatic: if a stock has a ROE lower than 20, I almost immediately look elsewhere.

In the recent past, I realized that, in some cases, a medium ROE is fine when a business has a great moat and great growth.

In that category, there's LKQ, the aftermarket auto parts provider that's a big holding of Giverny Capital. It's also a stock nobody is talking about.

That stock doesn't look so great at first sight. But if we dig a little, we can find something interesting:

Beta: 0,55 (stocks with a Beta under 1 always get my attention because they're usually very predictable stocks)

As we can see below, the growth is very consistent:

2011 EPS: 0,72$
2012 EPS: 0,88$
2013 EPS: 1,04$
2014 EPS: 1,26$
2015 EPS: 1,39$
2016 EPS: 1,54$
EPS growth from 2011 to 2016: 114%

Actual ROE: 15
Average ROE last 5 years: 15

Debt VS earnings: About 9 times (medium-high)

Shares: A little dilution every year for the last 5 years (very light dilution, however)

Momentum indicators:

Sales growth last year: 30%
EPS growth last year: 20%

Actual PE: 22
Forward PE: 16
Average PE last 5 years: 24

Competition:
O'Reilly performance last 5 years: 272%
Advance Auto Parts performance last 5 years: 156%
LKQ performance last 5 years: 141%

Take note that O'Reilly and Advance auto Parts are not exactly in the same sector, but it's close. They're also trading for a higher forward PE than LKQ.

In retrospect, I think that LKQ is a good buy. There's steady growth, OK ROE, a sector which is absolutely not related to fashion or legislation, little volatility and nobody gives a shit about that stock. The debt is a little high, but not too much. I'd rather see buybacks than dilution, but once again,  dilution is reasonable.

Popular stocks move like crazy. Quiet stocks go their own way.

Excitation then dilution

On monday, a lot of people got excited about an article in the Globe and Mail about Knight Therapeutics.

Jonathan Goodman, the CEO, said that he intented to acquire some assets from Valeant or Endo (or even Concordia International, if we speculate a bit) in a period where these companies are struggling with heavy debt and bad press (resulting in a pretty bad performance on the stock market).

I believe that Knight is in a very nice position right now regarding the healthcare sector. If Goodman executes well (i.e. doesn’t burn money on some crappy asset), GUD could jump like crazy in the incoming weeks/months. But at this moment, nothing has been officially done.

Anyway, many people got excited. So the shares went up to about 11$. I sold all my shares.

And then, the next day, we learned that Knight was planning to issue some new shares for 10$ to raise something between 75 and 87 million dollars. I bought back all my shares for 10% less.

There's been manipulation by the media. Well, the media didn't know, but they manipulated us after being manipulated by Goodman. Only 24 hours after excitation, there’s been dilution.

I dislike dilution because it reduces the value of our shares. But I dislike dilution even more because it’s often related to that kind of trick. Pump the price of the shares, then launch the operation.

Well, this time, I THINK it’s different. I really believe that Knight is going to deploy the huge amount of money they have. 

If they don't, they're crazy. They have plenty of occasions NOW.

Simply Wall St

The guy who asked me to write about his website about investment is a guy from Sidney, Australia. Lucky Australia. Instead of a sunset at 3:30 PM like we have in Canada in december, they're heading to summer. And they have Midnight Oil and AC/DC. And they have kangaroos!

Looking at the website, it seems that this guy is not one of the executives of the startup. Whatever.

The name of the website is Simply Wall Street.

Simply Wall Street is very graphic. At first, you can see a big difform green or brown mud which indicates if a stock is more "value", "dividend", "future", "past" or "health". When the color is green, it's because the stock looks more attractive, when it's brown, it's less attractive. 

Just like shit is less attractive than boogers.

Once you've clicked on a stock, almost every metric is there : market cap, competitors, intrinsec value based on future cash flows (not sure I believe in this method), PE, ROE, debt level, estimated growth, recent insiders transactions, insider ownership VS institutions and public, etc . 

You've got an ocean of information in which you can easily drown, if you want.

I haven't made any verification but I assume that datas gathered by the website are OK.

What is good with that website is that you don’t have to check datas on 3-4 different places (like I do every day). On the other hand, there’s too much datas for me on that that website. In my opinion, maybe 25% of what's avalaible on Simply Wall St is important. But too much is better than not enough.

And I think that these forms like a yellow liver or a green placenta are a little dangereous because they don't give you a complete story about the stock. They give you the impression that it's a signal to buy. They're interesting, but take them with a grain of salt like we say in french.

There's not any perfect website about investment. They all have their problems and limitations. In my opinion, Simply Wall St is a good website but I don't know if I need it. I don't know if I'll go back often to it. After 8 years of investing, I have my habits and my method which has been successful so far, if we forget the period in which I lost my mind, investing on some stocks with low or negative ROE recommended by Jason Donville. Never follow anybody like you would have followed Jesus. Anyway, even following Jesus would have make you persecuted.

I recommend you to check the website. I don’t know if you’ll like it or not. I don’t think that an investor with several years of experience will need it, but he’ll find that it’s interesting to gather datas in one place instead of many. And you'll perhaps find an information that you wanted to know but couldn't find elsewhere. Like, for me, the different percentages of owners of a stock (institutions, general public, etc).

Disclosure : I haven’t got any money or any t-shirt to write about that website. Only got a premium access which I still didn’t claim (worth: 58$ on an annual basis).

On sale

That fucking life makes me mad. I have some slenderness on the side of my body, mostly when I do some movements. I think it’s muscular, but I’ve read all the symptoms of most cancers on the Internet and who knows, I may have some cancer and maybe I just have a few months or weeks to live.

Then, my 7 years old boy is having some difficulties at school. He probably has attention deficit and maybe that Asperger shit. He’s been to the shrink 4 times during the last two weeks to understand what’s wrong with his reading problems. Imagine that: a father is a fucking potential Pullitzer price nominee and his son has problems to answer a few questions after reading a short story.  

Isn’t life complicated enough like that without having a cancer and a kid that has problems at school? 

I know that I sometimes look like someone who likes to analyze things. But truth is: life would be so much easier, spending all day on a chair on a beach, eating coconuts and jerking off at the sight of pretty braless polynesian girls. I know that I return a little too often to that animal life, but come on, we all know that it would be real life. Oh my god, please, crash my plane on a tiny isolated tropical island  during my next trip from Quebec City to Toronto.

Speaking about easy things,  today, I received an email from a guy from Australia that offered me to get a free full access to his investing tool for free, if I wrote something about it on this blog. 

I’m on sale: If you want to give me a free copy of your book in exchange of a critic. If you have free diapers for a 5 months baby to offer me. If you want to put me on the board of your company in exchange of lots of money. Or if you want me to write something positive about you even if you're a pedophile. But be aware that I have the bad habit of saying exactly what I think about things, which means that even if I like you at the moment, I may very well start to dislike you in the future. I’d like to be eternally loyal, but sadly, it’s over my capacities.

I usually end up hating everyone and everything.

Dollar Tree (DLTR) and Dollarama (DOL.TO)

Here I go again: taking a crap with my laptop on my knees, writing another masterpiece of financial litterature.

Dollar Tree (DLTR) is one of my oldest holdings. I like that stock because it's very defensive and it's very well managed. However, the price they paid for Family Dollar was high and it changed a lot of things on the balance sheet of the company: The debt has risen a lot and the return on equity has decreased a lot. But there's a lot of potential with the stock and if the managers execute well (no reason to think that they will fail), this stock could perform well in the years ahead.

Even if I like DLTR, I believe that Dollarama (DOL.TO) is a better stock. In fact, DOL is probably the best stock in Canada and one of the best stocks in America right now. The problem is that it's very expensive.

Let's compare DLTR and Dollarama (DOL.TO), taking a look at different metrics.

DLTR
Forward PE: 20
Actual ROE: 16
ROE last 5 years: 29
Debt: 15 times earnings (high debt)
Annual Sales Growth last 5 years:  21%
Annual EPS Growth last 5 years:  - 4%
Beta: 0,6
Number of shares last 5 years: + 8%

DOL.TO
Forward PE: 26
Actual ROE: 84
ROE last 5 years: 33
Debt: 3,7 times earnings (low debt)
Annual Sales Growth last 5 years: 13%
Annual EPS Growth last 5 years: 31%
Beta: -0,32
Number of shares last 5 years: -16%

On most metrics, DOL is more interesting than DLTR. In fact, on every metric except for the forward PE, DOL is an incredible pick. I dare you to find something looking better on the market.

On the other hand, even if it's ROE has declined a lot and it's debt is high, sales growth and EPS growth are beginning to get much better with DLTR as the lasts results showed us. The market seems to believe that DLTR is going on the right direction given the recent rise of the stock. 

I don't understand why DOL has bought back so many shares given the price of the stock. But it looks like it helped the stock to achieve it's amazing performance.

All in all, I believe that, at their actual prices, both stocks are a Hold. But if there was a correction, DOL would be the stock to buy between the two.

Ce que les meilleurs achètent

Qu'il est bon de reprendre sa langue maternelle pendant quelques instants pour avoir la certitude d'écrire selon les conventions grammaticales d'usage. 

Ceux qui lisent Les Affaires se rappelleront peut-être de la chronique "Ce que les meilleurs achètent" de Bernard Mooney. La chronique ne m'a jamais incité à faire d'achats, mais c'est tout de même intéressant de voir les transactions majeures qui ont lieu chez les grands investisseurs. Parfois, on peut tomber sur une compagnie intéressante dont on n'avait jamais entendu parler au préalable.

Je reprends donc le flambeau.

****

Sorry. I have erectile dysfunction and I needed to confess about it in my native tongue.

Lately, I've wrote that superinvestor's buys and sales were not important to me anymore. It's true, but it doesn't mean that we can't discover something by watching what has been bought or sold by some billionaire going millionaire (like Bill Ackman).

Let's take a look at some famous names and their recent activities:


Warren Buffet

Many people find it very special that Buffet bought 3 airlines recently, given the fact that he said some years ago that it was a bad sector to invest in. I find it a little bit strange too.

On absolute numbers, a lot of money has been invested in these 3 companies. But in a relative way (VS the total value of Berkshire Hathaway) these investments represent nothing (all together, they represent about 1% of BRK). Do you really want to talk about something that has no impact at all on a performance? I don't.

American Airlines: 0,62% of Berkshire Hathaway
Delta Airlines: 0,19% of Berkshire Hathaway
United Continentals: 0,18% of Berkshire Hathaway

Of all Berkshire's major holdings, only Philipps 66 (PSX) was bought, with about 2,4% more shares bought during the last quarter. So, not such an interesting quarter.

Bill Ackman

This guy is an improviser. I don't think anymore that he knows what he is doing.

Air Products and Chemicals, a major position for Pershing Square, was reduced by 47% and Zoetis was reduced by 87%. I never understood what he intented to do with this stock. Looks like he didn't know either.

Otherwise, Ackman is still heavily invested in Valeant and he bought Chipotle Mexican Grill, another company going not well, which now represent about 4,3% of Pershing Square.

Pershing Square performance over the last year is simply awful. The fund went from 14 billion dollars last year to 5,4 billion dollars this year.

You're trying very hard to look impressive Bill, but truth is you suck dicks. You suck gonorrhea dicks.

Try to look on Google image. It's a fucking squirking dick. 

Lou Simpson

A lot of transactions for Lou Simpson during the last quarter. Almost all the holdings have been impacted by a sale or a buy. Brookfield Asset Management was reduced by 18%. Allisson Transmission Holdings (ALSN) was heavily bought (+31% representing now a total 7% of the fund) and Axalta Coating Systems (AXTA) and Sensata Technologies (ST) are two new buys, representing about 6% and 3,5% of the fund.

Daniel Loeb

A good investor (take a look at the value of his fund over the last years) who did a lot of transactions during the last quarter. Heavy buying for Facebook (+45%), Google (+38%) and Monsanto (+85%). Alibaba and Apple are two new buys, such as for Humana (HUM) and Visa.

Thomas Gayner

François Rochon seems to follow this guy closely, given the actual portfolio of both guys. Not so much movement in this fund in the last quarter (very light buys and sales). Among the small positions of the fund, Amazon (+74%) and Google (+34%) have been two of the biggest buys... but together, they only represent 2% of the fund.

However, check at this list of stocks that Gayner had in his fund: Berkshire, Carmax, Disney, Visa, Google. All stocks owned by Giverny Capital.

David Einhorn the gambler and Carl Icahn the only 19th century man still alive have done some transactions in the recent quarter but I don't find them too interesting. Michael Larson, the guy who runs the Gates Foundation seems to be a very prudent investor. He only added to his Berkshire shares (+15,5%).

You can see everything on www.dataroma.com.

Brexit and Trump VS the market

Until now, the Trump election has been positive on the market. Nonetheless, I've reduced some of my positions to stay ready for some abrupt movement. 

I think nobody could disagree with me: Donald Trump will surely say or do something that will make people nervous in the next months. Otherwise, we'll learn some crazy stuff about his past or his lifestyle. Some kind of plot twist like in "Chinatown" (the movie with Jack Nicholson made in 1974).

Please note that, usually, when I'm sure about something, the opposite happens. 

Talking about weird stuff, for instance, if we learn that Donald Trump smokes crack, like Rob Ford, there will probably be some manifestation on the streets. And maybe that Trump will get bumped. And then the market will go down.

Like many people said, Trump is like another Brexit. And, to understand what it could do on the market, let's go back in june. After Brexit was voted, on june 23th 2016, Priceline (PCLN) went down a lot. Here's the selling price of the shares:

1390$ on june 23, 2016.
1186$ on june 27, 2016.
1578$ on november 8, 2016.

If you'd buy PCLN on june 27th and kept it until november 8th, you would have had a 33% return. That's exactly what I wanted to do, but I didn't have a fucking token left at the time.

I've written about that stock before. It's a great stock with a good/great ROE, great balance sheet, good growth and the leader of the travel industry. I believe that, when Brexit was voted, people thought that air travel was going to be affected, like if Brits wouldn't travel anymore. Sometimes, people aren't more intelligent than chicken.

Let's forget PCLN, but let's think about a similar company with great numbers and a high valuation (CCL Industries, Constellation Software, Alimentation Couche-Tard, etc). I don't know if one of these will be hurt by Trump's politics. But I'm sure that a couple of great stocks will be affected by his wall, his protectionism or something else. The best stocks to buy in corrections are probably the 20-22 forward PE ratio stocks going down to 17-18 forward PE ratio.

So, you better start to follow a lot of stocks. The next year will be full of thrill. 

Giverny Capital update by the clown of Bay Street

2016 taught me to don’t care too much about superinvestors and averageinvestors sales and buys. Most of them are not that intelligent. In fact, many of them are not more intelligent than the average reader of this blog. Not more intelligent than me too, which means a lot because I'm a clown. I'm the clown of Bay Street. That's my duty to make you laugh with my thoughts about how absurd life is and how everybody will eventually let you down and how you spend your life working without any pleasure to get money that you save for later, waiting to be 65, old, tired and alone to use that money to pay for your cancer.

This year, I’ve started to take consideration of François Rochon’s picks via his fund, Giverny Capital. A few days ago, we could see the update of this fund via Whale Wisdom, one of the discoveries of 2016 (thanks to Etienne Pouliot, an obscure reader of this blog). I don't think that all the stocks are that interesting, but it's fun to look at them to see some stocks not that popular among investors.

There was not so much buying and selling for Giverny during the last quarter. Some little buying here and there and a large selling for Knight Transportation. 

And there’s a new buy which is Heico (HEI-A), an aerospace and electronic stock with a pretty high PE ratio bought by Merkel recently. It looks like Rochon likes to copy his favorite managers picks (Berkshire, Merkel and Sequoia Fund). The PE is high, the ROE is OK (16-17) and the beta is low. The sector is interesting too. So, why not keeping an eye on that stock?

Actual positions for Giverny Capital

Berkshire Hathaway class B (BRK-B) : 18,2%

LKQ corp (LKQ) : 7,8%

Carmax (KMX) : 8,4%

Bank of the Ozarks (OZRK) : 8,1%

Disney (DIS) : 7,2%

Ametek (AME) : 7,1%

Visa (V) : 4,8%

Merkel (MKL) : 4,6%

Union Pacific (UNP) : 4,6%

Wells Fargo (WFC) : 4,2%

O’Reilly (ORLY): 4,2%

Total 10 first positions : 79,2%

That website doesn’t show canadian holdings. I’m pretty sure that Giverny has a position in MTY Food Group... and they had a position in Dollarama in the past too. Is there anybody knowing what are their canadian holdings?

The Trump effect

Yesterday, like almost everybody on earth, I said to myself: "What the fuck is happening?" when I saw that Donald Trump was going to win the US election.

How could a guy say everything that he shouldn't say in politics and still get elected? I really don't understand. Usually, I tend to like to go against the masses in popular taste, but this time, come on, the guy is ignorant, vulgar and shows no qualifications for diplomacy. And he has the worst hair in the history of politics.

Around 10 PM, when Trump was almost sure to get the job, I said to myself that today would be a great day for bargains on the market. Because Trump is an unpredictable guy in the bad sense of the word and the market hates unpredictable events/people.

This morning, I took a look at pre-market prices and I saw that many healthcare stocks were on the rise. I mean on a serious rise. After looking at a few stocks, I realized that Hillary was an important part of the pressure on healthcare stocks.

Oh yeah. That bitch said she was going to protect the american people against unjustified healthcare price rises. And it looks like the market came to believe that Hillary was going to reduce the earnings of many healthcare stocks (or at least reduce the growth in earnings).

Fuck you Hillary.

The only stocks that are down a lot are some auto parts stocks (Linamar and Magna) and, to a larger extent, gun stocks like Smith and Wesson and Ruger that are down a lot (about 15%).

It may be the moment to buy these stocks.

Let's take a look at the unbelievable Trump effect on the market:

Healthcare stocks
Celgene: 11%
Allergan: 9%
Biogen: 8%
Pfizer: 7%
United Therapeutics: 7%
Valeant: 7%
Gilead: 6%
Eli Lilly: 6%
Jazz Pharma: 6%

Finance stocks
Bank of the Ozarks: 7%
Bank of America: 6%
Goldman Sachs: 6%
Wells Fargo: 5%
JP Morgan: 5%

Auto parts/gun stocks
Magna: -4%
Linamar: -5%
Smith and Wesson: -15%
Sturm and Ruger: -14%

Tucows (TC.TO) beats the estimates once again

Probably that tomorrow, Tucows (TC.TO), will go down on the market. Why? Because once again the estimates were beaten (actual 0,45$ VS estimated 0,36$). And last time Tucows did that, the stock went down.

But, frankly, it may go down like a rock thrown in the water, that stock is still a fucking buy in my opinion.

Take a look at the recent earnings per share of the stock:

2013: 0,37$
2014: 0,54$
2015: 1$
2016: 1,65$ (my personal estimates)

Is it any stock out there that is not too expensive and that offers such a high growth and high ROE? That stock is selling at about 18 times this year's earnings. It's probably less than 13-14 times next year's earnings. And the ROE is higher than 50.

The only problem (which is not a major concern) is that the debt is still a little high. But it doesn't grow as fast as the earnings, which makes me feel good.

Like I feel after having some tasty marijuana muffins.

Don't fuck with Donville-les-Bains

That's it. I simply can't praise Jason Donville's work anymore:

1- His bad moves (Valeant, Concordia Shitcare, Delphi Energy, Patient Home Monitoring, Directcash Payments, Pulse Seismic, Biosyent when the stock was at 12$ and many others) no longer compensate for his good moves (Constellation Software, Paladin, CGI Group, CRH, MTY Food Group and a few others);
2- A large large chunk of his portfolio was invested in Valeant and Concordia, two of the worst stories in Canada in the recent history. Both CEOs destroyed an incredible amount of value in less than a year which is quite a shitty achievement;
3- Working with adjusted metrics made absolutely no sense. Donville looked at Valeant and Concordia using adjusted ROE of 20 or 40. Same thing for many others like PHM and CRH. Adjusted metrics create an illusion of profitability and performance when no money is made. Even when earnings are negative;
4- Last year, Jason Donville recommended Valeant as a top pick and went to BNN defending Valeant against Citron Research. Then, a few days or weeks later, he sold almost all his shares. When I discovered it, it made me pretty upset;
5- Now that things don't go well for Donville Kent, Jason Donville remains hidden, chosing not to face the heat.

I still think that Jason Donville is a good guy. He's also a good analyst. But surely not an incredible analyst. While most analysts are average in a consistent way, Donville has been a guy of extremes: some terrible picks and some great picks.

I'll still follow him and his picks. But I'm not a devoted fan anymore...

So I went on the Internet, looking to recycle the name of this blog with another Donville. I don't want to start another blog, transfer all the archives and try to convince people to go on another blog. It'll be long and complicated and I don't have that much free time with my two kids, my job, the bus and all that fucking modern life shit.

I couldn't find anything else than Donville-les-Bains, (Donville-the-baths) a small city in Normandie. It means absolutely nothing, but I know I'll never be disappointed by it, regarding investment.

So, this name should remain.

About the big correction of McKesson and Novo Nordisk... and many other healthcare stocks

Healthcare stocks are going through a tough time. It seems that a lot can be explained by the incoming american election. A lot of people seem to be scared of Hillary Clinton because of her views regarding rising costs in the pharma industry. Well, more people may be scared about Donald Trump about his views on everything.

Finally, everybody is scared by at least one of them.

A couple of weeks ago, Angelo Dallas, a regular commentator wrote that McKesson looked like a great pick to him.

I agree that this stock would be at least an OK choice. The drug distributor works in an oligopoly and looks very solid.

But, in case you didn't know: life is a bitch. Life is constantly laughing at you. More so when you express your opinion in public. In these cases, life's favorite passtime is to kick your ass. Like with a huge correction.

The same happened at the same time for Novo Nordisk, one of my favorite stocks.

Both stocks have been down 15-20% on a single day, on the report of slashed outlook. I don't understand why the reaction was so brutal because both are great companies. They're not going bankrupt. They just won't grow as much as anticipated. But come on, there's plenty of stocks selling at 20-25 times earnings that are not growing at all. I don't understand why NVO and MCK are down like that. 

If someone is looking for a momentum investment, healthcare is surely not the best sector. But, in the long run, I still believe in this sector. I may be wrong because I'm often wrong. But come on, if healthcare stocks don't recover, my knowledges about investment are fucking worthless. Which means you're reading worthless shit instead of playing an amazing game of Candy Crush.

Check all these stocks. They almost all trade at historic lows and they all have a ROE higher than 20.  That's crazy. A price war may explode in this sector but I simply can't believe that things won't get better... 

McKesson
Average ROE last 5 years: 21
Actual ROE: 22
PE high last 5 years: 30
PE low last 5 years: 16
Forward PE: 9

Novo Nordisk
Average ROE last 5 years: 62
Actual ROE: 89
PE high last 5 years: 30
PE low last 5 years: 21
Forward PE : 15

Gilead
Average ROE last 5 years: 70
Actual ROE: 103
PE high last 5 years: 41
PE low last 5 years: 9
Forward PE: 6

Celgene
Average ROE last 5 years: 27
Actual ROE: 39
PE high last 5 years: 62
PE low last 5 years: 24
Forward PE: 15

Jazz Pharma
Average ROE last 5 years: 21
Actual ROE: 23
PE high last 5 years: 176
PE low last 5 years: 12
Forward PE: 10

United Therapeutics
Average ROE last 5 years: 29
Actual ROE: 43
PE high last 5 years: 34
PE low last 5 years: 9
Forward PE: 9

Stingray, Sleep Country and Spin Master

You're not a serious investor? You're looking for new names without any track record? You want high growth without any insurance that the growth can still be there in the future? You want a new messiah, because the old ones are not that original? You like the expression: "A beau mentir, qui vient de loin?". You don't give a fuck about the fact that many high growth stocks go nowhere after one or two great years?

I have three picks for you. As I wrote, their track record are short so the numbers are pretty limited.

You don't care because you can see a trend in a one year chart?

Really?

Fuck you.

Stingray (RAY-A.TO)
Actual ROE: 21
Forward PE: 17
EPS growth 1 year: 186%
Performance 1 year:  15%
Dilution / buyback:  high dilution
Debt level: medium (6 times earnings)

That stock has recently been recommended by Alain Bouchard (Couche-Tard) on television, in Québec. He seems to think that the CEO of this business shows a lot of potential. I don't think that Alain Bouchard, one of the top managers in the history of Canada, could praise the work of a stupid guy. So, it may be a stock to remember.

Sleep Country (ZZZ.TO)
Actual ROE: 33
Forward PE: 19
EPS growth 1 year: 118%
Performance 1 year: 102%
Dilution / buyback: high dilution
Debt level: medium (5-6 times earnings)

Please, take note of the hilarious ticker of that stock.

That stock looks great because this industry is boring/relaxing (mastress). That's exactly the kind of business that shouldn't be affected by anything. Or, at least, not many things (regulation, innovation, etc). 

Spin Master (TOY.TO)
Actual ROE: 61
Forward PE: 19
EPS growth 1 year: -51% (negative)
Performance 1 year: 57%
Dilution/ buyback: high dilution
Debt level: medium (5-6 times earnings)

That business builds toys. They have a big blockbuster (Paw Patrol) which I know jack shit about. My heart became black when I started investing. 

Jason Donville seems to like that one. Well, I'm not so sure because I don't know if he's still alive. If he's alive, I think he likes it. The ROE is great there. And I don't know why there's been a decrease in the EPS over the last year. Probably some of that usual shit about these stocks without any track record.

Some fucking random event transforming a superstar of the market in some fucking Avigilon shit.

Portfolio review - october 14th, 2016

There's been some changes in the Penetrator Portfolio recently. I got rid of some stocks like Polaris and Apple, reduced some others like Knight Therapeutics, CGI and United Therapeutics and I adopted a partial Giverny Capital strategy by acquiring my three favorite stocks owned by Giverny: Disney, Bank of the Ozarks and Mohawk Industries.

2016 has been a so-so year. My performance is slighly negative (about -5% since the beginning of the year), but I don't find that too bad considering the fact that a big proportion of the portfolio was invested in Valeant and Concordia Healthcare not so long ago.

In other words, it could have been much worse. I'm back from the war with my two legs and my two arms. I'm just limping.

The market did way better than me. I've paid a lot of money to learn the lesson of trusting my check-list instead of trusting so-called professionals.

Let's take a look at my 19 stocks portfolio.

Canadian stocks:

Alimentation Couche-Tard (ATD-B.TO): 9,5%
Constellation Software (CSU.TO): 8,2%
CGI Group (GIB-A.TO): 7,5%
Tucows (TC.TO): 5,2%
Linamar (LNR.TO): 5,1%
Hardwood Distribution (HWD.TO): 4,9%
Knight Therapeutics (GUD.TO): 3,6%
Stella Jones (SJ.TO): 2,7%
Ceapro (CPZ.V): 1,5%

US stocks:

Gilead (GILD): 6,5%
Ross Stores (ROST): 6,5%
United Therapeutics (UTHR): 6,2%
Dollar Tree (DLTR): 5,7%
Biogen (BIIB): 4,6%
Novo Nordisk (NVO): 4,6%
Lithia Motors (LAD): 4,6%
Bank of the Ozarks (OZRK): 4,3%
Mohawk (MHK): 3,1%
Disney (DIS): 2,9%

Cash: 2,6%

Average PE ratio of the portfolio: 16,3
Average ROE of the portfolio: 38
Average Beta of the the portfolio: 0,83

Berkshire Hathaway (BRK-A or BRK-B)

I've never been a big fan of Warren Buffett. The 86 years old fucker seems to have lived an empty life, always focussing on money and on nothing else (family, history, culture, etc). Surely a good guy, but not as stimulating and fascinating as Steve Jobs.

And I've always found that Berkshire Hathaway was a boring investment. How could an investor put money in that boring stock? The company is so huge that it's performance is more and more similar to the market.

Well, that's what I thought.

The chart below shows the performance of BRK VS the market over the last 5 years. The difference is even bigger if we look at a 10 years chart. As you can see, BRK beats the market easily.

With Berkshire, you'll get a shitload of great businesses: you have 100% of GEICO, 100% of Duracell, 100% of Precision Castparts, 99% of Fruit of the Loom, 27% of Kraft, 16% of American Expres, 10% of Wells Fargo, 9% of Coke, 8% of IBM and many, many, many more.

How much money gets Berkshire via dividends each year? Well, they got 400 000 000 shares of Coke which distributes 1,40$ each year. So, with only Coca-Cola, Berkshire gets 560 000 000$ each year. With Wells Fargo, Berkshire gets about 730 000 000$ each year... So, I don't know exactly how much money BRK gets with it's dividends, but it's at least 5 billion dollars each year. Probably much more.

The PE of the market is now over 19, which is expensive on an historical basis. There's still many stocks selling at 10-12 times earnings, but overall, it's an expensive market. Berkshire is selling at 14 times earnings and at 1,4 times book value. Warren Buffet once said that at around 1,2 times book value or below, it was a good idea to buy Berkshire (there would be buybacks). At 2 times book value, it would not be such a good idea. So, we're closer from the "good idea" than from the "not so good idea".

I've came to realize that many big investors have a big part of their portfolio on Berkshire for a good reason: that stock is safe. And that stock beats the market. And that stock is a core holding that regulates and balances your portfolio. It won't make your portfolio a super performer, but it will raise your performance to a minimum level. With BRK, you're almost sure to beat the market in the long run. So, if 50% of your porfolio is made of BRK, 50% of your portfolio beats or achieve about the same performance as the market. You just have to chose a few great performers for the other 50% of your portfolio..

Given the state of the market, the abudant liquidities of BRK and the fair price of the stock VS the high price of the market, I think it would be a good idea for anybody to invest a large part of their portfolio in BRK.

That's what I say. That's not what I do. But I'll probably move in that direction, sooner or later.

Finally, here's some BRK metrics according to Reuters:

PE: 14
ROE: 10
Beta: 0,75
Annual EPS growth last 5 years: 13%

Canadian VS US market

I'm seriously thinking about changing the name of this blog. Jason Donville seems to have vanished. I'm constantly writing non-Donville related stuff and I feel more and more uncomfortable about it. It looks like he commited hara-kiri, ashamed by his poor performance.

I could say that this fucking Directcash Payment (DCI.TO) is being bought by a company that's probably going straight into a wall, because that fucking industry of cash machines is going nowhere. If you had buy that shitty DCI 5 years ago, your purchase price would have been the same as the actual price of the stock. Lucky you, you would have got a great dividend to forget all the emotions you've been through with that shitty stock.

OK, let's forget that name forever now and let's talk about the canadian market. 

I've read an interesting article today on double-v, double-v, double-v point les affaires point com saying that the canadian market was expensive and it was probably a better idea to look south of the border.

I know that some people disagree with me but I'm still thinking that Linamar is pretty cheap. Some might say that the auto industry is reaching the end of it's cycle. Well, the results of the company seem to show that everything is doing well. Too, the balance sheet is great. And even if the cycle is going to an end, Linamar looks mucho better to me than Carmax, a darling of many investors, on every metric. At 6-7 times earnings, that stock is selling at the price of a stock losing money or going bankrupt. I can't sell LNR even if the market is not excited at all about it.

Stella Jones looks good too. Not exactly cheap, but the last results were great and this stock had an amazing performance over the last years. The beta is very very low, which is a great indicator of a stable business if you ask me. This industry is so boring that it's probably very safe to invest in it. It's like Mohawk. Leaders of a boring industry about which nobody gives a fuck. Google likes to try a lot of things not related to their core business but they probably won't start making carpets and poles.

Hardwood Distribution is not too pricey and their last results were great. It's another lumber stock like Stella Jones and probably that some investors are worried about lumber discussions between Canada and USA. Well, if everything looked well on every aspect, the PE ratio of SJ and HWD would be much higher and I wouldn't be writing about them right now.

Home Capital Group is very very cheap on an historical basis. You won't get a lot of growth here, but that stock is a great candidate to be bought by a big bank. I know, people have been talking about that speculative buying for many many years and nothing happened. Well, don't forget that very average stocks like Rona, Directcash Payments and Cabela's (today) have been bought by larger companies. A good business like Home Capital Group is superior to these three names.

Alimentation Couche-Tard is expensive, but it's one of the few stocks I'd always be confident about, whatever the price is, to a reasonable extent. That stock is probably a buy.

Except for that, I'd probably look to the States. A lot of great stocks are not too expensive there. Big biotechs like Biogen, Gilead, Jazz Pharma, United Therapeutics. Novo Nordisk (a danish stock listed in the US) had an important correction recently. The stock is still a bit pricey, but what a fantastic company on every aspect.

Mohawk, Bank of the Ozarks, Disney (Giverny Capital stocks) are all attractive. But they're just OK ROE stocks (ROE = between 15 and 18). Berkshire Hathaway is not that expensive. Dollar Tree had a big correction too and with their merger with Family Dollar, I believe this stock is a great addition to any portfolio. And Apple hasn't been expensive for many many years.

There's some banks too like Bank of America, Wells Fargo or the insurer AIG. All cheap names.

So, yeah, even when the market looks pricey, there's some good stocks to buy out there. 

Another pretty good reason to invest on the stock market

Let's say you're a girl and you've found out a boy that you like. Or love. I don't know the difference.
You soon become pregnant and about a year and a half after you first met him, you have a baby.

Then, two months after the birth of the baby, you find shocking messages on the cell phone of your boyfriend to realize that he's been cheating you since the beginning of your pregnancy. You're fucking mad so you go to wake him up around midnight to ask him if he had cheated on you. He's asleep and confused but it's clear that the answer is yes. So you kick him out of your condo (because, at least, it was a condo that you bought before meeting him) to become in a matter of seconds a single mother with a 2 months old baby.

That's why investing is important. Because you'll need money and support from then on. And if you haven't that much money, you'll need your brother and your parents who have put a good chunk of money on the stock market.

That's my sister's story, 48 hours later.

Book value and other criterias

I recently got two comments from two different guys on two different posts (at least, they had different nicknames, so, I assume they're not the same person) about book value or value investing.

I've never looked that much on book value. The only times I've looked at it was for some specific stocks that I owned in the past: Vecima Network, Rifco and Home Capital Group.

I'd look at it too if I was to invest in Berkshire.

The 3 stocks above are interesting. They're probably not great stocks anymore, but they're at least OK or good for me.  So, if a OK/good stock is selling under book value (these three are not, but it's close), it would be a criteria in favor of a buying. But not the main criteria.

Actually, book value is one of the last thing I look at before investing. And you may be surprised and even disappointed about it, but I look at growth in the middle of the process, not at the start. You may even think that I'm fucking crazy and I don't understand how the market works. But I simply don't see how I could invest in a business that's growing a lot but that doesn't have a good balance sheet. In other words, I'd invest in Bed bath and beyond (BBBY) long before investing in Netflix (NFLX).

Here's a short list of the things I look before investing. I look at some other numbers too, but it's just to show an order in my criterias.

1- ROE;
2- PE ratio and forward PE ratio;
3- Debt;
4- Growth;
5- Buyback or dilution;
6- Beta;
7- Book Value;
8- Dividend/Payout ratio (well, I look at this number very soon in the process, but it's only to see if the payout is too high). 

Usually, I believe that a stock selling under book value is a bad or average stock. I've never been very interested in Bank of America or AIG. You can get both at 65-70% of their book value. They did well in the last 5 years, but only because they went much too low (an incredible negative sentiment was towards them). You can even get Sears Holding at a very low multiple. The book value of SHLD is negative but if you believe that real estate assets are undervalued, it would be a pure value play.

It's not my kind of investment at all. I'm not comfortable with stocks that face a great great drop in earnings. At least, BAC and AIG don't lose money.

In fact, I'm not 100% comfortable with almost every stock on the market. With my portfolio, I simply try to reduce my discomfort.

For me, the best business is the business with earnings equivalent to the value of the business. Not the business that I could buy at 50% of the value of it's assets. I don't understand why I should value assets if a business doesn't make money.

Stericycle exploring new depths

There's not a lot to tell about Jason Donville these times, so, I keep going with François Rochon and his picks.

When you first look at Rochon's selection (Giverny Capital) via Whale Wisdom, you ask yourself: "How does this guy works?" because you find a lot of average ROE and average growth stocks. Plus,  almost all these stocks have a high PE ratio. The only thing we can think is that these businesses have a fucking amazing moat that we didn't know about.

Among Giverny Capital's list, you'll find Mohawk, LKQ, Buffalo Wild Wings and Stericycle. All average ROE, all average growth and high PE.

Let's take a look at Stericycle.

Some people say it's a monopoly. That business collects and destroys medical waste.

I've never understood how a business in that field could be a monopoly.

What do you need to collect needles and other medical waste? Some protecting gloves. And probably some container to put waste in it. And then you put that shit in an incinerator and that's it. OK, they probably manipulate some oncology stuff, full of uranium, plutonium or any other radioactive stuff that they'll use to make cars fly in the future. That's probably the tricky part but I'm sure that they can bury that shit under a school on a weekend, when everybody looks elsewhere.

The market has always seen Stericycle as some kind of super mega giga invulnerable business. The stock went from about 29$ in august 2005 to almost 150$ in august 2015 (5 baggers). Since then, the stock lost half it's value. The stock is now selling for about 77-78$.

The average PE ratio of the last 5 years was 34. The actual PE ratio is 29. That's very high for a business with an average growth rate (the growth has been good for some years in the past but it wasn't consistent). Note that EPS are now almost the same in 2016 as they were in 2011.

The ROE has been between 18 and 23 since 2006 but is now much lower than that (actual ROE: 10).

The debt is high (about 15 times earnings), they recently had issues with accounting and their latest acquisition (Shred-It) raises some questions. How come buying that kind of business? I don't know. Please, ask someone else.

Some could argue that, with a forward PE of about 15, this stock looks pretty cheap on an historical basis.

That's true. But there's a lot of other stocks out there with a forward PE of 15, with better growth, better ROE and no accounting issues. My latest experience with accounting issues was unforgettable: Oh, sweet Valeant.

So, forget the free fall of Stericycle as an indicator to buy it. That's a mistake we all do. We should compare stocks with other stocks and not with themselves. 

CRH Medical: Deep in the ass

Have you ever had a colonoscopy?

I do.

What a funny moment. The doctor inserts a hose in your ass and pushes that hose in your intestine to see if you have cancer or some other shit. When the hose gets in a curve, the sensation becomes a little less funny. I remember disliking that curvy part. And I remember feeling not too comfortable to see the camera inside my ass/intestine/whatever, showing me what I looked like from the inside. There's some parts of your anatomy that you should never be aware of. For instance, your brain, your intestine and that little path inside your penis.

And you know what? I was only 19 when I got that colonoscopy. I got it because I started shitting blood. Well, that wasn't blood in my crap. It was just super hemorroids.

I know: you never asked for this.

Jason Donville seems to like a lot CRH Medical, a company that's a leader in rectum exploration. I've never understood what was so great with this company. They never earned that much money and their ROE is just average. Plus, that's a small company with a short track record.

Let's take a look at some numbers:

EPS 2013: 0,05$
EPS 2014: 0,03$
EPS 2015: 0,04$

Last results (july 28th): EPS: 0,02$

Actual ROE: 13
ROE last 5 years: 16

The ROE was great in 2011, 2012 and 2013 (between 28 and 39) but before, its was very bad (something like -80) and it's just average since 2014. Jason Donville says that the ROE is about 35 but it's adjusted ROE just like the ROE of Valeant, Concordia, Directcash Payment, Pulse Seismic, etc. I don't use adjusted ROE. If the ROE is negative on Reuters, it's negative. Few things did worse to me than adjusted metrics.

The growth in sales and EPS is great in the very recent past, but I don't see anything that could justify to pay 45-50 times actual earnings. Some may say that, to evaluate a stock, we should look forward and not in the rear view mirror.

Ok.

Some analysts seem to think that the forward PE of CRH is about 12-15. So, it looks like CRH is able to integrate acquisitions like Couche-Tard maybe? Oh yeah, everybody can do the same as Couche-Tard. 

These people probably believe in Santa Claus, in God, or maybe they're retard enough to believe that 9/11 actually happened or that some men walked on the moon in 1969.

Bunch of fuckers.

Anyway, CRH medical is not for me. 

Not a glorious time for Donville Kent

Jason Donville must have been pretty disappointed in 2016. His performance has probably never been this bad.

His major mistake has surely been to pick stocks with obscure accounting practices and/or a short track record. If he had stuck with stocks using usual accounting practices, he would have got a much more decent performance.

Let's see Jason Donville's picks on august 25th 2015 (performance of the stocks since then is indicated besides):

Top picks:
CRH Medical 36%
MTY Food Group 34%
Valeant -87%

Total return top picks:-17%

Stocks rated as a buy, or positive comments:
Constellation Software 6%
Ten Peaks Coffee -11%
Tucows 12%
Rifco -27%
Pivot Technology -14%
Patient Home Monitoring -68%
Neulion 57%
CGI Group 35%
Concordia Healthcare -89%
Nobilis Health -21%
Acerus Pharmaceuticals -54%

Total return buy or positive comments:-16%

Bet against a good business (another way to find attractive stocks part II)

How come some investors dare to short great stocks? A business may face some challenges and a drop in earnings, but when that business has been solid in the past, I don't understand why people may bet against it (I wrote about that subject, 6 months ago). 

There's plenty of bad business out there. Why not bet against them? Why choose a business with great numbers, great ROE and great appreciation over time and not one of those stocks with a PE ratio of 80 or without any earnings since 2012?

You can find that kind of crap easily if you screen the market.

I discovered that my portfolio has a lot of heavily shorted stocks. I don't understand why so many people short them. Can you really short a business like Polaris, with an historic ROE higher than 99% of all the stocks on the market?  And how the fuck Netflix and Valeant are less shorted than Lithia Motors and Carmax? (Well, actually, Valeant is slightly more shorted than Lithia Motors).

Anyway, here's some stocks I like / I own that are heavily shorted (percentage = % of float shorted)

Lithia Motors (12%)
Carmax (16%)
Bank of the Ozarks (19%)
Chipotle Mexican Grill (20%) not so sure I like this one, but I don't dislike it either
United Therapeutics (23%)
Polaris (23%)

And here's some stocks I dislike that are heavily shorted (I'd short them if I had to short something)

Netflix (8%)
Valeant (13%)
David's Tea (27%)
Tesla Motors (30%)
Sears Holdings (63%)

Compare the two lists. You'll be amazed to see that a very high quality bank like Bank of the Ozarks is being more shorted than Valeant. Or that a business like David's Tea (that doesn't have earnings) is almost equally shorted as Polaris which is very very profitable.

Maybe you could take advantage of that folly.

Robert Half International (RHI)

Let's talk about a stock nobody's talking about: Robert Half International. 

Sector : Provider of temporary and permanent staff , mostly in the fields of finance and accounting

Actual ROE : 35

Average ROE last 5 years : 29

Annual EPS growth last 5 years : 44%

Forward PE : 13

Lowest PE last 5 years : 17

Highest PE last 5 years : 27

Debt : None

Dividend : 2,5%

Buyback : About 9% of the float has been bought back since 2011

With these numbers, Robert Half International looks pretty interesting . Any business with such a high ROE, great long term EPS growth, low PE ratio and absence of debt seems like a business with a low risk and an interesting future. 

RHI had a massive contraction of the PE over the last year because of the slowing growth. Yeah, the growth has slowed, but it’s still there (about 6% growth in the last quarter, so it's not a momentum stock, but it's nevertheless and interesting stock). Today, you can buy this company at (robert) half the price of 2011 (on a PE basis). 

Can you match this joke about Robert Half? I was planning to do more jokes about "full position of that Half stock" but it turned too silly.

In the long run, the value creation of that business has been so-so: about 70% of appreciation over the last 5 years and about 25% over the last 10 years (dividends excluded). That’s the only point that looks bad to me. But it’s a bit like Home Capital Group , 5 years ago: EPS were growing and growing but the PE ratio was contracting and contracting. 

So, one of the best "high ROE/low PE/no debt/OK growth" in the stock market right now. 

Permanent holdings

A couple of years ago, I read a book about Warren Buffet in which it was written that Buffet had some permanent holdings. In other words, some stocks that he intented to keep forever or un criss de boutte (like Coke). 

I don’t think any intelligent investor can keep a stock under any circumstances. Let’s imagine two completely different situations:

1. A good management begins to make poor decision and thus becomes a bad management. EPS are declining and the company loses it’s position among it's industry. Can you forgive present errors because of past performance? After a couple of years of bad decisions and a stock that lost 80% of it’s value, could you really keep the faith?
2. A good management becomes an incredible management. EPS are growing at an incredible pace and the stock is now selling at 60 times forward earnings. Even if the company made you rich, could you be comfortable owning such a high valuated stock? 

So, maybe I'm telling you here that a permanent holding should be a well managed business but not too well managed? I don't know if that's really what I think. 

Anyway, I own 5 stocks that I consider potential permanent holdings : 

1. Alimentation Couche-Tard
2. CGI Group
3. Constellation Software
4. Ross Stores
5. Dollar Tree

I have a deep love for these business and a profound respect for their management. In fact, they're the only stocks with which I have a romantic relationship. Meaning that I dim the light to read their annual report, then I light a candle and open a good bottle of wine. Then, after a couple of glasses and after being seduced by the beautiful balance sheets, I jerk off like an animal. Then, there's cum everywhere: on the pages of the report, on the walls, in my hair, etc.

Year after year, these companies deliver. They have good or great ROE, they have small or medium debt and their beta is low. The more I think about it, the more I’m convinced that a low beta is often an indicator of a good business.

They represent about 38% of my portfolio. 

And you, Oh my brothers,  what are your potential permanent holdings? 

The power of the ROE

Recently, someone sent me the link to a very interesting article about ROE champions.

The article is here, on motley fool.

Here's a few interesting lines:

***

Experience, however, indicates that the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago. That is no argument for managerial complacency. Businesses always have opportunities to improve service, product lines, manufacturing techniques, and the like, and obviously these opportunities should be seized. But a business that constantly encounters major change also encounters many chances for major error. Furthermore, economic terrain that is forever shifting violently is ground on which it is difficult to build a fortress-like business franchise. Such a franchise is usually the key to sustained high returns.

Inspired by that excerpt, every year, I conduct a modern day re-creation of that same study, by going page-by-page, through all the companies that Value Line covers. I screened by hand for companies with: 1) a 10 year average ROE over 20%, AND 2) Zero years in the past decade with a ROE below 15%.

Just 145 out of 1705 companies (or 8.5%) passed both of these two hurdles from 2004-2013.

***

When I was studying at the magnificient Université Laval, my statistics teacher told us that we could get a very good approximation of a population by selecting randomly 30 subjects.

So, to understand the real power of the ROE, here’s 30 randomly selected stocks among those 2004-2013 ROE champions and their results for the last 5 years and the last 10 years (from 2011 to 2016 and from 2006 to 2016). At the end, we can see the performance of the TSX/S&P overt the same period. 

I haven’t done the test, but the results would probably have been very similar if I’d pick 30 other stocks among the list.

As you can see below, very few high ROE stock achieve poor performance. Out of 30 stocks, only two achieved a loss over a 5 years period and one stock achieved a loss over a 10 years period.

Ticker	Perf. 5 years	Perf. 10 years
ADP	93	92
AMGN	233	161
BDX	127	153
BLL	139	310
BOH	86	43
CI	218	264
COH	-16	26
COKE	158	167
CSCO	104	44
DD	68	85
EL	107	419
GPS	67	62
IDXX	202	397
JCOM	136	170
K	57	67
KMB	104	118
LH	79	101
MDT	182	94
MIDD	460	899
MMP	148	281
MSFT	141	126
NUS	65	248
OMC	129	94
ROK	121	96
SBUX	223	274
STRA	-40	-50
TUP	11	280
VAR	81	82
WMT	38	63
YUM	81	273
Average (%)	120,1	181,3
TSX (%)	20	21

You see, Joel Greenblatt was right. You just have to select randomly among the business that get the highest ROE and that's all (however, Greenblatt said that a low PE was very important, which is not the case here).

In this example, you’ve beaten the market by 100% over 5 years and by 160% over 10 years.

Why should you care about moat and margins and all that fucking shit when you can get a 16-17% yield each year with such a recipe? Why bother with « dogs of the dow » strategy or any other strategy? Select the companies that get the more money year after year and that’s it. That's so fucking obvious and simple. 

That's the power of the ROE.