vendredi 23 février 2018

An allegory

First of all, can anyone tell me from which page on Facebook come all the visitors lately? There's been a load of people coming from I don't know where on Facebook. Thank you for helping me.


Each month, I refine my idea of what is a good stock. Obviously, the usual metrics are very important (ROE, growth, free cash flows, debt level), the sector is also important and the price of the stock is sometimes a good indicator of the quality of a business (a stock that’s selling for 25 cents is almost certainly a crappy stock, while a stock that’s selling for 100$ is not always, but much more often, a quality stock).

When you begin at investing, you can’t afford to build a large portfolio. You can’t afford either to buy a lot of Google shares at 1100$ a share. So you almost can’t do something else than buy cheap stocks. Anyway, when you begin, you’re afraid of 1000$ stocks, saying: “Wow, this is too expensive for me!” because you still haven’t understood the concept of price to earnings. And you want to buy a few stocks, so if you buy expensive stocks, it limits you in your diversification. In other words, when you begin, you almost can’t avoid to make the usual mistakes.

But, once you’ve got some experience and a biggest portfolio (how big? 50 000$? 100 000$? I don’t know, but surely much more than a 10 000$ portfolio), you realize that quality has a price. And the best way to conceptualize the market is to see it as a cars retailer. And you have to understand that a big retailer is often right about the price VS the value of things. Bargain are usually crappy stuff that you can’t sell. Quality is widely known and retailers know what’s the quality in their inventory.

For instance…
  • Sears Holdings is a 20 years old lada. You won’t pay much, but you’ll get crap. 
  • Linamar is a Hyundai. Not a great car, but an OK car that will do well for a certain time. 
  • Priceline (now Booking Holdings) is a Lexus. It’s a very good car and there’s a balance between quality and price. 
  • Dollarama is a Porsche. It’s a luxury car. You’ll have to pay a lot for it, but you’ll get high quality and high performance. 
  • Amazon is a Lamborghini. Very expensive but very performing.  However, it’s not a traditional car that’s made for everybody.
You may disagree with my picks. But that’s not the point. The point is that a stock equals a type of car and all cars are not equal.

That’s how I see the stock market now. I’ve had enough experiences with cheap cars to be willing to pay for a good or great car now.

mardi 20 février 2018

Sequoia fund’s update

For many years now, I like Sequoia fund's guys.

But sometimes I have some difficulties to take them seriously. For instance, the transactions of the last quarter puzzle me.

Last quarter, they almost doubled their investment in Amazon (now 7,5% of the fund) making it the third stake of the fund. Yeah, Amazon is a great company and Jeff Bezos is the richest man on earth. The fact remains that AMZN isn't a traditional investment. You may put some money in that stock, but making it your third biggest stake, is it serious? Is it a billion dollars joke?

They added 29% to their investment in GOOGL and now their stake in Alphabet (GOOGL + GOOG) represents 14,3% of the fund which seems bold to me. Didn’t these guys told after the Valeant fiasco that they would never again have more than 10% of the fund in a single investment excluding Berkshire? Do these guys laugh at us? Did they forgot that I was some kind of fucking asperger who remembers everything that’s been said or written about things that fascinate me? Sequoia guys, my trust level is going down. Can you really afford to lose my trust?

They also reduced their Carmax position by 31%. Don’t forget that it was a recent addition for them. Why did they sell such a big part of it so soon? It reminds me their stupid acquisition of Chipotle Mexican Grill which was dumped soon after. That kind of move seems amateur to me. I’d expect that from Ackman but not from them.

And I don’t want to defend too much Carmax but like I said not so long ago, the stock isn’t pricey at all in an expensive market. And the predictability of it is very high. I surely wouldn’t put 10% of my portfolio on that stock like Giverny Capital but that decision doesn’t make sense to me.

They also reduced their stake in O’Reilly by 8% (now 2,4% of the fund). I have a very high opinion of O’Reilly so I’m becoming slightly mad at this point of that post.

Finally, they added 65% to their investment which now represents 2,3% of the fund.

In retrospect, I dislike what they did for their three biggest transactions. I see no logic or at least, no measure there.

samedi 17 février 2018

The power of the balloon (part 2)

You're probably not here to read that kind of post. You may even find these posts juvenile but in my opinion, these events are the most interesting things in life: special occasions created by an imaginative spirit.


Yesterday night, I was out with my friend. And I brought some balloons (regular balloons this time) with us, with the intention of tighten them around us during the night to create some fascination about us by customers of the bars we would go. We would say that it's our birthday. Or we would say something else, with the inspiration of the moment.

So, here we are, in a little dirty karaoke of Quebec City. In that bar, there's some dirty frequent customers who smell tobacco and some beautiful girls. A strange mix.

Only a few minutes after our arrival, for the first time of my life, a gay guy tries to kiss me, because I'm pretending it's my birthday. It's a matter of nanoseconds before he really tries to hug me and kiss me.

Not so much later, a guy with greasy hair bursts one of my balloons, thinking it would be funny. I say severly:

"Hey, that's my balloon and it's my birthday".

Dirty guy: "Oh sorry, I'm gonna buy you a drink. But not any kind of drink. A cognac".

I hate cognac, but à cheval donné, on ne regarde pas la bride, comme on dit en français.

Later, I go to the restrooms to take a piss. A really drunk guy is there with one of his friends, both taking a long piss. The drunk guy stares at me  and he looks like he'd like to make fun of me. But I soon realize he's probably too drunk to be able to laugh at somebody. He seems to think I'm from another country (many people say I look like a German). So, he asks me in english where I'm from and I answer him in english the name of my very french city in the suburb of Quebec City.

He understands the joke, starts to laugh and says that he's gonna buy me a beer.

Do you realize that, at this point, my balloons brought me an almost hug-kiss, a cognac and a beer?  That's a great return on investment for such cheap Dollarama ballons. I defy you to do better with a 15 cents investment. In a relative way, you'll probably never achieve such a high return on your investment in such a short period of time.

Meanwhile, my friend started to kiss with a lot of passion a Toronto girl named Summer. Their tongue spend a lot of time together that night, in a mouth or another.

Around 2 AM, I bring back my friend and his one night love affair to his parent's home (because he still lives with his parents). On the way to his house, I put my "Reckless" CD. And I selected "Summer of  '69", thus trying to unconsciously condition them for a very special night.

Nothing of that would have happened without these 6 balloons.

jeudi 15 février 2018

Ce que les meilleurs achètent

Hello everyone,

Here comes the time when you can find solace related to the mediocrity of some of your investments by taking a look at the investments picks of your heroes.

For instance, isn't it reassuring to find that Bruce Berkowitz is with you in Sears Holdings? Or to find that the magnificient Bill Ackman has put money in Nike in an attempt to put some pressure on the company to create more value for shareholders by reducing the work conditions of 8 years old indians employees?

So, let’s take a look at the most significant investments of our favorite guys over the last quarter. Take note that a significant investment for most of them may be unsignificant for Warren Buffett given the size of Berkshire Hathaway (a 0,5% position for BRK may be a 10% position for many others). So, even if Buffett put 300 million dollars on a specific stock, it's probably not enough to be considered here.

Warren Buffett:
Added 23% to his Apple position (now 14,6% of his fund)
Reduced by 94% his IBM position (now 0,16% of his fund. LOL)
OK, he bought for 357 000 000$ of TEVA stock, but it’s just 0,19% of Berkshire. I can’t write more about that. It’s not a “big conviction” investment.

Chuck Akre:
Nothing significant. Just very little transactions here and there (like adding 0,11% to his Markel stake)

Thomas Gayner (Markel):
He did nothing, just a 0,0000001% transaction with some obscure stock. 

Michael Larson:
I rarely mention this guy. But he's great. And he's very faithful to his stocks. One of the rare true investors (because he choses well, then sits on his ass)
Reduced by 7% his Berkshire position (now 48% of the fund)
Reduced by 14% his Microsoft position (now 16% of the fund)

Frank Rochon (Giverny):
Added 10% to his Carmax position (now 9,1% of the fund)
Reduced by 16% his LKQ position (now 5,1% of the fund)
Added 14% to his Alphabet position (GOOG now represents 4% of the fund + 0,84% for his GOOGL position)
Reduced by 24% his Disney position (now 3,9% of the fund)
Reduced by 37% his Wells Fargo position (now 2,8% of the fund)
Initiated a 2,6% position in Credit Acceptance Corp. Because of Sequoia Fund. Or more probably, because of me.
Reduced by 28% his position in M&T Bank (now 2,6% of the fund)
Initiated a 2,5% position in Edwards Lifesciences.

Daniel Loeb:
Reduced by 9,1% his position in Alibaba (now 7,7% of the fund)
Added 119% to his Alphabet position (now 5,4% of the fund)
Initiated a lot of new positions, most notably: Intercontinental exchange (2,9%), Netflix (2,9%), Lennar (2,5%), Aetna (2,5%).
Bill Ackman:
Added 67% to his position in Mondelez (now 17% of his fund)
Initiated a 6% position in Nike.

lundi 12 février 2018

Visa and Mastercard

If you’re a little attentive when you read this great blog, you’ll know that Chuck Akre has a lot of money invested in Mastercard and Visa.

These stocks are not that expensive (22-23 times forward earnings) given the fact that:

  1. It’s an incontestable duopoly and nobody can’t deny the fact that cash is used less and less every year;
  2. Mastercard has an incredible ROE (70) and Visa has a good ROE (24)
  3. Both stocks have a low debt (about 4-5 times earnings);
  4. Both stocks have enough cash to buy back stocks or buy another company;
  5. Both stocks actually buy back stocks in a consistent way;
  6. Except for a scandal or a hacking of personal datas, what could you worry about with these stocks?
The stock market is full of average businesses, full of debt, with average ROE, with not so much cash, and they're all selling for 20-25 times earnings. A name has an importance and Visa and Mastercard have established names everywhere across the globe. That name alone worths at least 10 times earnings, without any numbers analysis.

Every day of my life, I fucking hate myself for having sold my Mastercard shares in 2012 after reading some stupid post by some boring guys in saying that Mastercard was overvalued. 

Imagine: I’ve paid my 11 shares 326$ each on september 29th, 2011 and I sold them for 473$ each a year later, very proud of me. From september 29th, 2011 until today, the adjusted price of the stock (split adjusted) went from 30$ to 167$. 

Almost six times my money. That 3637 CAN$ would have turned to 20 245 US$ and let me remind you that, at the time, there was parity between CAN$ and US$. So, I would have made about 20% more . And today, I wouldn't be tempted to sell my shares even if I'd made 6 times my money.

It's the same period where I sold my Boyd Group shares for about 14-15$. Great times.

vendredi 9 février 2018

Invest now or later?

In that period of worrying we’re going through, what should we do as investors?

1. Buy everything we can;
2. Buy here and there, all along the year;
3. Doing nothing;
4. Sell some positions or lighten them in view of something worse;
5. Sell everything because everything's gonna be cheaper soon. 

You surely ask yourself these questions. 

This article says that people fully invested usually beat people who put their money on the market gradually. The logic behind that study is that we’re rewarded for the risk we take. And people entirely invested take more risks than those who keep money away from the market. 

I have a little difficulty to accept this truth. I believe that we should always have a little money left because when there’s a sudden drop in the market, it’s great to be able to take advantage of it instead of having to sell something to buy something else.

But, fuck, science says you shouldn’t do that. Who are you to argue with science? Science is why we’re here now. Without science, doctors wouldn’t exist. Just chamans. And chamans would treat cancer with herbs and some tribal dance instead of that great chemotherapy.

But we all believe in our own vision and logic. So we reject science. And we reject Chuck Akre. And we say to ourselves: “I can do better”.

And, in the end, you do nothing great, because you’re average people. The only way you can become great people is to copy great people and don’t tell it to anybody. So, the credit of greatness will be yours. And if somebody discovers the truth, you pay someone to kill them. That’s how every great person has done. They’re all murderers. 

mercredi 7 février 2018

Aggressive acquisitions

First of all, I've started a Facebook page about this blog. I don't know if I'll write on a regular basis, but anyway, here's the link:

Come and join me. We'll share our biggest secrets. 


I’ve recently read once again some parts of Bernard Mooney’s book: “Les démons de la bourse”. In that book, Mooney talks about the rational but also the psychological approach to investment.

There’s a part where he writes that we should worry if we’re shareholders of a company whose management pursue acquisitions too aggressively. That’s strange given the fact that Mooney writes positively about Valeant in the same book. Perhaps that Valeant wasn’t as aggressive at that time as it was in it’s last months of greatness. I’m giving you the benefit of the doubt, Mooney. Be grateful.

However, a darling stock of Mooney is Richelieu Hardware. And that stock is a good example of a controlled growth. That company lacks a little something for me, but not by much (there’s always something cheaper with more growth in the market). But it’s so well managed. That’s probably why you pay a premium for that stock. They carry no debt, they always have some cash left and the beta of the stock is very low, thus indicating that the performance of the stock has no relation to the market.

The EPS grew in a steady way all along the last 10 years. And management bought back stocks. The combined effect was very positive for shareholders. Ten years ago, you would have bought the stock for 7$. Today, you’d buy it for 30$. And you’ve never been worried about some patent expiracy over that period.

I now pay for tranquility of mind. Acquisitions in healthcare or companies that want to reinvent themselves by trying something else are not what I look for. Richelieu never went there. They stuck with what they always did. They didn’t try to compete Apple with a new Iphone or Procter and Gamble with new razors. Paying for performance AND tranquility of mind is very important.

You’ll know when you’re old the day that you’ll pay for tranquility of mind. If you invest that way at 25 years old, you must be a very boring person. I hope to never have to spend some time with you. 

dimanche 4 février 2018

Alphabet: Cash on hand

You probably know the method:

Deduce the cash held by a company of it's market value and then, see what the PE looks like.

A couple of years ago, the PE ratio of Apple was very low when you applied this method.

Now, let's take a look at Alphabet (Google).

The forward PE of Alphabet is 23.

The market cap of Alphabet is 775 billion dollars.

Long term debt: 4 billion dollars (virtually no debt given the size of the company).

Cash on hand: About 100 billion dollars.

100 billion divided by 775 billion equals 13%. So, if we substract all the cash, the PE of Alphabet should be about 13% lower.

Thus, the forward PE of Alphabet is about 20, which is not high at all for such a dominant business (increases in revenue of about 20-25% year over year). Actually, the market is more expensive than that. For instance, to give you an idea of what the market looks like, you could currently buy Procter and Gamble, a company that achieves almost no growth for about 19 times forward earnings.

OK, the ROE of Alphabet is not that high (about 14), but everything else is great with that stock. It's almost a monopoly in the western civilization.

Just take a look at that quote from Sequoia Fund investor's day (may 2011). There are some great stocks on the market, but I don't see many of them about which we could be so confident.

"What we found is that the days of someone coming up with a clever algorithm  and competing against Google in search are essentially over. A lot of people may not understand that when you search the Internet, first, you have to crawl the Intenet, download the Internet, and parse the Internet. That takes a tremendous amount of investment and infrastructure. Google owns more servers than anyone else. It owns a tremendouns amount of fiber optic cable. It places its computer servers next to very cheap energy. Google has its systems built literally next to hydroelectric dams.  So you're talking about a business with a tremendous amount of investment required."