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.

7 commentaires:

  1. Gavin touched on something important and powerful. It helped him avoid this Home Capital disaster (losing 65% in one day).

    There's smarter people than us out there. As an investor, you must make it a point to research the bearish side. You must talk to people who are bearish or read what they have to say. Most of us just want to block somebody who says bad things about our favourite stocks.
    I was saved from Concordia and from Valeant because I was on Seeking Alpha after I bought those two stocks and a bear explained that if these two companies used honest accounting then they are nowhere near profitable. That was very eye opening. I did not hesitate. I sold Concordia for a small loss and ended up making $5 on Valeant.

    I leave you with words of wisdom from somebody far smarter (and way, way richer than me).

    “The ability to destroy your ideas rapidly instead of slowly when the occasion is right is one of the most valuable things. You have to work hard on it. Ask yourself what are the arguments on the other side. It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.”
    — Charlie Munger

    Know the bearish side arguments against the stocks you hold...and know the bears' arguments extremely well. Go out of your way to talk to the smartest bears out there. Even try to expand upon their thinking, criticism and concerns. When somebody you really respect as an investor is bearish on your favourite stock, be very careful.

  2. It's getting worse at Home Capital, read the following reported from zerohedge

    As Bloomberg reports, the Healthcare of Ontario Pension Plan (HOOPP) is the lender behind Home Capital Group's C$2 billion loan ($1.5 billion) to shore up liquidity, citing people familiar with the matter.

    The Toronto-based pension plan is said to have given the struggling Canadian mortgage lender the loan to shore up liquidity as it faces a run on deposits amid a probe by the provincial securities regulator. Home Capital has retained RBC Capital Markets and BMO Capital Markets to advise on “strategic options” after it secured the loan, according to a statement Thursday. Home Capital didn’t identify the lender.

    HOOPP, which represents more than 321,000 healthcare workers in Ontario, was not immediately available to comment. HOOPP President and Chief Executive Officer Jim Keohane sits on Home Capital’s board and is a shareholder. Home Capital’s external spokesman Boyd Erman declined to comment.

    The one-year credit line has a 10 percent interest rate on outstanding balances and a 2.5 percent rate on undrawn amounts, the Toronto-based lender said. The finalized agreement follows an announcement early Wednesday that Home Capital had reached a non-binding agreement in principle with an institutional investor for the loan.

    And in case you are one of the 321,000 retirees who are nervous about your pension managers' actions, don't worry: The loan is secured by a pool of mortgages originated by Home Trust, and as everyone knows, in Canada home prices never go down.

  3. ~laughs and laughs~

    thanks for this:

    "And in case you are one of the 321,000 retirees who are nervous about your pension managers' actions, don't worry: The loan is secured by a pool of mortgages originated by Home Trust, and as everyone knows, in Canada home prices never go down."//

  4. Keeping in the spirit of the original post, my advice to other investors, based on my own experience is that both the problem and the solution of investing in the markets lies within ourselves. Allow me to elucidate

    I have shot my mouth off a lot about holding Brookfield Infrastructure Fund. So to appease the Gods of investing least they strike me down with a bolt of randomness I will air out my dirty laundry. It makes for ugly reading.

    Let’s see, well I’ve already mentioned selling Toromont then watching it go up another 60 per cent. But I haven’t mentioned buying Concordia at $40 last winter. I am still holding it. Then there was the time I sold CGI Group to buy Nobilis only to find myself down 30 per cent 20 minutes later when a short sellers report was published on seeking alpha. I finally dispensed with the stock a few months ago. I sold Medical Facilities at the market bottom in Feb of 2016, then watched it soar upwards even outperforming the market itself.

    I bought and held both Cenovus and |Encana for years before selling at a loss on both of them, shades of opportunity cost. I learned that you trade commodities, you don’t invest in them.

    Back near the beginning of things for me in July of 2008, I was waiting to get into the market and I finally invested in Sun Life, Rogers and Toromont, representing about 30 per cent of my investment funds at the time. A few weeks later the great bear market of 2008/2009 was on. I held on to all three investments for a long time. I lost big on Sun Life, underperformed the market with Rogers and did spectacularly well with Toromont.

    I think the lesson in all of this is that over time the market itself will teach you if you are willing to listen. I was never comfortable holding Home Capital Group, I had a niggling doubt and worry about it. I think that over time the greatest resource an investor can have is in himself. He will develop an intuition, a feeling about things. Where once he was impatient he will develop a different attitude.

    I guess that is how the market has taught me over the years. Losing money is a hard lesson but it is a lesson learned well.

  5. Home capital teaches us to be careful in the future with regulated industries...

  6. Great article Penetrator. I'll add to your list a more subtle observation, when Management underperforms by missing expectations for the current period, but gets into the habit of saying "that business will pick-up in the back half of the year, or the first half of next year" and that of course never plays out. I see this often, and it's a red flag that Management is not being honest or transparent.

    An example of a great Management team recently that tells the truth is Stella-Jones. They seem to me to tell you what they know without trying to sugar-coat.

  7. Home Capital has been a frustrating investment for the past 2 years. I raised an eyebrow after the allegation of falsified document two years ago. At that moment, I was starting to feel uncomfortable holding it. Beside all this I was also not comfortable with two important elements: a possible housing bubble and the level of debt among Canadian households. When I heard the CEO abandoned ship, I didn't take too long before selling. It is just frustrating that some information is withheld against smaller investors.