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.

1 commentaire:

  1. Mining stock is a big no-no to many investors,
    Gold price is rising and major gold companies are currently traded at a very low price. Barrick is at a 2 years low and not so far from its bottom price of 2015. Osisko gold royalties is below 10$. The mining sector is on an up cycle now. It is late to invest in base metals company like teck, vale etc. But for gold, it may be a good opportunity to take advantage the cycle