mardi 30 août 2016

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. 

vendredi 26 août 2016

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? 

mercredi 24 août 2016

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.

Perf. 5 years
Perf. 10 years
Average (%)
TSX (%)

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.

jeudi 18 août 2016

Analyzing Giverny Capital (EDIT)

This guy may be unknown in the rest of Canada, but in Quebec, François Rochon and his fund, Giverny Capital, are known by many investors.

The results of the fund have almost always been great. I believe that Rochon has been influenced a lot by Sequoia Fund. His stock selection has always been pretty solid. In fact, in my opinion, he's better than a lot of superinvestors.

Here's a very interesting article I found yesterday. It presents Giverny's top 5 positions (about 26-27% of the total portfolio). It's not a magic portfolio (high ROE and low PE). It's more a moat portfolio. 

EDIT: These are not the 5 biggest positions of Giverny Capital. They're 5 favorites of the fund, but they represent a big part of it anyway. Merci à Etienne Pouliot. 

1- Carmax (8% of the portfolio): I prefer Lithia Motors (which I own) to Carmax but that business is solid. However, I wouldn't put 8% of my portfolio in something that much related to the general state of economy (Beta = 1,5). You may say: "Used cars aren't that impacted by a recession", yeah, right, but drugs aren't affected at all by a recession.

2- Disney (7,7% of the portfolio): Good company, grows in a steady way. Temporary problems for Disney but I don't see why the company couldn't get back on track. The ROE is good but not spectacular. I may buy shares someday because that company has a great moat and the balance sheet is very good. Sometimes, I wonder why Apple doesn't buy Disney.

3- O'Reilly (4,2% of the portfolio): Incredible company with a very high ROE. But it's very expensive. I prefer Linamar, which is less incredible but way cheaper, and still good.

4-  Mohawk (3,5% of the portfolio): That stock was one of the worst performers of Sequoia Fund for a couple of years. However, the growth is back in a spectacular way. The PE ratio is at an historical low and the growth is almost at an historical high. The ROE is OK but not great. I may buy some shares of that company too because management is very solid and that business has a great moat (leaders of the carpet).

5- Fortune Brands Home & Security (3,2% of the portfolio): I didn't know about this company. After a quick look at number, I'm not interested by it. The ROE is average and the PE is high. The growth in the last 5 years has however been impressive.

As I said before, I'm more a guy of balance sheet and high ROE. But moats are very important. And Giverny Capital seem to be looking for moats first and foremost.

It's a lesson for me.

mercredi 17 août 2016

To kill a dog

Imagine that: you're driving on a country road with your family. The two kids are sleeping. It's 10:15 PM, it's dark, you're surrounded by fields and large trees besides the road. You're driving in a zone where the speed limit is 90 km/h.

Suddenly, a big labrador retriever jumps out of nowhere to cross the street. The problem is that it jumps on the street about 2 seconds before your arrival in that precise point in space. You push the brakes, but the law of physics and friction can't save that poor dog from being hit by your car.

The 5 next seconds seem to last 10 minutes. Or maybe you feel like you're in another dimension. It's too weird and too sudden to understand what's happening. All you see is the poor dog being bumped and rolling on the side of the road at the same speed as your car. And you hear immediately the cries of agony of the poor animal. The dog is rolling and rolling and rolling besides your car and you hear it's life escaping from it's mouth.

Then, you call the cops. They arrive to meet you and tell you that you can keep quiet because everything you say could be use against you, just like if you've killed a kid while being drunk. Then, you tell them your story and they believe you, seeing your 2 months old daughter. Then, they tell you that the dog is dead. Then, you see your bumper, serioulsy damaged.

Then, you ask yourself: Why did that happen?

Then, you think about Boyd Group.

Because behind each tragedy and each sordid moment, somebody has a reason to smile.

lundi 15 août 2016

The good, the good, the good, the good and the ugly

Let's take a look at some results released lately. I own these four stocks and I believe strongly in them.  They all beat expectations by at least 10% and they all have a good or great balance sheet. They all represent about 5% of my portfolio. Plus, there's an ugly stock that I'm ashamed of, because I've been a shareholder in the recent past. I've however sold everything without a monumental loss.

Tucows: The last results were great (EPS = 0,39$ VS 0,35$ expected). On the day of the release, the price of the stock went up something like 8-10%. Then, the next day, it went down the same percentage. And the following days, the price kept going down for no apparent reason. The actual price of the shares is lower than it was one month ago. Am I missing something? For me, it's one of the best picks in the market right now (ROE = 47 and forward PE = 16). However, the debt is growing to my limit of comfort (nothing alarming however). 

Hardwoods Distribution: Pretty good results once again (EPS = 0,32$ VS 0,29$ expected).
This is my lowest ROE stock (after Knight Therapeutics), but the performance is great and management seems pretty solid. They also made a big acquisition recently.

Knight Therapeutics: This one is harder to evaluate because this company is mainly a company full of cash, without a lot of earnings (the last results were 0,04$ EPS VS 0,03$ expected... for a stock priced at 8,20$). But their cash pile is pretty high. Sooner or later, they'll do something great with all that money.

Linamar: The last results were excellent (EPS = 2,39$ VS 2,16$ expected). I never understood why the price of the shares that was already pretty low went down something like 20% in the last months. The company achieved a ROE of 27 and the forward PE is about 9. It's a great pick. The margin of security is high here.


Concordia Healthcare: Oh my god. What a terrible stock and an even worse management. Mark Thompson is looking pretty bad with his suing of Marc Cohodes. Plus, many comments on stockhouse are saying that the last conference call was the worst they ever heard and Thompson looked on drugs (I didn't heard the CC because I'm not interested anymore in the company). Let's say that a loss of 11,18$ per share is an incredibly awful performance. Forget all that fucking shit about their adjusted  EPS of 1,38$. If that fucking business can transform an incredible loss in some earnings, Mastercard could transform their incredible earnings in some giga fucking earnings. Why great companies couldn't be as creative as bad companies?

Who fucking cares about imaginary money? That's all that fucking Concordia is able to earn: IMAGINARY MONEY. 

The summum of bullshit is their cut of the dividend because "the Company believes the dividend payments can be better deployed towards long-term value-creating initiatives or debt repayment."

I hope everybody is clever enough to understand how things are going badly in this company with such a move. They started the dividend when the business had way less earnings and now, they cut it even if their sales are supposed to be something like 100 billion percent higher than 3 years ago.

That management doesn't have any credibiliy anymore. I understand why Jason Donville keeps himself far from the cameras of BNN these days. He probably doesn't want to see his performance being exposed to viewers, particularly for such a crappy stock.

jeudi 11 août 2016

Writing about something else than investment, for once...

As you probably know, some successful investors are interested by arts. It probably makes them feel sophisticated, looking at some abstract shit in which they can either see some phallic form or a naked children. Some investors are fucking perverts.

I don't like visual arts. Well, at least not this pretentious abstract shit full of lines or splashing colors. Give me a bowl of raisin bran and 2 hours of digestion and I can do better. Sorry for the scato but I really think that visual art can reach new lows every day and some people seem to be pretty interested in these lows.

My real passion in life is rock and roll. I play guitar, bass and a bit of keyboard. Every week, I go to a bar to play with some fellow musicians. We mostly improvise (we often do a variation of Pink Floyd's "Careful with that axe, Eugene") but we also play some classics like "London Calling", "Message in a bottle", "Territorial Pissings" and some others.

I really really like rock and roll and I strongly believe that life wouldn't have any signification without music. I think I'm a good guitarist and an even better bass player. I play a bit like a mix of Sting and Tony Levin. You probably don't know who they are. Don't worry: me neither.

I don't really like sports but I'm a bit like Jason Donville on a certain angle. Did you know that he coached a lacrosse team?

Well, I'm not in the same league and the same sport, but I coach 6-7 years old boys playing soccer. I like it because my son is in my team. But I hate it because I hate some parents. Why?

The game starts at 6:30 PM and many parents arrive with their kids at 6:35, 6:40 or even 6:50.

This evening, for instance, at 6:30, I had 3 players on a team of 9 players. Isn't it a fucking bad way to educate your children, showing them that punctuality isn't important? These parents may say: "Oh, we work, and we eat our supper at light speed and life is so stressful and blah blah blah." OK, you're right, but, if 's too demanding for you to show some respect to the coach and the rest of the team by respecting the schedule, just STAY AWAY FROM SOCCER AND STAY AT YOUR FUCKING HOME AND PLAY POKEMON GO.

One of the boys in my team is so disgusting. He's always eating his boogers on the field. I've said a couple of times : "Hey Charles, stop doing that." He replies "My nose itches. I just scratched it" and he's absolutely not shy to repeat it 5 seconds after I asked him to stop. There he is, eating those fucking boogers in front of maybe 20 parents and 20 players.

This evening, he was the goaler for 3 minutes and while the other team shooted towards him, he was putting his fucking fingers in his nose, looking for some energy snack or I don't know. And his fucking father never says or does anything. FUCK, I HATE THEM BOTH. He ate at least 15 of those green sticky boogers during the evening. That was a fucking nightmare.

So, apart from investing, this is what my life looks like. 

dimanche 7 août 2016

Novo Nordisk (NVO)

There's two major consequences about the global village in which we live:

Hopefully, religions will disappear. With an Internet access and some education, we all understand how little and insignificant we are. If you have any knowledge about the Big Bang or if you have read any Stephen Hawking's book, you'll be much more humble about your existence, nationality, religious group, etc.. So, as time goes by, more and more people will be existentialists and belief will be replaced by despair about our human condition. This is where modernity leads us! Let's march cheerfully in that direction, my friends.

Too, with the global village comes the fact that our western culture is spreading across the globe. Who says western culture says obesity. With China, India, Pakistan, Bangladesh, Indonesia and many other asian countries, we have a gigantic reservoir of potential fat people. They'll get richer, they'll have less time to cook and they'll fall in the pitfall of our western alimentation (salt + fat + sugar... just like a happy meal at McDonald's.)

Eventually, they'll get diabetes and other diseases. And that's where I'm going my friends: how could we get advantages about obesity, as investors?

By investing in Novo Nordisk.

I've been watching this company for a while. Novo Nordisk is a huge danish company (market cap: 100 billion dollars) they're a very big producer of insulin. That company has always been expensive due to the fact that it's not exactly a monopoly, but almost. And it's a very defensive industry. Plus, the numbers are amazing:

Actual ROE: 88
Average ROE for the last 5 years: 62
Debt: Very small (about the equivalent of one year's earnings)
Annual EPS growth over the last 5 years: 22%
Beta: 0,7
Dilution of the float: No dilution. They buy back their shares at a reasonable pace.
Dividend: About 2%
Payout ratio: 45%
Forward PE ratio: 20
Lowest PE ratio last 5 years: 21,5
Highest PE ratio last 5 years: 29,5

The price of the stock is a little high (about 20 times next year earnings), but for such a ROE and such a defensive industry, that high price seems entirely justified. It's a cash machine like very few companies appear to be.

I've bought some shares of NVO on last friday. The stock was down about 10% on weaker guidance. That drop seems unjustified to me because earnings are still good and they'll stay good. 

Now, I'm waiting for the results of Allergan (they'll be released tomorrow) to see if I liquidate my entire AGN position to swap for NVO. I have to admit that I'm a little confused about my position in AGN. That company has similar numbers to Valeant and Concordia. I don't understand why I invested in it in the first place.

I now have 3 stocks with a ROE around 100 (GILD and CZO are higher than 100) and NVO is approaching 100. 

Bonne journée les amis.

lundi 1 août 2016

Investing like Warren Buffett

For about a week, there's been a huge amount of russian visitors on my blog. Yeah, there's been about 1740 russian visitors over the last week VS about 1150 canadian visitors. I don't understand what's happening. Is it related to my "russian whores" mentions? I don't know. And if yes, I wouldn't understand either.

Is that a silly joke? Like some single russian guy hitting 1740 times my blog, using some wicked devices just to play with my emotions and give me the illusion that I'm a superstar in the country of Ivan Drago?

Back to the main program:

We, at Bullshit Capital, invest like Warren Buffett.

We, at Scrotum Investing, filter stocks the same way that Warren Buffet does.

Fuck you. Too many people evoke Warren Buffet name and actually don't act like him at all. If you invest like him, just fucking reproduce his portfolio via Dataroma! Don't invest in AIG or in Netflix, telling us that you invest like him. Fuck you again. 

To understand what is it to invest like Buffett, let's take a look at his 8 biggest positions that represent about 80% of his portfolio:

1- Kraft Heinz (19,9% of the portfolio)

Average ROE last 5 years: 22 (the ROE has been lumpy in the recent past because of the merger between Kraft and Heinz)
Forward PE: 22
EPS growth last 5 years: Negative (hard to evaluate because of recent merger between Kraft and Heinz)
Beta: ?

2- Wells Fargo (18% of the portfolio)

Average ROE last 5 years: 13
Forward PE: 11
EPS growth last 5 years: 13%
Beta: 0,9

3- Coca-Cola (14,4% of the portfolio)

Average ROE last 5 years: 26
Forward PE: 22
EPS growth last 5 years: -8%
Beta: 0,5

4- IBM (9,6% of the portfolio)

Average ROE last 5 years: 85
Forward PE: 11
EPS growth last 5 years: 3%
Beta: 0,8

5- American Express (7,2% of the portfolio)

Average ROE last 5 years: 26
Forward PE: 12
EPS growth last 5 years: 9%
Beta: 1,2

6- Phillips 66 (5,1% of the portfolio)

Average ROE last 5 years: 19
Forward PE: 13
EPS growth last 5 years: 46%
Beta: 1,4

7- Wal-Mart (3% of the portfolio)

Average ROE last 5 years: 21
Forward PE: 17
EPS growth last 5 years: 2%
Beta: 0,2

8 - US Bancorp (2,7% of the portfolio)

Average ROE last 5 years: 15
Forward PE: 12
EPS growth last 5 years: 13%
Beta: 0,8

Let's see the numbers for this global portfolio of 7 stocks (please, note that Kraft Heinz is excluded because of the recent merger between Kraft and Heinz and the lack of accurate numbers).

So, the following numbers are calculated with 7 positions that count for 60% of Buffett's portfolio.

BIG 7:
Average ROE last 5 years: 30,2
Forward PE: 14,3
EPS growth last 5 years: 8,1%
Beta: 0,83

I'm not a maniac enough to calculte the same numbers for Sequoia Fund, Lou Simpson, Bill Ackman, etc. You see, I have a fucking feeding bottle to give to my baby each 2 hours and some other tasks to do, like riding a bicycle along with my almost 7 years old son to take him from my Iphone, listening to his crazy child programs on Youtube. So my research ends here. But the question is still there: Who really invests like Warren Buffet?

Me. Oh yeah, me. The average ROE and the forward PE of my portfolio is about the same as Buffett. I haven't calculated my average Beta but it's surely under 1. And the average EPS growth over the last 5 years of my portfolio is surely better than 8%.

So, I can say that I invest like him.

But wait, I don't have 128 billions dollar to invest. And I don't invest mainly in blue chips.

So, I don't really invest like him.

But I'm more like him than a lot of those fake analysts that appear on BNN or anywhere else.