mardi 30 janvier 2018

how long?

One of my best friends from the last years of high school died about 3 weeks ago.

We weren’t friends anymore. Actually we didn’t see each other for the last 20 years.

So, I didn’t cry. But isn’t it ironic that many rock stars of the 70’s who snorted coke every day and fucked millions of people after their shows are still alive while that 38 years old guy died naturally from a problem with his heart? Isn’t it hilarious?

That’s how fucking funny life is.

We spent the last 20 years in total indifference for each other but I’ll always remember that we threw some stinking bomb in the school and we managed to not get caught.

And when we went walking in the school after lunch, he would ask me to stay close to the restrooms while he would take a crap for 10 minutes.

Which, I did. As a good dog.

I now realize how a good friend I’ve been for him. Nobody never did that for me.

dimanche 28 janvier 2018

Compound annual growth since 2011

I've recently took a look at my portfolio over the last 7 years (end of each month of january since 2011). It turns out that my compound annual growth rate is exactly 30% for these last 7 years.

Isn't that great?

When I look back at my portfolio over time, I'm surprised to see how many not so good companies I've owned in the past. Well, they had some kind of momentum, but many of them didn't have an history of success.  For instance, a big percentage of my portfolio was invested in Cipher Pharma and Rifco, 4 or 5 years ago.

I can't help but be speechless imagining how things could have been for me if I had made better choices. I'd probably have gotten something close to a 50% return annually if I had chosen back then the stocks I chose now.

Obviously, like I wrote a few months ago, a big part of that performance comes from my discipline. I deserve congratulations much more for my savings and way of life (I own the same cheap car since 2010, I don't eat that often at the restaurant, I don't buy things I don't need...) than for my investing skills. If I was great at both, I'd perhaps have one million dollars now.

When you have one million dollars, can you retire? I think so. Because the average return of the market is about 10%. So, if you use about 75 000$ of your million each year, normally, the increase of the market will compensate for what you've taken. You'll have to pay some taxes on that amount because it probably won't come entirely from you TFSA (CELI en français), but you should have enough to live in a decent way.

Retirement or the possibility of a retirement is my goal for my 50th birthday. 

samedi 27 janvier 2018

Dirty Money - Episode 3: Valeant

You should really subscribe to Netflix and watch the episode 3 of the show "Dirty Money".

That episode is about Valeant. You'll get some details there that you probably didn't know.

- The people in the documentary that talk negatively about Valeant look to have a pretty good opinion about themselves. The pretty indian girl (Fahmi Quadir) looks well above all of us with her fancy suit;
- At some point, a guy says that nobody had a bad opinion about Valeant except him and an handful of other people, which is pretty cocky and false. A lot of people never liked Valeant even if they weren't the majority;
- Bill Ackman had a serious man crush on Mike Pearson at some point;
- Mike Pearson is a big motherfucker and he deserves to be hated by everybody;
- The Philidor scam was a pretty creative one. They created drugstores with fictional owners with names of characters from "The Shining" (you know, the 1980 movie with Jack Nicholson). 
- I'm saying this since a couple of years, but man, Bill Ackman is soooo bad. At some point, we can hear him saying that he didn't do his due diligence with Valeant. LOLLLLLL. What else do you need? That guy lost 4 billion of dollars with a stock just because he had a boner when he was in the company of an overweight guy. If anybody writes a comment on my blog telling me that he has respect for Ackman and he's a great investor and blablabla, I'm seriously gonna make a fool of you in public;
- You'll see the story of a woman taking Syprine pills for abour 30$ a month before Valeant took control of the drug. Lately, the price of the treatment was almost 300 000$ a year. Thanks to Valeant;
- Strangely, nothing illegal was found in the Valeant case. Just deeply immoral actions and I can see that clearly now even if at the time, I tried to convince myself that it was a respectable company; 
- Personal learning: In this fucking world, you can see that you can't trust politicians (Trump is the worst american politician of the last 1000 years, so even Indian chiefs before the coming of Europeans did better than him), you can't trust artists (they're all rapers except the females), you can't trust journalists (because like the great Trump says, they all create fake news) and you can't trust big investors and CEO's because most of them don't know what they talk about or they're simply crooks. At least, we have our priests and religious leader who never did anything wrong.

Go see it now. It's a good lesson for everybody. Even for those who never believed in Valeant. 

mardi 23 janvier 2018

Margins - Edit

Sorry. My first screening of stocks via Value Line wasn’t OK at all. Here’s something better.


Net income divided by net sales equals operating margins.

In other words, operating margins represent how much a business needs to sell things to make money.

Here's a few businesses with interesting margins:

Visa: 69%
Credit Acceptance Corp: 69%
Netflix: 60%
Mastercard: 58%
Canadian Pacific: 52%
Priceline: 40%
McDonald’s: 39%
Microsoft: 39%
Alphabet: 32%
Apple: 31%
Disney: 30%
Starbucks: 24%
Tiffany: 24%
Fastenal: 23%
O'Reilly: 22%

And here's a short list of great businesses with low margins (7% margins or less).

Metro: 7%
Alimentation Couche-Tard: 6%
Carmax: 6%
Costco: 5%

For that list, I've retained only 4 stock known by everybody. There were many obscure names on my screening, which is normal: if a business has poor margins, it's probably a poor business. So, you don't hear about it. 

Obviously, If there's some money to make, entrepreneurs will be interested to go start a business in that specific field. So, there should be some competition eventually. But it's not a good reason to avoid to take a look at high margins businesses first.  

Few people look at margins first. It's not the first thing to check when you analyze a stock, but it's interesting to see the challenges that faces the business (margins are one of these challenges). And it's impossible not to be amazed by Couche-Tard that achieved such a spectacular performance with such low margins.

jeudi 18 janvier 2018

A return on Carmax (KMX)

My three main influences as investors own shares of Carmax. I'm talking about Chuck Akre (again), Sequoia Fund and Giverny Capital. An important stake of each portfolio is occupied by that stock (5% or more).

I've written a few times about that stock in the past, saying I wasn't particularly fond of it. I never hated KMX, but I thought that many better stocks were avalaible.

Given the fact that my three idols have a lot of money in that stock and given the fact that KMX is considered a "compounding machine" by Chuck Akre, I can't maintain my position. That stock is surely at least good... and perhaps more.

I've learned not to follow blindly any investor. So, I went to Value Line to take a look at KMX.

For the earnings predictability, KMX has a score of 95%, which is almost perfect. And it's an indicator that seems very important for Sequoia, Akre and Rochon (Giverny). In fact, most of the best companies have a high score for earnings predictability.

The ROE of KMX has been around 20% for the last 3 years, which is very good.

And, finally, in an expensive market, KMX has rarely been this cheap (about 16 times forward earnings). Just take a look at the PE for the last years and you'll see that this stock is usually selling for something like 20 times earnings and even more.

The last results for KMX have been disapointing but if someone is looking for a good company and a fair price, he should be looking there. I don't think that there's a lot of momentum with KMX but there's an occasion to share ownership with three of the best investors in the world. I trust them when they're alone. When they're together, I trust them like a kind of holy trinity.

mercredi 17 janvier 2018

Between Buffett and Akre

It's very hard to invest these days.

Some say: "You can't predict where the market is going. You should always be fully invested".

Some others say: "The market is expensive. Better wait for a better entry point".

Others say: "Bitcoin is down 15% today. That's an occasion".

I often think about Chuck Akre when I'm alone and naked. And I say to myself: "Akre is invested with very expensive but great businesses (like Mastercard, Visa and Moody's). He's probably not the kind of guy that's gonna sell even if the market is expensive. Actually, today, I read a transcript of Akre in 2011 saying that he doesn't sell exceptional businesses because they're too hard to replace.

On the other hand, there's Warren Buffett (which I like too, but not as much as Akre) who's got more than 100 billion dollars of cash waiting to be deployed. If he thought that there were great occasions, he would probably have bought something long ago.

 I'm somewhere in between these two titans. I feel honored to be there. I know there's some occasions out there, but I wouldn't use the term "screaming buy". I don't see that much headwinds but I don't see backwinds either.

What the fuck should I feel?

mardi 9 janvier 2018

How to build a position

It took me a lot of time to understand the very simple way of building a position with a new stock. I'm ashamed to be almost 40 years old and to write something about that so late in my investing life.

  1. Find a great stock;
  2. Wait for a moment where the stock is not in favor of the market. These great stocks are rarely sold for 15-20 times earnings. If you can find an interesting gap between historical PE and current PE, you probably should buy that stock, except if some very bad thing is going on. I can't detail what could be a very bad thing. Unfortunately, only your judgment will make a difference here. That's the only point of this list where a robot couldn't do the job; 
  3. Buy a small position at first. Something like 1 or 2% of your portfolio. Then, wait for the next earnings to be released;
  4. Usually, great stocks don't go badly for too long. If the next earnings are worse than the last and the situation seems to get worse, you could sell your small position with a loss. It won't hurt because it was a small position. If the earnings went well, add to your position, even if the stock price goes up something like 5-10%. Your small position at a bargain price will compensate for the rise;
  5. You now have a 3 to 5% position with a great stock and it was gradual and safe. Or you have a 0% position with a stocks that seemed good but wasn't that good. And you lost only a few hundred bucks. The performance of your portfolio won't be affected this year.
  6. Don't thank me. I live to give.

samedi 6 janvier 2018

Jason Donville VS Chuck Akre

Poor Jason Donville. The returns for his fund have been very bad for the last 3 years. On Donville Kent's website, the performance of december 2017 isn't written yet, but for the first 11 months of the year, the performance has been about 8,4%. Let's say that the performance of december has been pretty good and the performance for 2017 has been about 10-12%. It's OK but not that good.

The last 3 years for Donville Kent would look like that: 

2017: 10-12%
2016: -1,66%
2015: 4%

Some devouted fans may say that it's only a bad period and Jason will come back stronger than ever. Perhaps. But three bad years in a row is probably way beyond what a client of a fund may be able to swallow. It looks like small caps with high ROE didn't do what they should do.

Now, let's take a look at Chuck Akre.

According to this website (perhaps there's some mistake, I haven't trianguled my sources of information), the average return annualized over the last 3 years is 28,63%.

Isn't that bloody incredible? At this moment, you should stop reading this post, sell everything you own and build an exact copy of Akre's portfolio. Don't tell me that's luck, don't tell me that's conjoncture. Nobody without an incredible talent could get a 28,63% annualized return.

Just take a look at Akre's biggest positions over the last year:

American Tower (13,5% of the portfolio): UP 34%
Moody's (11,5% of the portfolio): UP 55%
Mastercard (11% of the portfolio)): UP 44%
Markel (8% of the portfolio): UP 25%
Visa (7,5% of the portfolio): UP 43%
Dollar Tree (6,1% of the portfolio): UP 39%
O'Reilly (6% of the portfolio): DOWN 14%
Carmax: (5,7% of the portfolio): DOWN 1%

What more do you want? Akre invests in large or giga caps and he's still able to get such returns. That guy deserves a blow job from all of us!

jeudi 4 janvier 2018

Stocks for less than 20 times next year's earnings

A few years ago, you could build a great portfolio, selecting stocks with a current PE ratio of 15 or less.

That time is over. Now, if you manage to find a great stock with a forward PE ratio of 20, first, you'll have to work hard, then, you have to buy it. Because the market is more expensive than that.

You don't have a lot of choices. At this moment, there's a handful of great stocks that are selling for less than 20 times forward earnings. If they're selling for that relatively low price, that's because the sky isn't that clear for them. But it's probably just a momentary problem.

Here's a short list of good stocks which are selling for less than 20 times next year's earnings:

CAN: Canadian National, Canadian Pacific, Linamar, Magna, Alimentation Couche-Tard, CGI, Hardwood Distribution, CCL Industries, Metro.

US: Disney, Mohawk, LKQ, O'Reilly, Omnicom, Credit Acceptance Corp., Discover.

I know, these days, everybody is crazy for those fucking weed stocks. Canopy Growth goes up something like 10% on a given day for no reason. Then, the next day, it goes up 15% and still, nothing happened. And the next day, it goes up 30%. And you say to yourself: "Fuck". And, after a month, the stock is up 100% while your miserable fucking portfolio has done 2%.

I have a friend whom I initiated to the stock market with stocks like Apple, Biogen and Tucows. He still owns some of these stocks but he now gambles with weed stocks. I feel like Obi-Wan Kenobi facing my padawan chosing the dark side.

But it's maybe the inevitable path for growing up. Like we all tasted our pooh when we were babies (some of us still do it). It may be funny for a moment, but you can't live like that forever.