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. 

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