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.


6 commentaires:

  1. I see your dilemma. It's like you are coaching a hockey team and you have one guy who accounts for more than 10% of your goals scored. You cannot rely too much on this guy. Every time you rely on one guy, he gets injured or his results decline. You need to give him LESS ice time and you need the guys who have not scored in a while to spend more time on the ice. They are overdue to score a goal.
    I have a much less effective and way more risky approach. I give more ice time to the guy who has been scoring a lot lately. This applies double if the guy is younger, stronger and faster than the rest of my team. Tucows earnings continue to explode upwards. I want to see earnings growth slowing down a tiny bit before I take profits. The rate of earnings growth is accelerating. The EPS trend for Tucows:
    90 days ago current year estimate was $1.71 and next year estimate was $2.08. Today the current year estimate is $1.99 and next year estimate is $2.73
    I know you are doing the right thing. I realize it is RISK ADJUSTED returns that matter and you cannot put too many eggs in the same basket. I just think you might want to hold off a bit before rebalancing. LOL

  2. I have learned in my time in the market to appreciate the nuances of portfolio balance and management.

    I’ve spoken extensively about the value of small caps in the past. But you have to balance that out with the increased risk they introduce into your portfolio. Most of my positions are actually in the mid cap space ($1 billion to $5 billion). I have very few large caps, actually I think I have only one.

    I think the thing to keep in mind is that there is no one way to do this. It depends on your experience and temperament. Everybody will approach it in his own personal way. This is what makes investing more of an art form than a science. I think over time an investor develops “touch”, the way a tennis player can drop a ball just in the corner of the court.

  3. 1) we own it in our small cap model; I don't see them slowing down anytime soon and certainly the technicals don't suggest an imminent collapse. You are projecting your prior experiences into the context of this current position which is normal human behaviour but it is a flaw. Please don't be offended by this... we all do it to some extent.
    2) 50% small cap 50% mid cap (for my own money)
    3) 40-80% (again for my OWN money)

    I generally only own 2-5 stocks at any one time. Please understand this is very different to how I run client money BUT most academic studies on diversification suggest that between 15-25 stocks is the ultimate quantity to hold. By the 20th position, 96% of stock specific risk has been diversified away. The difference between having 20 stocks and 200 stocks is 4%... pittance. I will hold anywhere from 15-25 stocks for clients. If we hold 15 stocks (which we do right now in our small cap model) that means on average each stock will represent 6.67% of the portfolio... so to be honest I really don't have a problem with you have 8% of your portfolio in TC... in fact I would encourage such 'bold' moves. Having said that I don't know anything about your time horizon, tolerance for risk and need for income/capital from your portfolio. I'm assuming you have a long time horizon, high tolerance for risk and no need for income from your investments.

    There are also a plethora of studies on the subject (Google away). The financial media and pretty much every investment manager and dealer in this country has done the public a disservice espousing their twisted concept of diversification. When the most successful investor EVER says 'wide diversification is for those who don't understand what they are doing' why do most people listen to banks who jam hundreds of positions into closet index funds? It boggles the mind. They of course can't own 15-25 positions so they lie to us and tell us that wide diversification is a great thing. Total BS.

  4. In my own RRSP, Brookfield Infrastructure fund makes up about 23 per cent of my investment portfolio. They have raised the fund’s distribution so often that it’s now yielding income, based on my original cost, in the double digits. On top of that I have the parent company investing in the fund right along side of me. Is it risky? I don’t think so. They are pretty much diversified all over the world. But that’s me. Some people might be uncomfortable with holding so much of their assets in one holding. It’s a personal thing.

    How one manages his own investment portfolio will be affected by a number of things… life cycle, temperament, financial circumstances and experience. Good judgement is essential.

    I read somewhere that good judgement comes from experience which comes from bad judgement…that’s been my experience

    1. I completely agree with Gavin. Until very recently, Brookfield Infrastructure and Knight Theraputics were each 20% of my total portfolio. I've seen made Brookfield Asset Management 20%, Knight 18%, TD 10%, Fairfax India 8%, and Brookfield Infrastructure 6%. I am pretty sure that Warren Buffett was managing less than 50M his weightings for his top holdings would be similar.

  5. It's interesting to note the various ways that different investors choose to attempt to control risk.
    Some investors use strict stop losses. Others believe if they buy deeply undervalued stocks they will be safe. Others opt to go with what insiders are buying in significant quantity. I have a novel way to control risk. Find the companies who are already making good money whose earnings are beginning to accelerate and grow at an even faster pace. Let's see profit margins getting fatter. It makes me feel safe.

    Tucows is not my biggest winner this year. How do you deal with a stock that is up 15 trading days in a row? I took a position in National Beverage (FIZZ) in early January, doubled up after an impressive earnings report and have already trimmed by 30%. I hate NOT letting my winners ride when earnings are skyrocketing and margins are increasing. FIZZ is just an insane situation. Tucows? The management has announced a plan to buy back up to $40 million of their own shares. This stock is making new 52 week highs as we type. Tucows will go higher. Their own management is projecting utmost confidence. They also seem to be working closely with Shopify who must be steering some revenue their way.