NVR inc.

Everybody remembers the great crisis of 2008-2009. We were on the verge of apocalypse back then and we thought that capitalist was coming to an end.

Probably that a lot of people still carry the post-traumatic syndrome of that period. So, they don't trust a lot of banks and they don't trust the construction sector.

So, I'm gonna write about a stock that combines these two evil topics: NVR inc.

What do they do at NVR? Homebuilding and mortgage banking.

Here's some numbers:

First of all, officers own about 10% of the shares, which is very interesting...

Current PE: 19
Forward PE: 12
Current ROE: 36
Average ROE last 5 years:24
Average annual EPS growth last 5 years: 35%
EPS growth last quarter: 60%
Beta: 0,6
Earnings predictability according to Value Line: 80%

Of course, the forward PE isn't low for no reason. I bet it's because of that trade war that Trump has started. The construction industry is dependent on many materials which are imported. So, I believe that's why the stock had a substantial drop lately.

Please note that it's one of the most expensive stock on the market. On july 30th, you'd have to pay about 2700 USD to own a single share. I'm repeating myself here: I like that. It keeps away rookies.

In my view, that stock deserves at least to be on a watch list because many things looks very interesting. Actually, everything is there, apart maybe the sector. But if you want a cloudless sky, you can buy something else at 30 times the earnings.

Valeant VS Facebook

The last results of Facebook were out yesterday and it was a catastrophe during the after-hours. Well, it's been a catastrophe today too. The stock went down more than 20% on good results but worrying guidance.

After many quarters with a growth of 30-40%, the company said that it expected growth to "drop to or by" a "high single digit" level. It's wasn't clear. Would the growth drop by about 10% (to about a 25-30% growth) or would it drop to only 10%? My first impression was that the growth would drop to only 10%. And I was horrified.

 What can you understand with such an announcement? One of their ways of making money (Cambridge Analytica) is now known to the world and they can't do it anymore. They're too exposed now and they have to take measures to reassure multiple governments and the population. So, they have to spend more money on security and make a cross on some ways of making money.

In a way, it looks like Valeant: the model seems broken. And things start to smell funny. Or stink. And Stephen Jarislowsky said something like: "When things looks bad, you better sell, even if you're gonna regret it later on".

However, the difference between Valeant and Facebook is huge on a financial level.

Valeant had a very heavy debt, and all the growth was dependent on acquisitions. Also, they made money by raising drastically drugs prices. Facebook has a very little debt compared to earnings, a lot of cash and a very good return on equity. But they make money by exploiting our personal informations, which isn't a surprise to anyone but it's nonetheless a very sensible topic.  A bit similar to raising drug prices because it's ethically questionable.

When you own shares and you see that the stock is down 20% on weak guidance, what do you do? You search the Internet, looking for some useful information. Then, you arrive on Seeking Alpha and you're submerged with all the shit you read. On a side, there's people saying that Facebook is over and it's the beginning of the end. On the other side, some people are writing "It's a screaming buy! I'm gonna buy like crazy as soon as the market opens!". Only emotions. Nothing else. We're not talking about a fucking hockey or football team here. We're talking about money. Please, leave your heart out of the equation. 

So, Seeking Alpha was not that helpful.

I had to make my own judgment... Actually, I still have to make it. 

I've read a lot of people saying that Facebook is still dominant, they still grow but they're more mature. It's right. But there's something wrong. A big drop in earnings indicates something which isn't usual. I don't think that things will look better for a while. But on a financial level, Facebook could find some prey, or buy back massive loads of their own stock. So, they have some options.

So, I have mixed views. But I tend more towards the negative than the positive. One thing looks sure to me: one year from now, things will be much better or much worse for Facebook. It won't be stagnant. 

My conglomerate

To be a not-boring (or interesting) person, you need balance.

You need to listen to nothing at all in the Grand Canyon but you also need to put some Def Leppard really loud in your car to impress people around. You need to fuck. You need to be fucked in the ass. You need to eat carrots, you need to take LSD and write songs. You need the yin you need the yang. 

But balance is also important for a portfolio.  

First of all, I really like to see my portfolio as a conglomerate. Like "one super stock", or my own Berkshire Hathaway.

I often try to raise some numbers as much as possible (ROE, predictability, EPS growth over the last 5 years… and while I don't put that much emphasis on it, I prefer to buy some stock at 100$/share than some stock at 8$/share) and reduce some numbers as much as possible (PE ratio and beta). It's a question of balance. If I own a high PE stock, it has to have at least a low beta and a high predictability. In other words, a stock has to bring something to the balance of my portfolio, otherwise, I don't buy it.

With that angle, we see things differently. We focus on 5 or 6 very important variables and, mostly, the balance between things. It's not perfect but way better than a reflex like: Oh my god, Shopify is down 20% today, I should buy it because everybody talks about it!

That delicate balance is now very important to me. Such as maximum/minimum percentage for stocks. For instance, I really like Enghouse Systems, but at about 30-35 times next year's earnings, I don't see how it could be more than a 3-4% position. And while Mohawk Industries is selling for a lower PE ratio than ever, I don't see it being more than a 4-5% position because of it's cyclical nature. And while I really love Constellation Software, I never let it go above a 7-8% stake of my global portfolio.

I'm not in love with any of my stocks (those who are should buy a dog: the only real love) but I really like how my portfolio is balanced. It's the fruit of many years of practice and it has all the characteristics I'm looking for. I invite you to do the same exercie as me and share the results in the comment section:

So, on the 25th of july 2018:

Average price of shares: 178$

Average ROE: 33

Average forward PE ratio: 19,5

Average Beta: 0,65

Average predictability of the portfolio (you need an access to Value Line for that one): 85%

Average EPS growth over the last 5 years: 35%

Average performance of my portfolio  since the beginning of the year: 9%

Performance of the TSX/S&P500 since the beginning of the year: 0%

If I'd saw a stock selling for 178$, that has a ROE of 33, a FWD PE of 19,5, a Beta of 0,65, a predictability of 85% and an EPS growth of 35% over the last 5 years, I'd surely buy it. If I wouldn't buy it, I'd make some adjustement to get some metrics with which I'm more comfortable.

Relative wealth (part 1)

Last thursday, I've reached the amount of money that I planned to have in my portfolio for my 40th birthday (about 10 months from now).

I realized that, now, a nice trip to another country represents about 1% of my portfolio. So, my savings have to be substantial to have an impact on my portfolio. 

If you read this and you're 20, 25 or 30 years old, stop everything you're doing and open an account to save and invest your money now. OK, the market is a bit expensive these days and we reach new heights every day. But today is time to develop the reflex to save and invest.

Mainly, for two reasons:

1- Invest money will make you wait for tomorrow. I've spend most of my life worrying about the future, hating the idea of getting old, disliking the way things turn with time. Money doesn't change the world we live in, but at least, we're excited about the next results of the businesses we own. And we come to believe that tomorrow, we're a little richer than today.

2- If tomorrow, you're a little richer than today, you can make some choices to make your life more exciting. For instance, in 2018, I have four trips done or planned. The first in Florida, the second in China, the third in Central America and the last in Europe. Before 2008, I had never left north america. Ten years later, I'll visit four countries and three continents over a 7 months period. OK, I own an old car, I don't spend my money on many things and my mortgage isn't that hard to pay. But I nonetheless can visit three fucking continents.

Reaching the point I've set for next year, I realized that, since february 2013 (5 years and a half), my portfolio has quadrupled.

OK, some mofo would tell that there has been a massive increase in the PE ratio of the market over this period. Right, but don't forget that I've also made some terrible mistakes and losses during that period (for instance, Valeant, or Bausch and Lomb if you believe that a change of name can turn shit into something else). I've lost almost TWO YEARS of performance because of Valeant and, to a lesser extent, Concordia. My mistakes hurted me more than the increase of PE ratio helped me.

So, start now and one day, you'll be able to go to Easter Island. That's seriously the place I was looking to go to this summer.

When you'll reach that point, you'll be able to fully concentrate on all the other worries of existence.

About MTY and Couche-Tard

 MTY Food Group and Alimentation Couche-Tard are two of my biggest and oldest holdings (if we exclude the fact that I've been in and out with MTY).

Their latest results were great. Their balance sheet has always been good or great. Their management has always been great. But they've had some slump periods. And in these periods, some people have lost faith. Because they expected a stock that would always go up, like a never-ending growing erection. I don't know for you, but, for me, the only "never-ending growing erection" stock that has worked is Constellation Software. So, that kind of stock is pretty rare and usually, they're a fucking scam (like Valeant).

And even if they surged these last days, I believe that they're still some of the best occasions on the market right now. You have everything you're looking for if you're an investor like me. So, even with their rise, they're a better buy than at least 80% of the market.

Some people fear that Couche-Tard will be hurt badly by electric cars or driveless cars. It's perhaps a threat, but a long time threat (and I've already written about that).

But, for MTY, I'm curious:
Are there any people coming here believing that MTY won't be at least twice as big as it is now in 5 years? I'm almost sure about that. And there is very little stocks about which I have such a strong feeling. So, please, in the comment sections, tell me your vision about the future of MTY.

Meeting in another country

I'm always looking for cheap flights all around the world.

I may very well get zero interest here, but I thought that some people who come here could get togheter (with me, of course) in a special place to drink beer, talk about investment and many other things such as eating local food like whales or dogs.

We could go 3-4 days in Alaska? There's some flights to Anchorage for about 500$. We could meet in Reykjavik (Iceland) for a few days in september? There's some flights for abour 300$ from Montreal. Or in San Jose (Costa Rica) for abour 400$?

Would you be interested? I'm talking here about something like 3-5 days in a foreign country with unknown guys (I doubt there would be girls but if so, ataboy), so there's some surprise there, but not a surprise like sleeping in the same bed than a guy you don't know (separate rooms). Please, leave a comment if your budget and your girlfriend/wife/boyfriend would allow you to do that.

It could be fun. 

Threats

There's always somebody to come up with two big threats that will turn the world upside down forever: 

1- The coming of a rise of interest rates;
2- The coming of self-driving car.


My answers:

1- The coming of a rise of interest rates will hurt every business, or almost... Because debt will be more expensive for everybody. If you've chosen a stock which is a leader or a strong business, your pick will do better than others. The earth continues to turn with a rise of interests, however, it turns a little slower.

2- These days, we talk much more about the economic war than about the coming of self-driving car. And I'm thinking about Couche-Tard right now. Because it's one of the stocks for which the fear of self-driving cars has some impact. And one of the few stocks for which I wouldn't care about an economic war.

Couche-Tard is exactly the kind of stock that shouldn't be hurt. Think about it: it's a convenience store. A store that's for people around or for some tourists passing by. The negative/very low beta of Couche-Tard says it all.

So, the economic war should hurt at least 95% of stocks out there before Couche-Tard.

And the self-driving car?

Well, the Investor's day transcript of Sequoia is finally out and here's what the specialist about Google had to say about it (because Google has been working for a long time on a self-driving car).

We have put a lot of thoughts into this because automated driving threatens some of the businesses we have invested in and that we thought, well, is it a 5 years or a 10 years threat? It is probably quite a bit longer than that before it actually threatens traditional businesses like auto parts or GEICO at Berkshire. You're looking at 2030, maybe 2040 before this is widespread...

These guys have been wrong in the past as we all know, but having exactly zero person around me having futuristic skills, I'd rely on this guy at Sequoia.

For the smartphones (from Blackberry to Iphone, for instance), the switch has been quick, but not that quick. I don't see why it should be faster with something bigger and more expensive than a phone.

Sequoia fund slide presentation

I don't know if I'm late, but today, I've realized that the 2018 investor's day slide presentation of Sequoia Fund was released.

Before, it was a PDF. I believe that the slide presentation is an upgrade because it's much more visual and it's straight to the point. Well, the PDF transcript was mostly questions from investors and the slide presentation is controled by what executives wanted to say. So, perhaps we'll see a transcript in the coming weeks.

But, anyway, here's my comments.

First, we can see that, for the last 2 years, the fund has achieved a performance similar to the S&P500. However, for the 5 first months of 2018, the fund had a performance about twice better than the market.

Then, we can see the fund's cash position over the last 3 years:
2016: 13,1%
2017: 8,6%
2018: 7,7%

A little later, the top 10 holdings by mid-may 2018 with holding period. Wow, that's cool.  They have been holding Berkshire for 29 years, TJX for 18 years and Mastercard for 12 years. 

Portfolio characteristics: We can see how many stocks they held in 2016, 2017 and 2018, the percentage of the biggest position, the percentage for the top 5 and the top 10 for these 3 years. Then, the percentage for Softwares and Internet stocks for the last 3 years. It went from 8,2% to 30,5% since 2016. What a radical change. That's where the growth is, it seems.

Then, the PE for Sequoia and the market. We can see that, for 2018 the fund is about 19% more expensive than the market and, for 2019, it's about 9% more expensive than the market. But the growth of sales for the fund is between 100 and 150% better than the market.

There's some other stuff too.

Each year, people wank over Berkshire's annual report. I don't get a boner for that. But I get it for Sequoia's fund. I even begin to believe that ,in a few years, I may forget the fact that they were dumbfuck enough to have 30% of the fund in Valeant. 

I don't know if people who come here are that excited about Sequoia's fund. Perhaps they say: "Here he goes again with these fuckers who almost did a hara-kiri with Valeant!".

The fact is that you're right in a way. Perhaps I shouldn't forgive them. I should put them on my black-list. And write about Jason Donville. The question remains: Who should I love and worship? Everybody has a skeleton in the cupboard.