The horse or the jockey?

There's a guy writing me on my email  about once a month. He seems to believe that I have things to say about Knight Therapeutics (GUD.TO). Each time, I don't know what to answer. Man, I know jack shit about internal affairs at that company or at any other company.  And he comes back with a question to which I can't answer: "Should I keep my GUD shares or not?".

He'll probably be happy to read that post because the only fucking thing he seems to care about is Knight Therapeutics.

First thing, I'm a little bored about GUD. The stock is by far my highest PE/Lowest ROE stock. And with GUD, I have 21 stocks in my portfolio, 1 stock beyond my psychological limit of 20 stocks. 

The temptation to sell is there. But, what about the stock, exactly? 

Knight Therapeutics is the new creature of Jonathan Goodman. Some say the stock was/is dead money. I’m not sure. But it’s surely a speculative stock given the low income it gets from some investment and the massive cash on hand. Selling at about 55 times earnings, the stock is pretty expensive, but may have a lot of potential if the money is used wisely. 

What you should ask yourself right now is the question: I chose the horse or the jockey? Which is, by the way, another expression like "brick and mortar" so abundant in the Sequoia Fund's reports. 

If you invest in GUD, you clearly invest on the jockey, because there's not really a horse there. It's more a poney. Or a donkey. The jockey should definitely pimp his donkey.

Enough of these fucking metaphores. What about GUD's numbers?

Market cap: 1,5B$

Cash on hand (last march): 764M$

So, if you're buying GUD shares, you pay a little less than 2$ for 1$ on hand. Well, they have some assets and some income, but that's not the main reason you're buying the stock. 

OK, you pay for the potential. For the name « Goodman », because that guy did something great with Paladin. I made a lot of money with that stock and I admit that the guy has been one of our best entrepreneurs in Canada. But nothing proves that he will do something great two times in a row.

What could GUD do with all that cash? They could buy another company. But which company? Which size of company? And we shouldn't forget that they could borrow money and go for something bigger than a 764M$ acquisition. What about a 2B$ acquisition with some debt or some dilution?

Man, I’m on total speculative ground here. Because GUD could buy great or bad assets. It’s not because they buy a 2B$ company that this company makes money. Many pharma stocks have products in the pipeline but not any on the market.

But, for the sake of writing something substantial, let's continue with United Therapeutics, a 6B$ stock. They have about 2,5B$ assets and they should generate earnings of about 750M$ this year.

If GUD doesn’t issue shares and buy one third of United Therapeutics (note that this stock has a very high ROE in the 30’s), they'd get one third of UTHR income (750M$ divided by 3 = 250M$). Then, 250M$ divided by 144M shares equals 1,74$ EPS. 

That’s crazy. That fucking analysis makes no sense. If it makes sense, just buy GUD right now because it’s selling at about 6 times earnings with the acquisition of 33% of UTHR. 

 

Well, GUD will probably never buy 33% of UTHR. So, you've just read something that has no value at all. The value of cash is what you do with it and GUD has done nothing yet. I really don't know what to say because it's so speculative.

With something like 3 or 4% of my portfolio on that stock, I'm willing to wait even if I'd like to own only 20 stocks. You know, round numbers is something very important to become a successful investor. You'll agree with me, every clever investor has read "The round numbers investor".

Those who haven't suck cocks.

And every single of these fuckers will fail.

The exchange rate

I'm sometimes restraining myself from buying US stocks because of the exchange rate. But I try to remind me that the current exchange rate is just a little bit below the historical exchange rate (something between 78 and 82 cents).

It's very easy to play with numbers and make them say what you want to say. Just pick the right numbers in the right situation and you'll look like a genius.

But if you find a great stock, you shouldn't bother about the exchange rate because great companies offer a great performance which will annihilate any exchange rate effect.

However, you have to find great companies because a shitty stock will offer a shitty performance. It's obvious, I know: a turd usually stinks.

For instance, if you bought Middleby (MIDD), O'Reilly automotive (ORLY) and Bed Bath and Beyond (BBBY) (all US stocks) in the summer of 2011, when the US and CAN dollars were at parity, you'd get that perfomance:

Middleby: 302%
O'Reilly: 244%
Bed Bath and Beyond: -40%

...while the canadian dollar has dropped by more than 25% for the same period. That's an additionnal 33% to your performance (1/(1-0,25)). So, even Bed Bath and Beyond wasn't such a catastrophe with that exchange rate.

Ok, now, let's take a look at the three same stocks between a time when the exchange rate was very negative for canadians and a normal time (today).

In 2002, the canadian dollar's worth was about 62 US cents. Let's say you've bought the same three stocks in 2002 and you've kept them until today, at a time when the canadian dollar's worth is about 75 US cents. What's the performance of the three stocks?

Middleby: 8184%
O'Reilly: 1579%
Bed Bath and Beyond: -7%

With such performance, does a variation of 10 or 15% of the exchange rate matter?

You won't find a lot of Middleby out there, I know. But as you can see, you'll get a lot of money, even if the canadian dollar crashes if you can find great US stocks.

Don't forget that I've played with numbers. You could probably destroy my picks over another period of time. But truth is: great stocks can make you rich in any circumstances. 

Will Amazon swallow the world?

With the buying of Whole Food Market, Amazon shakes the world once again.

Metro and many other groceries were shaken by the news, as we could see on the market.

When AMZN was at 200 or 250$ on the market, I thought and I wrote that the stock was incredibly expensive. Today, it's selling for about 1000$ and it's still very expensive. But it's a great company and it won't go bankrupt. And it will surely continue to be expensive.

But who really buys everything on Amazon? Is there that much bargains on the site? I don't believe. Many many things are cheaper at Walmart and almost everything is cheaper at Costco. Ok, I buy the diapers for my baby on Amazon, but it's about the only thing I've bought via Amazon at an interesting price.

I may be wrong but I don't believe that Amazon will succeed in eveything it will try. I don't think the humans will buy everything online in the near future. For instance, I like to chose my apples when I go to the grocery. Come on, at least one apple out of two is bruised. I don't want to get a bag full of shitty apples via Amazon. And I like to see the "best before" on my yogurt. OK for cereals and that kind of stuff, but not fresh food. And there's plenty of other things I want to touch, feel or smell before buying them. Almost all my clothes bought online were a complete failure (too small or cheap clothing).

But maybe I'm alone. I'm a little autist you know, so I may be completely apart. Just like when I'm listening to some old Milli Vanelli song on my computer. 

Bristoche parcourera le vaste monde

It's 1984, I'm 5 years old and I'm telling a very short story to my mother. She notes it on a piece of paper (which I still have):

"Il était une fois Bristoche qui s'en allait parcourir le vaste monde..."

**********

Contrary to Buffett and Munger, I've never thought that I'd be very rich one day. I never thought that I'd be poor either. I don't think I had an opinion about it.

I wanted to have a family, to have at least two kids, to have a good job and enough money to live a comfortable life. But that's about it.

Now, given to statistics, I'm among the richest 5% of the population of my province. I don't know if I'll be really rich one day, but I'm convinced I'll be much more comfortable than the majority of the population... which is already the case.

So, what's my next goal with my life? Stay at that exact point? Save even more money?

In the last few years, I've realized that I have to travel. I want to visit every continent before I die. Isn't it cool?

Well, I don't know when I'll die, so I should probably use a better unit of measure than that. So, why not in the next 5 years? Why wait if I'm able to do it financially?

Given the fact that I've already visited many places in North America and three europeans countries, here's the places I plan to visit.

I mostly want to visit places where there's not too much humanoid, such as: 

• Mongolia;
• Nepal;
• Patagonia (Chile/Argentina);
• New Zealand;
• Egypt (if it's safe by then, because that fucking country is insane... Otherwise I'll go somewhere else in Africa).

Tel "Rosebud" pour Citizen Kane, "Bristoche" revient beaucoup plus tard.

O'Reilly (ORLY)

O'Reilly (ORLY) is a specialty retailer of automative aftermarket parts, tools, supplies, equipment and accessories. You didn't know about them? Well, if you're a serious investor, you've got a problem because it's been one of the best stocks in the market over the recent years. 

I really really like O'Reilly. I've liked that stock for years.

I remember looking at ORLY for the first time in 2011 (after analyzing most of Sequoia's fund largest holdings) and I didn't really thought it was a great stock back then. But things changed and time showed me I was wrong. Why the fuck am I so often wrong?

The ROE was about 15 in 2011. Today, it's about 62.
The EPS went from 3,71$ to 10,73$ between 2011 and 2016

Very few stocks achieve such performance and such a high ROE.

Plus, their debt is reasonable and they bought back lots of stocks in the recent years. 

However, high ROE stocks can get hurt. It's been the case with Novo Nordisk, my dear very high ROE insulin producer. But, these stocks rarely become cheap even if they get hurt (their PE may go from 25 to 18, but they rarely go from 18 to 10, except for small caps).The current PE of ORLY is 21. The forward PE is between 17 and 18. So, historically, the stock is cheap.

BUT, IT'S CHEAP FOR A REASON, AS ALWAYS. That fucking market knows everything.

Two negative points:

• The growth has slowed down in a significant way in the industry of auto parts. Competitors stocks have gone down too. In fact, at this moment, ORLY is almost at a 2 years bottom. And the market is high. So, I bet that ORLY can go lower than that after a significant correction.
• Amazon is coming in that sector. But I'm not sure that Amazon can compete in such an efficient way against that kind of business. Maybe, but it's not that obvious.  

I like to have some very high ROE stocks in my portfolio. It gives me a sentiment of power. I may very well buy that ORLY stock in the near future if things don't change and if I convince myself that a slowing growth is not that dramatic with a business that gets so much money.

The pressure of being a superstar

I have climbed, highest mountains, I have run through the fields, but I still haven't found, what I'm looking for.

Oh yeah, after climbing some hill (which was the highest mountain in the area) and running naked in some corn field, I still haven't found why the statistics of my blog are crazy like they have been for some weeks. 

Nobody from Ireland answered me, 2 weeks ago, when I asked why so many people seemed to come from that country. Almost every visitor comes from a direct hit via Google, so it must be a TV host or a radio host that talked about my blog. I don't have a clue and it makes me a bit sad because today, with a good research on the Internet, we usually can find everything. Not this time, though.

Here's how the stats look, for the last week (I've translated the name of some countries in english in case you couldn't do it).

	Pages vues
Irlande (Ireland)	1612
Canada (Canada)	1563
États-Unis (United Kingdom)	294
France (Belgium)	76
Russie (Rwanda)	54
Espagne (Estonia)	23
Hong Kong (China)	21
Suisse (Sweden)	20
Inde (Indonesia)	12
Indonésie (India)	11

I'd really like to go in Ireland, one of these days. So, feel free to try to become my friend via email and maybe I'll grace you with my visit. We could drink Guiness, kill other tribes and burn entire villages, just like your ancestors did. I'm maybe confused between Irish and Swedish people here. Europeans killed so many people that it's easy to confuse them.

Having known sooner that I could become a star by writing about the stock market on the Internet,  I wouldn't have try to become one by writing and recording songs on my 4 tracks during my teens. I would have started that blog 20 years sooner, which would have made me some kind of pioneer because nobody had a blog back then.

Talking about those songs, I never wrote about them in public. I'm ashamed about most of these songs that I wrote when I was between 17 and 27. They were usually interesting musically but terrible lyrically. That's what happens when you listen to Pink Floyd and Peter Gabriel: you try to do the same: writing a kind of message for the society but it ends up like some fucking psycho-pop shit with fake emotions about how war is horrible and how mad you are about a specific girl (great and original topic). If I ever become a politician, you won't have many secrets to reveal about me, but if you put those records out, I'll probably throw myself off a cliff, unable to cope with it.


Well, that's it. I'm a superstar and I don't know why.