jeudi 27 avril 2017

When it stinks

One of the hardest things to learn as an investor is to decipher public releases and real intentions of management.

However, it's probably one of the most important things to learn. Otherwise, you may tolerate a worrying situation until a point where your stock loses 65% of it's value on a single day (like Home Capital Group yesterday). You may very well think about Valeant and Concordia too. And many others.

So, for the benefit of humanity, I invite you to share some sentences in public releases or events concerning management that should push to sell a stock. This list indicates things that should be interpreted as dead rats hidden in the walls of the business.

So, let's grow together after having lost lots of money in Valeant, Concordia, Home Capital Group, PHM, Avigilon and many other stocks runned by strange people:

You should think about selling when:

  • When numbers are or are becoming worrying or opaque (lots of debts, utilization of adapted ratios);
  • When the CEO of the CFO or other executives are fired or leave abruptly;
  • When the management blames weather quarter after quarter;
  • When a management sells big chunk of stocks after some news that were supposed to be very positive;
  • When a management says things in public and doesn't apply it (like Mark Thomson, ex-CEO of Concordia saying on BNN that he would buy CXR stocks and didn't do it);
  • When the word "fraud" becomes associated with your stock...

Please, help your fellow investors to become better and complete the list in comment section.

dimanche 23 avril 2017

Shopify (SHOP.TO)

Angelo Dallas asked me to write something about Shopify (SHOP.TO)

You've probably heard that name before. It's the sensation of the moment on the TSX. The stock has doubled over the last year. It's now selling for a little more than 100$, which is expensive for a stock without earnings.

The company offers to create your own online commerce. You give them money for a specific plan and you can sell your shit. That's about all I know about it. There's probably more options than that, but that's the main mission of the business.

The problem with that kind of investment (just like Amazon or Netflix) is that it's about a new popular concept and traditional methods of analysis are not compatible with that kind of investment.

What about revenues?

2012: 24M$
2013: 50M$
2014: 105M$
2015: 205M$
2016: 389M$

Try to find a business that doubles it's revenues each year and you'll find that it's an almost impossible task. So, thumbs up for Shopify.

And what about earnings?

2012: -1M$
2013: -5M$
2014: -22M$
2015: -19M$
2016: -35M$

So, while revenues are doubling each year, earnings are decreasing even faster.  So, thumbs down for Shopify. Fucking thumbs down for not being able to have any earnings with such revenues.

From then, I don't think that other metrics are important. First, the ROE is obviously negative. When a company doesn't make money, I believe that we should not go further, because if you want to go further, you'll start to use adjusted earnings, adjusted ROE, EBITDA, and you'll adjust everything else to convince you that your deficitary stock is profitable. Then, you'll believe that standard accounting practices are not adapted for that kind of investment, thus believing that accounting rules are now out of fashion. So, in other words, that stock is so great and exceptional that a cartesian approach that's been efficient for the last century doesn't apply for that specific exceptional occasion.

In other words, I like women without adam's apple. And Shopify is a woman with an adam's apple.

jeudi 20 avril 2017


That fucking stock market is a crazy place.

You'd probably believe that Canada is a safer place to invest money than most other countries. It's probably the case, but still, we have a lot of crappy stocks and even, disasters.

First, let's recall that the 2008-2009 crisis was caused by a big part of the american banking industry. The US governement had to save many big institutions that were "too big to fail". Then, about 8 years later, we learn that Wells Fargo, the most respected bank in America is involved in a massive false accounts scandal. OK, that's not comparable at all to the subprime crisis, but we see that there's still a lot of shit in this industry.

In Canada, in the very recent past, we've had Valeant and Concordia. Two multi-billion dollars companies in 2015 heading now to penny stocks. Can you believe it? Those fucking Mike Pearson and Mark Thomson should be covered by tar and feathers for the rest of their fucking lives to look like what they are: fucking chickens.

We've also had that fucking Baazov playboy with his insider shit at Amaya.

And even more recently, we're having Home Capital Group, that's going downhill like a fucking dead body in the ocean. Deeper and deeper, day after day. Waiting for the laws of physics to crush it.

That stock was loved by many, only a couple of years ago. It was the darling stock of Jason Donville and many, many others. And now, it looks like a fucking scam.

One could be tempted to go out of the stock market with all that crazy shit. I'm disgusted by what I've saw in the last 2 years. But still, I'll repeat what I now believe: boring industries that go quietly are much less inclined to be part of that kind of scam. When you sell auto parts or hardware and your accounting practices are standard, your chances of trying to fuck us are way lower.

Truth is, most industries are runned by honest but so-so management. Some industries are runned by dishonest or reckless management (when you're dishonest, does it matter if you're efficient or not?) and few business are runned by honest and efficient management.

What's scary is that who seems honest now, and for many years, could very well be dishonest in reality.

jeudi 13 avril 2017

Brick and mortar stores over the last 5 years

We hear a lot about Amazon and the way the new economy will work. Will these brick and mortar stores vanish? Nothing like a look at a chart to see how things are going.

Here's a list of some famous canadian and american retail stocks (I've retained only stocks selling clothes, furnitures, hardware, luxury and cheap stuff) and their performance over the last 5 years.

Amazon:  376%

Dollarama: 351%
Home Depot: 188%
Lowe's: 158%
Canadian Tire: 138%
Foot Locker: 137%
Best Buy: 119%
Ross Stores: 116%
Costco: 97%
TJX: 94%
Five Below: 70%
Dollar Tree: 61%
Dollar General: 49%
Leon's furniture: 41%
Walmart: 23%
Big Lots: 5%
Target: -7%
Gap: -9%
Michael Kors: -13%
Macy's: -27%
BMTC Group: -34%
Staples: -39%
Bed Bath and Beyond: -44%
Reitmans: -63%
Sears Holdings: -69%
Le Château: -87%

TSX/S&P: 30%

In retrospect, about half of these stocks did better than the TSX and the other half did worse. It wasn't planned. I just wrote the name of some random stocks that looked great or bad to me and my 25 selections ended up that way. So, buying a brick and mortar stock and keeping it over the last 5 years wasn't that bad.

As we can see, cheap stuff, hardware, shoes and cheap clothes have been the best investment. They'll probably keep on doing OK for a while. The question is: will this while be short or long? I won't be more precise because I can't be wrong with such an abstract sentence.

On the other hand, standard retail stores selling standard things (standard clothes, standard soap, standard furniture) did bad or pretty bad. People don't want to buy their clothes for 40$. They'd rather buy them on Amazon or Aliexpress for 5$ even if they're made of cheap coton that will last 3 months before we can see the sun passing through.

For the moment, it's still OK to invest in retail stores. But probably not a too large chunk of your portfolio.

Instead, buy the stocks that produce things that these stores are selling... and that Amazon is selling.

lundi 10 avril 2017

A word on Tucows (TC.TO)

About one year ago, nobody talked about Tucows, but now, it looks like the stock is interesting for much more people.

The stock is up about 45% since the beginning of 2017 while almost all the rest of my portfolio has stalled. It's my superstar.

I'm a bit nervous because Tucows now represent more than 8% of my total portfolio, which is equivalent to a lot of money. If I hadn't sold some shares, the stock would now represent something close to 10% of my portfolio. When you're in that zone, you're in the danger zone. By the way, Kenny Loggins wrote a song about that.

A position of 8% is a lot for any stock, but it's even riskier when it's a small cap (in that case, a small cap of about 750 million dollars). Let's remember that most small caps I've owned in the past had a tragic fate after a promising start.

But this time, it's a small cap with a very steady and high ROE, a great track record and which operates in a sector without regulation.

Usually, when you try to convince yourself like that, it ends badly. Just be reasonable and reduce your position to something wiser.

It's a word on Tucows, but not a very instructive one. It's just doubts. So, to make this post more formative, do you have a comment about:

1- Tucows;
2- Portfolio balance between small, mid and large caps;
3- Your maximum position for a small cap in your portfolio.


samedi 8 avril 2017

Richelieu Hardware (RCH.TO)

People are constantly interested by what's new, what's promising, what's exciting. That was the game of Jason Donville and that's the game of many other analysts.

Strangely, these analysts almost never look at older companies in more traditional sectors. Why? Because these stocks are not special enough to make these analysts look like prophets to their eventual clients? Or these stocks are too big or mature for them to get an interesting reward the day after they go on TV? I don't know. There must be a fucking reason.

But they all should be looking for something like Richelieu Hardware: A boring company producing various hardware stuff like knobs, pulls, hooks and lots of other hardware stuff. Boring stuff, out of the spotlight, just like Mohawk, producing carpets. Just like Stella Jones producing railway ties and utility poles.

Plus, nobody ever talks about that company. Nobody gives a shit about Richelieu. So, there's surely not a hype with that stock (with hype comes crazy valuation).

OK, now, let's take a look at some numbers:

Beta: 0,53 (low) 

Stock performance last 5 years: 164%
Stock performance last 10 years: 254%

Average ROE last 5 years: 17
Actual ROE: 17

PE high last 5 years: 25
PE low last 5 years: 17
Actual PE: 27

Debt level: very low (almost no debt)
Dilution or buyback: about 5% buyback over the last 5 years

EPS 2012: 0,72$
EPS 2013: 0,74$
EPS 2014: 0,88$
EPS 2015: 0,99$
EPS 2016: 1,07$

If you would have bought the stock in april 1997, you would have paid about 0,73$ for one share. Twenty years later, that same share is priced at 29$. That's about 40 times your money. Growth wasn't spectacular, but it was steady. You would have become much richer with Google or Amazon, but you would have asked yourself much more existential questions over these 20 years with that kind of stock.

At 27 times actual earnings, Richelieu Hardware is expensive. But growth is steady, there's almost no debt and the cash position is important. An acquisition is highly probable, and that acquisition will reduce the PE.

If that stock was avalaible at 20 times earnings, I'd probably buy it. At the moment, it's too expensive for me, but I repeat, that's EXACTLY the kind of business you need to put in your portfolio.

mardi 4 avril 2017

Celebrate good times, come on!

You may believe that, with these irritating ads on my blog, I'm pretty rich. I could leave my job and make a living with my writing. Being every day in my underwear and write some shit about anything. And SCHLING SCHLING, the cash comes in, day after day.

Well, you're fucking wrong.

Somewhere in march 2016, ads were added on this blog. I've never had any control about these ads. I gave the permission to Google to show any kind of ads.

I don't know what you're viewing at home, but at my home, I often see some crazy dating sites like "voisins solitaires". I don't understand it because I never visit that kind of website. Maybe Google has an algorithm telling that a guy with my habits like watching 70's and 80's music videos on Youtube has the habit of jerking off in front of the computer, watching girls with big boobs licking some popsicle.

Anyway, after about one year with that Google Adsense, I've got 112$ to claim. Which is equivalent to less than 10$ per month. Probably that our beloved governement will claim it's share and that I'll finally have to pay 50 or 60$ in taxes, spending one hour to find where to put that money on my next tax return.

"Better than nothing" you may say. "Right", I may add. It's just the fact that for the last few months, I've had about 10 000 pages viewed each month. I know that many many many many websites do better but it's nonetheless a very high number for an ordinary guy without the Midas Touch.

What I want to say is that with all these visitors, I've only made 112$. Do you realize what it takes to really make money with a website?

That fucking Google may very well be full of money. They take your dollars when you want to do some publicity and they give you cents when you publish publicity.