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).