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? 

7 commentaires:

  1. Love it when you tell us a nice and romantic story.

    Here are my permanent holdings :

  2. After reading this specific entry in your blog, some of us will need therapy. I do not have permanent holdings (for the two very good reasons that you provided).
    A good point of reference for stocks worthy of permanent holding status is...believe it or not...The Caisse (the investing arm of the quebec government that invests Quebec's pension money).

    Just take a look at these selections:

    It's a pretty safe bet that Canada's biggest banks, CN (train duo-poly with CP) and the biggest pipeline will be around 100 years from now (if humanity does not blow itself up).

    It's rare to look at something the government does and think: WOW! THEY ARE DOING THEIR JOB EXTREMELY WELL! But just look at the selection of stocks. You just want to give the Caisse a round of applause. They even have hundreds of millions invested in each of the two stocks that savvy Americans would consider their all time favourite stocks: (Johnson & Johnson and Warren Buffett's Berkshire Hathaway).

    1. Yeah, it's a very nice list! I didn't know they had so many great names!

  3. Well since you asked. I bought into 3 spinoffs of Brookfield management. They are all limited partnerships. BIP.UN, BEP.UN and BPY.UN…Being limited partnerships they pay out a distribution, not a dividend. They are structured in that way so they will be tax advantaged profit wise, so basically the profits flow through the partnership back to the shareholders in the form of a distribution. It’s so good a deal that the parent company owns large chunks of their own partnerships so the money flows back up to the parent company. And they keep raising the distributions. So for instance on a ‘yield on cost’ basis I am now getting over a 10 percent return on my original investment in BIP.UN on the distribution alone. I own them all in my RRSP so I pay no tax on them and the capital gains on all three partnerships have been great as well especially BIP.UN

    I am married to these holdings, got to love Bruce Flatt and the boys at Brookfield Management. The limited partnerships use long term leases that are often indexed to inflation so that there is a recurring profit theme running through all of their partnerships. They are smart shareholder orientated managers who use non-recourse debt to manage their financing needs. Their quarterly letters are well worth reading too.
    Of course I have made some terrible investments as well but that is how you learn in this DIY investor world.

    1. A lot of people seem to love BAM. I don't know a lot about it...

  4. I added CGI as my permanent holding.
    I think LNR is another permanent pick as long as the founder's daughter stays in power to ensure long term objectives are met. (although I don't like about their too much concentration in Canada). For that Magna may be a better pick.