vendredi 15 janvier 2016

The clearance rack

Holy fuck, what a beginning of year it is! Almost every investor out there has lost money in the 15 first days of the year. And we'll probably continue losing money, because we're overdue for a such a bad moment.

I've just began to take some yoga lessons. So I approach this crisis with a peaceful mind. Oh yeah, I'm full of mantras, such as "peace, joy, happiness". No shit, they really tell you to repeat that crap in your mind while you're doing some contorsions. No need to tell you that I'm not telling myself that kind of shit at all. Instead, I'm cursing like a lumberjack while they tell me to raise my leg above my head or some other impossible thing to do for a sedentary person.

Well, I'm peaceful but I don't really like this period we're going through. We forgot what a bear market was. Only an handful of stocks keep doing well these days and many of them are those low beta stocks.

What's so great with corrections like these is that almost all stocks are down, and some are a lot. Which means that the bargain price of a lot of companies is linked to a general context instead of a particular problem within companies. So, we can buy without being too worried about a particular problem.

A great truth in life such as in investment is that most things tend to return to their average level. So, when we see an anomaly caused by nothing too important, the return to an average level should happen sooner of later.

For instance, if we take a look at Home Capital Group.

Lowest PE ratio for the last 5 years: 9
Highest PE ratio for the last 5 years: 11,6
Actual PE ratio: 5,3
Shares are trading at book value, which is pretty rare for a company that is making money.

Things may be slowing down at Home Capital, but the actual PE ratio is about 40% lower than the lowest PE ratio of the last 5 years.

Or, take a look at Polaris, one of the best bargains in the US right now, in my opinion.

Lowest PE ratio for the last 5 years: 18
Highest PE ratio for the last 5 years: 27
Actual PE ratio: 11

Like for HCG, the growth is slowing there too, but the actual PE ratio is way way lower than the lowest point of the last 5 years (for a company that still has good sales and a very high ROE)

These days, Warren Buffet has bought for many hundreds of million $ of Phillips 66 (PSX). That stock seems cheap too, like all those stocks related to oil and gas. In the TSX, there's High Arctic Energy (HWO.TO) that may deserve some attention with a price under book value, a ROE of about 15 and a PE ratio of less than 7. As a canadian, I'd probably look there instead of PSX. 

Speaking of Buffet, Berkshire's trading at about 130% of book value. Buffet has said before that he would buy back his own stock at 120% of book value. So, it may be a good moment to buy these shares too.

I could continue like that on and on, because, frankly, there's a lot of great stocks that went down a lot.

In fact, I wish I had sold all of my positions 6 months ago to buy many many stocks right now. But, that's the tragedy of being infected by so-called great ideas such as "buy and hold", "don't try to time the market", "you should always be 100% invested in the stock market" and all that shit. You are now in front of a massive clearance rack with about 3 or 4% of your portfolio in cash. Not enough to make purchases that would do the difference on your portfolio.

And David Bowie is dead.

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