mercredi 30 août 2017

Robbing a beggar

Have you found ways to make money with Hurricane Harvey?

Not me.

Here's the only way I've found to make money lately. Very little money in an absolute way, but maybe a lot of money in a relative way.

Yesterday, I went out to play some music in a bar where I sometimes go. Between songs, I go out with a friend who smokes and we speak mostly about music in general and the making of "Trout Mask Replica" in particular. That's a completely fucked up album made in 1969 by Captain Beefheart. It sounds mostly like a pile of noises. But many very big music fans rank it as one of the best albums of all time, like my friend.

The recording of the album was crazy. Beefheart forced his band to disguise themselves during the sessions. And they had no money. So they rationed food and they had something like a can of beans each day for all the band. Even if you don't like this music (which is my case), you should read a bit about the story of that recording. You'll get to another dimension.

Anyway, we're talking and laughing about that album and suddenly, a beggar comes to us on his bicycle:

Beggar: Do you have some spare change?
My friend: No
Me: No. You, do you have spare change? Because I need it too.
Beggar: I only have 25 cents.
Me: Ok, I'm gonna take it.
Beggar: Ok, here it is.

And the guy actually gave me his quarter.

And he goes to see other people outside the bar to ask them for money.

That's the craziest money I ever earned.

Much more memorable than 10 000$ mare on the stock market.

samedi 26 août 2017

The price to pay

About 3 years ago (july 2014), Dollar Tree announced it was planning to acquire Family Dollar.
About one year later (summer 2015), each Family Dollar shareholder got 79,55$ for each FDO share they owned (59,60$ cash + each stake of 4 FDO shares got transformed into one DLTR share).
Given the fact that FDO EPS was about 2,50$ in 2014, DLTR paid a high price. More than 30 times FDO earnings. And FDO wasn't growing like a stock that should be selling for 30 times earnings.

At the time it happened, I said to myself that it was expensive but exciting.
The integration can’t be fast and very effective when you're doubling the size of your business (it was a 9B$ transaction) by buying something that doesn't grow that much for 30 times earnings. 
 Managers weren’t wise to pay that price. That's exactly the opposite of what Couche-Tard managers usually do. 
DLTR managers were probably nervous that Dollar General would buy Family Dollar. So they raised their offer and they paid a generous price.

I was tempted a couple of times to sell my shares. But I liked the sector. And I thought the transaction was promising.
As seen below, it took time for the market to recognize the benefits of the transaction:  


Price of DLTR shares, August 2014 : 53$ 
EPS released in august : 0,59$

Price of DLTR shares, August 2015 : 76$ 
EPS released in august : (0,46$)

Price of DLTR shares, August 2016 : 83$
EPS released in august : 0,72$

Price of DLTR shares, August 2017 : 80$
EPS released in august : 0,98$


If it wasn’t for this week’s soaring, the price of DLTR shares would have been the same as in 2015. 

Yes, it took time. But this week, the results were great. DLTR beat estimates by 12 cents (14%) which is great. After a few years of stalling, DLTR is going in the right direction.

My advice would however be to sell a stock when a big acquisition is going for a high price. Just sell, and keep a close look. Jump back in the train if it goes well after a certain time.

mercredi 23 août 2017

John Malone and Liberty Media (FWONK)

My 14 months daughter eats hair. That's true. She crawls everywhere in the house and when she finds some hair (my girlfriend has long dark hair), she takes it and then she puts it in her mouth.

My girlfriend told me that my daughter also eats grass and that she once tried to eat a spiderweb.

These fucking babies are so crazy and stupid!

Us, investors, are much more rationnal and wise. That's why we eat transformed food flavored with cancer and we invest in Valeant.

For some people, the ultimate level of intelligence and wisdom is John Malone. Let's precise that these people are investors because if you go on the street and ask who John Malone is, I bet you a handful of dark hair that nobody will answer correctly.

Personnaly, I don't know the guy. That's why I made a little research about him and his creature, Liberty Media, which is a stock I wrote about recently (it's a new position of Sequoia and Giverny Capital).

Who is John Malone? 

Age: 76 (born in 1941)
Citizenship: American
Personnal wealth: 7,8 billion US$
Nickname: Cable cowboy
Chairman of the board of Liberty Media

What is Liberty Media?

Liberty Media owns interests in a broad range of media, communication and entertainment businesses. Below is a list of most known entities that are part of Liberty Media and the ownership percentage of Liberty Media in these positions.

Atlanta Braves: 100%
Formula One: 100%
Sirius XM: 68%
Live Nation Entertainment: 34%

These 4 businesses are great. A sport team, a huge car's race festival, a satellite radio company and the largest live entertainment company in the world (many famous bands and artists are associated with Live Nation, such as Shakira, Katy Perry, Roger Waters, Bruno Mars, etc).

Entertainment is, in my opinion, a great sector to invest, as long as it could resist to technology evolution. Which is the case here, at least for the next few years. 

Some sources on Internet are relating that John Malone has achieved to compound capital at an annual rate of 30% for about 25 years. I'll say they're right because agreeing with any Internet source is the easiest way to live your life.

Malone has the reputation of being a low cost operator focusing on long-term after-tax cash flow instead of short-term accounting profits. If you take a look at FWONK numbers, you'll see it's not that easy to understand. Personnally, I think that the accounting is a little bit complex. Malone likes depreciation and spin-offs a lot. That's what he uses to create value. That's super great to read, but harder to analyze.

Three years ago, many people said that Michael Pearson was an unbelievable manager with lots of skills for value creation... although Valeant accounting practices were complex. I'm not saying here that Malone is similar to Pearson. But I like to see clearly into numbers, which isn't the case with Liberty Media.

Nonetheless, I believe that this stock is a conglomerate of great businesses and that we should look deeper into it.

lundi 21 août 2017

Sequoia fund investor day transcript

My favorite financial reading of the year is out:

Sequoia fund's investor day transcript.

It's gonna be easy for me today because I'm only gonna copy some main ideas about the transcript. These are all facts that I like and that I agree with.

There's a little bit jerking-off here and there in the transcript. But we're all humans. Who never wanted to cum in public?

First of all, on june 30th, Sequoia's top 5 holdings were:

Berkshire Hathaway: 11,3%
US Treasury bills and cash: 8,7%
Alphabet: 6,5%
TJX: 5,9%

Between december 2016 and march 2017, Sequoia reduced their stake in Berkshire from 17% to 12%. Berkshire is still a great business but growth shouldn't be spectacular.

They are very focused on owning high-quality companies and they measure it by the return on equity of their portfolio which is significantly higher than the ROE of the S&P.

The PE multiple for Sequoia is about 10% higher than it is for the index. They believe they own first rate companies and management teams, which deserves at least a small premium to the Index.

The market is smart. Business quality is clearly well appreciated. High quality business rarely trade for truly bargain prices. But businesses do periodically trade  at a discount to their intrinsec value (INTRINSEC VALUE: A concept as vague as god or love, in my opinion).

Priceline is a kind of duopoly with Expedia (such as Mastercard and Visa). It's expensive but it deserves a premium valuation because the growth rate should continue to be very high for the next years.

O'Reilly has a very sustainable moat on the commercial side of the business. They have by far the most efficient distribution system in the business. The company can deliver a part in a garage in a matter of minutes, which isn't the case at all with Amazon.

Credit Acceptance Corp (CACC) has a different business model than other lenders in the auto industry. Their ROE is high (in the 30's). They also have a very shareholder friendly management team (they bought back more than 50% of the shares since 2005). The founder of the business is the most important shareholder. Personnal note: I like that stock even if analysts seem to hate it.

Mohawk is a cyclical company (related to housing market). It has however changed a lot and is now very well positioned for the future. There is no other flooring company that has the product range, the geographical exposure and the management talent that Mohawk has.

Many home runs for Sequoia have been midcap picks (TJX, Fastenal, Mohawk, Idexx). They mainly look in that space for investment ideas.

And much more about Google, Carmax, Liberty Media and others...

mercredi 16 août 2017

Ce que les meilleurs achètent (august 16th, 2017)

Let's take a look at ce que les meilleurs ont acheté dans les derniers mois.

Once in a while, I do what I can to promote our canadian cultural diversity by writing a bilingual sentence like that.

Warren Buffet:

Most important transactions:

Buffett sold about 16% of his position in IBM. As we seen last quarter, Buffett seems to admit that he made a mistake of investing in IBM (now 5,1% of his fund);
He added 52% to his position in Bank of New-York (now 1,6% of his fund);
He added 20% to his position in GM (now 1,3% of his fund).

Top 3 Berkshire positions:

Kraft Heinz: 17,2%
Wells Fargo: 16%
Apple: 11,6%

Chuck Akre:

Most important transactions:

Akre bought a lot during the last quarter. Many positions were increased. Two positions were increased most than the others: 

Dollar Tree: added 16% to his position (now 5,6% of the total portfolio);
O'Reilly: Added 45% to his position (now 4,3% of the total portfolio).

Top 3 Akre positions:

American Tower Corp: 14,8%
Moody's:  11,4%
Mastercard: 10,7%

David Einhorn:

Einhorn is a poker player and I can't forget this when I take a look at his picks. He's a gambler but he sometimes plays well. But he's not the typical buy and hold investor.

Mylan: added 23% to his position (now 6,9% of the total portfolio);
AABA: New position (now 3,9% of the total portfolio);
Perrigo: added 49% to his position (now 3,2% of the total portfolio);
Dillard Inc.: added 33% to his position (now 2,4% of the total portfolio);
Chemours: reduced his position by 28% (now 2,3% of the total portfolio);
Micron: added 66% to his position (now 1,3% of the total portfolio);
Hewlett Packard: New position (now 1,2% of the total portfolio).

Top 3 Einhorn positions:

GM: 31,8% (What the fuck?)
AerCap Holdings: 9,6%
Apple: 9,4%

Sequoia Fund

The last transactions haven't been filed yet but there's an interesting new pick which is FWONK (Liberty Media) which is a conglomerate including Atlanta Braves, Formula 1, Live Nation, Sirius XM and many others. In a way, it's a kind of Disney for adults. Giverny Capital has also bought shares of FWONK lately.

Giverny Capital 

Most important transactions:

Heico Corp: + 6% (now 2,8% of the portfolio)
O'Reilly: +5% (now 3,2% of the portfolio)
Bank of the Ozarks: +4% (now 8,9% of the portfolio)
FWONK: New position (now 3,5% of the portfolio)
Ametek: -13% (now 6,6% of the portfolio)
Disney: -15% (now 6% of the portfolio)
M&T Bank: -16% (now 4% of the portfolio)
LKQ: -18% (now 5,8% of the porfolio)

Top 3 Giverny Capital positions (US stocks only):

Berkshire Hathaway: 18,9%
Carmax: 9,2%Bank of the Ozarks: 8,9%

And let's conclude with that Ackman joke and his titanic, Pershing Square. There may be a documentary on Netflix about him and his shorting of Herbalife, I believe there should be an Ackman strikes back episode (Valeant) and a Return of the Ackman episode (Shipotle Mexican Grill) to follow his path to the dark side.

Most important transactions:

Mondelez International: Reduced his position by 27% (now 10,4% of the total portfolio)
Howard Hugues Corp: Added 32% to his position (now 9,6% of the total portfolio)
Automatic Data Processing: New position (now 3% of the total portfolio)

Top 3 Ackman positions:

Restaurant Brand International: 40,7%
Shitpotle Mexican Grill: 20%
Mondelez International: 10,4%

lundi 14 août 2017

Buffalo Wild Wings (BWLD)

In the past, I've never been that much aware of the hype about Buffalo Wild Wings. Having been aware of it, I could have made a lot of money, buying some shares at about 35$, in the summer of 2007, then selling them today at about 112$.

But I could also have lost a lot of money, buying the shares at about 195$, in the summer of 2015, then selling them today at about 112$. Because the EPS of Buffalo Wild Wings grew a lot in the past, but the growth has been disappointing lately.

I've recently been in the states for an amazing journey. And I've had to occasion to eat at Buffalo Wild Wings. And I didn't really liked the experience. Not because it was bad. But simply because I don't have the right profile to eat there.

That chain is an equivalent of "La cage aux sports" which you surely know if you live in Quebec. You probably have something similar if you live in Toronto or Vancouver. I don't know what it could be because I don't leave very often my province. Why should I? The best poutine is here.

But, anyway, Buffalo Wild Wings is that kind of fucking restaurant which is full of TV, with a game of baseball there, and a game of hockey there and a game of basketball there and a game of tennis there with that incredible Eugenie Bouchard and her amazing selfie skills.

Customers are overweight boys eating fat meals watching athletes who only eat vegetables. And there's noise. Lots of noise. Some people call that noise "ambiance. And you'll applause when your favorite hockey teams scores. It makes you forget about how boring and meaningless your life is. Because you feel part of a group. A group of supporters of a team that doesn't know who you are and that surely wouldn't give a shit about you even if they knew you. But you applause nonetheless because you need to be part of a group.

And you eat your chicken wings, and you have sauce on the face and on your fingers. And you lick your dirty fingers which were dirty even before touching the wings and you drink your beer and you have a great moment in that noisy environment.

Well, anyway. I didn't invest in that company and I'll probably never do. Not only because I didn't like it that much but because numbers are just OK with that business.

That's a picture of my chicken wings up there. They were good and sold at a fair price. It's not because I didn't like the ambiance that everything was shitty.