dimanche 30 septembre 2018

Bed Bath and Beyond and the death of retail without any edge

The first time I entered a Bed Bath and Beyond shop was in 2012. It smelled good (something like soap) but there was nothing really special there. It was a kind of Walmart dedicated to home stuff (sheets, soap, beds), but the prices were higher than at Walmart. A kind of Sears, in other words.

But it was considered a great stock back then. I never bought a share, but I followed the company... 

On october 1st, 2013, a single share of Bed Bath and Beyond (BBBY) was selling for 77$.

Five years later, a single share is selling for 15$.

What happened? Up until 2013, things were going nicely for Bed Bath and Beyond. But, around 2014, growth started to slow down Then, there was stagnation. Then, there was negative growth. And that's the moment where investors chosed to leave the ship.

EPS tell everything:

2013: 4,56$
2014: 4,79$
2015: 5,07$
2016: 5,10$
2017: 4,58$
2018: 3,07$

As seen above, when things started to go wrong, they went wrong big time.

Some people may attribute the word "undervalued" to Bed Bath and Beyond because the PE is about 5. Personnaly, when a company has lost it's appeal, I don't use any word to describe it. I just look elsewhere.

dimanche 23 septembre 2018

How to make 20 000$ a year without any effort by the age of 36?

Here's a simple exercice that some people have already made, but I think that it would be very useful for many many many many people to think about it and manage their money in consequence.

Let's say you're 25 years old. Let's say you can save 10 000$ a year. It's ambitious, but many people could do it if they put a little effort in it. Let's say you have enough investment knowledges to manage your money in a way that you can get the performance of the market which is about 10% a year. Otherwise, just buy a fund that reproduces the performance of the market and you'll be OK. 

Here's what it would look like over time:

25 years old: 10 000$ (savings)
26 years old: 11 000$ (savings + performance) + 10 000$
27 years old: 24 200$ + 10 000$
28 years old: 37 620$ + 10 000$
29 years old: 52 382$ + 10 000$
30 years old: 68 620$ + 10 000$
31 years old: 86 482$ + 10 000$
32 years old: 106 130$ + 10 000$
33 years old: 127 743$ + 10 000$
34 years old: 151 518$ + 10 000$
35 years old: 177 670$ + 10 000$
36 years old: 206 436$

Here you are: 36 years old and you have a portfolio of 206 436$ after only 12 years of savings. And now, each year, your portfolio should grow by about 20 000$ without any effort.  In other words,  your income is now 20 000$ higher than all the people around you who didn't put any money on the stock market. If you continue like that just a few years, you'll get 30 000$ a year before you're 40.

Some people call it the power of compounding. I call it the power of discipline. In fact, it's a combination of both. Isn't it fabulous? Your income is now a kind of bonus because there's a mountain that keeps growing besides you without any effort.

Start early;
Keep your discipline;
If your portfolio goes down, continue to invest;
If your portfolio goes up, continue to invest;
Continue up to a point where you don't see the point of investing some of your income because it's too marginal versus the size of your portfolio. That's when you'll know that you are rich.  

jeudi 20 septembre 2018

Debt-free stocks

Debt is often necessary. But too much debt will sink you, like it will sink your favorite business. And if it doesn't sink it, it's at least gonna be a stress factor which you don't need. 

Because there's enough sources of stress in life, such as death that's slowly creeping towards us and that's gonna reach us sooner or later.

I already have problems to sleep without a significant stress in life (outside of life itself), I don't need some worrying shit about one of my stocks. I want to think about something else than my stocks when I sleep. I want to think about death or diseases that's gonna affect me or my family.

Free-debt stocks are often expensive. Again, there's a reason why a stock is expensive. It's either because the entire market is crazy about a stock, because the stock is very predictable, because it's full of money or because it has no debt (there may be a couple other reasons, but here's some of the most frequent).

A company without debt has a lot of flexibility. It can do whatever it wants with it's cash flow. It doesn't have to worry about a recession, a rise of interests, the possibility of an acquisition that would be impossible if the company carried too much debt. And on it goes.

So, here's a list of 12 of these debt-free or almost debt-free stocks (some have big debts in absolute numbers, but VS the market cap of the company or the cash they hold, it's unsignificant):

Richelieu Hardware (RCH.TO)
Enghouse Systems (ENGH.TO)
Ulta Beauty (ULTA)
Intuit (INTU)
Edwards Lifesciences (EW)
Five Below (FIVE)
Google/Alphabet/Whatever (GOOG)
Robert Half (RHI)
Simulation Plus (SLP)
Texas Roadhouse (TXRH)
Facebook (FB)
Ross Stores (ROST)

All great fucking stocks. So, debt free, such as low beta seems to be a criteria on which we could almost base our decisions without thinking about the rest. 

That's what we're all looking for ultimately: A one criteria-decision tool. We're all so fucking lazy.

lundi 17 septembre 2018

A safe way to invest in pot?

A few weeks ago, Robin Speziale got bullied on his facebook page for his investment in Canopy Growth (WEED.TO). If my love for Robin wouldn't have been unconditional, I'd probably have participated in this exercice.

Everybody with little investment knowledge knows that these weed stocks are valued like if they would be the next big thing after the Iphone and, more, be very very lucrative businesses.

Two things that pot isn't. 

At this moment, Canopy Growth has a market cap of 14,5B$, which is equivalent to the market cap of Carmax (14,1B$). The difference is that Carmax is an established business with great revenues and Canopy Growth is a new name that makes no profit. Or, on a canadian level, Canopy has almost the same market cap as Lassonde + Stella Jones + Metro. That's fucking crazy.

Even if everything that touches weed is crazy, there's probably a safe way to play marijuana. Well, nothing is never entirely safe, but there's a business that has invested a lot of money in WEED.TO but has great revenues even without weed.

The company is Constellation Brands (STN). They sell mostly beers and wines (Corona is one of their products).

These numbers show how great this company is:

Forward PE: 20
Current ROE: 26
Average ROE last 5 years: 25
Annual Sales growth last 5 years: 22%
Annual EPS growth last 5 years:  37%
EPS growth last year: 72%
Debt level: high
Stock performance last 5 years: 257%
Stock performance last 10 years: 896%

The only problem with this stock is the debt level. Everything else looks great. Because that company is not dependant on pot to make money. And people will always drink alcohol and even more in recession times.

Constellation Brands now owns 38% of Canopy Growth via these investments:

In august, 2018, they invested 5B$, buying shares for 48$
In october 2017, they invested 245M$, buying shares for 12,80$.
A share of WEED.TO is currently selling for about 63$.

The history of the stock market is full of companies trying to find growth in crazy ways. I'm not sure that Constellation Brands isn't on thin ice. But, at least, they're not dependant on pot to make money and they're gonna survive even if Canopy Growth goes bankrupt tomorrow.

So, it would be stupid to have a 10% position on that kind of stock, but 2-3% of a portfolio would be a funny ride besides your boring Berkshire Hathaway. 

mardi 11 septembre 2018

When a stock is "really expensive" VS just "expensive"

When a stock is selling at a PE ratio of 30, nobody can argue: it's expensive. 

When is it too expensive VS just... expensive?

Here's what I think:

There's 3 types of expensive stocks:

1- The stocks that haven't proved nothing yet but for which there's a lot of excitation. Most of these companies never made any profit, or a very small profit. There's no garantee that the stock will make money in the future. We're talking about marijuana stocks, some techno stocks (stuff like Snapchat and Twitter), anything with a crazy hype.

2- The pharma stocks. I really liked these stocks in the past. That was my favorite sector. Now, not so much. I've came to understand that everything is very unstable with these stocks. They're very sensible to politics, to some scandals (a drug sold for too much, an expired patent, a new promising patent finally going nowhere…). So, there's some speculation with these stocks. Some of these stocks may be selling for 30 times current earnings today but they may easily drop to 15 times earnings overnight because of some political announcments.

3- The traditional business in expansion. We're talking here about Buffalo Wild Wings, Texas Roadhouse, Five Below, Dollarama, Ulta Beauty, MTY Food Group, Carmax, and many others. That category of stock does something very simple: it replicates a model that works, over and over. If 100 stores produce 100 million dollars, we could predict that 200 stores would produce 200 million dollars. There's nothing else (almost) to consider. Usually, these stocks are always expensive but their PE ratio stays at a steady level. These expensive stocks are less expensive than the 2 precedent categories because they usually retain their value in the long run.

If I'd understood that 5 years ago, I'd be much richer now.

Better late than never. 

Now that I think about it, there's probably many other categories. Otherwise, where could I put Visa and Mastercard? 

But, anyway, the three categories above are frequently considered by investors.

samedi 8 septembre 2018

My idols

I really like crazy people. I like people who revolt against the system. I like Alex Delarge in Clockwork Orange. The guy is a real psychopath, but at least, he tries something different to do with his life.

And I've realized lately that almost all the bands I like have been taking drugs and acted crazy in a way or another, for a big part of their carreer.

The Beatles took loads of drugs. Syd Barrett, the first singer of Pink Floyd went crazy after taking too much LSD (he had some mental issues too, but LSD didn't help at all), The Cure took LSD and many other drugs, the guys in The Police took cocaine, and the list continues like that endlessly.

Let's talk about the Replacements, an obscure american band of the 80's. For me, they're a kind of hybrid between Nirvana and Bryan Adams (anger, but great melodies). These guys were always drunk and they took cocaine to stay awake longer to take more beer. They were nasty with everyone including their fans, journalists and music businessmen who could have made them way bigger. They had a huge potential but they shot themselves in the foot on more than one occasion. That's not brilliant, but that's fucking bold and they deserve at least a bit of fascination for that.

I suppose most investors worship Warren Buffett with his simple life and "dancing on his way to work" lifestyle. I don't. I find this boring. I'd rather play my guitar, scream on the microphone, smash my guitar at the end of the show and party like a real mofo. And do this night after night. That's a fucking statement. That's the biggest statement you can do. Perhaps it wears you out after a few years, but I'd like to try it for 2 or 3 years.

A psychiatrist would probably say that I'm not in peace with myself, seeking destruction and rebellion. It's perhaps true. But I've always been like that. And Steve Jobs has always been like that. And all the people I find interesting have been like that.

Nietzsche, Beethoven, they were all fucking crazy or weird or they stank or whatever. Napoleon was excited when his wife didn't wash for a few days. Man, that's fucking disgusting. But he almost invaded all Europe.

Normal people are the worst people to have around you.

Some people believe that life is made for creating things and be nice and kind. I believe it's also made to destroy things.

mardi 4 septembre 2018

Naspers (NPSNY)

If you're about my age, when you read "Naspers", you think "Napster".

You remember Napster? That great software you could use to download every song in the world in the beginning of this century? Oh my god, I've downloaded so much songs on the ultra fast Internet access of the University while I was supposed to listen to some teacher.

Well, Naspers is not that at all.

Naspers is a kind of south-african conglomerate which first caught my attention when Sequoia Fund started a position, a few months ago. I took a look at it and I wasn't that seduced at first sight.

They're in Internet medias, TV medias, Internet access, print medias and some other stuff. But, their most exceptional asset is a stake of about 150 billion dollars in Tencent, which is the China equivalent of Google/Facebook/Everything.

Having been in China recently, I can tell you that this country seems very self-centered (thanks to communism). So, I believe that chinese are conditioned to obey, respect and believe in what they're taught to obey, respect and believe. And Tencent is probably one of these things.

I'm not convinced that it's a trustable company because everything outside our great occidental civilization raises scepticism for me. You can never really trust accounting practices in our country, what could it be in Africa or in Asia?

But, today, after the big drop in Naspers, I was very tempted to start a small position in that stock. Why a big drop? Because of some late results but mostly (it seems), because of the big big drop of the Rand (which is the money used in South Africa). For instance, it looks like the rand has lost about 20% VS the canadian dollar over the last 6 months. That fucking country looks like it's going into a fucking abyss. 

But, anyway, what a growth! Most numbers look great.

Current ROE: 59
Average ROE last 5 years: 33
Annual EPS growth last 5 years: 71%
Annual sales growth last 5 years: 3% (???)

Given the estimates, it looks like the stock is selling for something like 15 times next year's earnings, which is crazy. So, it's a matter of trust.

What do you think about that stock? Let's create a negative or positive hype all together.