2018: A recap

For 2018, the Penetrator portfolio achieved a performance of 4%. 

The S&P500/TSX achieved a performance of -12%.

The relative performance of the Penetrator portfolio has been about 16%. 

The year has been an active one. Out of 22 stocks held at the moment of this writing, only 10 were owned at the beginning of the year. But the biggest positions have been steady. 

I've probably beaten the index because my portfolio is well balanced (learning to pick great stocks is not that hard, but learning to balance a portfolio is a bit harder, in my opinion). And my portfolio has also a low beta, which is interesting at any given moment but even more in times like these. A low beta is great because you manage to face the wind with less worries than many investors.

Talking about the wind, I talked recently to my friend whom I initiated to the stock market about 2 years ago with stocks like Apple, Biogen and MTY. At the beginning he listened to me. But then, he started to listen more and more to some gamblers. And he put a lot of money in weed stocks. These stocks went up and up and my friend was very excited about his performance. I said to him many times that I wouldn't put money there if I was him, but as a casino player, he put more and more money. And he felt that making money was very easy. But he didn't understand why he made so much money. 

And then, a market crash happened and his portfolio lost something like 40% of it's value. 

He said recently to me that he was looking for the right moment to sell everything. But, everyday, the market went lower and lower. So, his waiting made him lost 5000$ more every day. And his father, who lost maybe 10 or 20% of his very recent portfolio managed by his son decided to sell everything because he didn't have the nerve to face the storm. 

Probably that most people coming here are not in that situation. They know what they own. They know the sectors which are bubbles. They know that storms come and go, such as bull markets. But when everything looks easy, many people jump on the train and, after achieving easily a performance of 20%, they feel invincible, they listen more and more to people talking about gold, silver, bitcoins, weed... and they gamble more and more. And they lose 40% of their portfolio while someone who knows what he does manages to achieve a performance of something between -10 and 10%. 

I feel a bit bad for my friend because I realize he's not a real investor. He's a gambler and as long as he won't be interested in what he owns instead of the performance he gets, he's doomed to repeat his mistakes, or just sell everything with a loss and look at another way of making money. That's perhaps the story of some of your friends too...

With my 4% performance, I'm not that satisfied, but I've beaten the market by a wide margin. So, how could I be disappointed? And more, I haven't lived a single traumatism in 2018. No lesson learned the hard way. Experience serves, at last. 

So, here's what it looks for the Penetrator Portfolio, at this end of 2018: 

Performance of the portfolio: 4%

Relative performance VS the market: 16%

Number of stocks held: 22

Average ROE: 42

Average forward PE ratio: 18,7

Average Beta: 0,7

Average growth estimated for next year: 14% 

Predictability of the portfolio: 85%

La petite histoire de Penetrator

It's 1995 or 1996. I'm about 16 years old. My sister works in a videoclub. 

On some quiet day, a friend and I go to visit her. I Don't know why but she takes us through the squeaky doors, (the porno section) (I just remember that my sister used to be fascinated by people renting porno movies because she often told me stories about some teacher or some bus driver renting porno on various occasions). 

Behind the doors, she shows me a VHS cassette which I'll never forget. 

Almost 25 years later, I still remember how I felt at the second she showed me the cover. I started to laugh and I still think it's probably the best cover in the entire history of cinema. 

I didn't do anything with that name then. But it stayed in my mind and reemerged later…

Later, around 2002, there was an online game on the Internet which I liked a lot. It was called "Lycos Fightclub" (it doesn't exist anymore). We had to chose a character and fight a friend who chosed another character. We had also to chose a victory call. My character was frequently called "Penetrator" and my victory call was: "You've been penetrated".

Then, nothing happened for the next 10 years. 

In 2012, I started a new blog and the first name that came to mind was "Penetrator".

I'm stuck with that name forever. Because, once you see the cover of the movie, you can't forget it.

That's the very deep story behind the name "Penetrator". 

20 great stocks for less than 20 times next year's earnings

It's christmas time and there's no need to be afraid. At christmas time, we let in light and banish shade. And this time, christmas time offers us a good boxing day before time.

I'm essentially writing this for the future. Because I find it very interesting to look at current valuations, given the crisis we're going through. Most growth stocks are almost a bargain while there's some stocks that were growth stocks less than a year ago and which are now value stocks (see Mohawk and Bank of the Ozarks).

It'll be fun to take a look at all these valuations in one year...

So, here's the forward PE of 20 stocks which are among the best stocks you can find in North America:

Bank ank of the Ozarks: 6 (price to book value: 75% which is incredibly low, but maybe there's some issues here)
Mohawk: 9 (Book Value = 110%, which is very low for that kind of stock)
Apple: 10
Carmax: 12
Alimentation Couche-Tard: 14
Lassonde: 14
Facebook: 15 (adjusted for cash in hand)
Canadien National: 15
Dollarama: 16
TJX: 16
Richelieu Hardware: 16
Booking Holdings: 16
Sherwin Williams: 17
MTY Food Group: 18
Ulta Beauty: 18
Berkshire Hathaway: 18 (price to book value: 120%, which is the point of buyback by Buffett)

Google: 19 (adjusted for cash in hand)

Microsoft: 19

Visa: 20 (just slightly less than 20, actually)
Constellation Software: 20 (just slightly less than 20, actually)

How things will turn?

There's always people trying to predict what's gonna happen in the market. I never believe anybody, because nobody is always 100% correct regarding the market. And the better you are, the less you try to predict what's gonna happen.

There's some people like Angelo Dallas (in the comment section) who seem to deeply believe that things will get worse and worse. I don't believe that. Well, in the short term, it could get worse, but I'm a big believer of historical datas and in the long run, things will get better. I don't look 6 months from now, I look 5-10 years from now. And during that 5-10 years time frame, things will probably tend to their historical mean.

If we take a look at the performance of the market VS Berkshire coming with Berkshire Hathaway annual reports, we can see the performance of the S&P500 with dividends from 1965 to 2017. That's more than 50 years. And the annual returns of the S&P500 with dividends has been 9,9% (let's round the number to 10%). I don't believe that things are different this time. Yes, there are tensions between China and USA and between Russia and USA and between some other countries. But, is it worse than the cold war? Is it worse than Vietnam War? Is it worse than the crash of 1987 or the crash of 2008-2009? No. And everytime, the market recovered. A lot of people lack perspective. As human beings, we are very-short sighted. We tend to believe that what we see and what we live at the moment have a lot of importance. There's people like Donald Trump saying the most stupid things on twitter like: "Climate warming? It's never been so cold over the last 10 years here in Washington!" (or something like that). Just like if what that mofo saw through his window could have more significance than what's happening everywhere around the world. When you judge a phenomenon by what's happening in your city or your country that represents at best 5 or 10% of the emerged lands on earth, we could say that you're a dumbfuck. And that dumbfuck leads the most important country in the world. Fuck, if he can rule the USA, I could rule the earth. I should be Emperor of the emerged lands.

So, if we return to the performance of the S&P500 over the last 53 years, we can see that a negative annual performance has happened 11 times (11 years). Which means one year out of five. So, 4 years out of 5, when you have money on the market, you achieve a positive performance. That number alone justifies to stay on the market forever.

Then, if we dig a little deeper, we can see that, over the same 53 years, the performance of the market has been negative two or three consecutive years on only 2 occasions (1973-1974 and 2000-2001-2002). The market has never been negative for more than three consecutive years. Given these numbers, there's less than 10% chances that the next year's gonna be a negative one on the market.

I know that Trump is crazy and stupid and there's probably never been such a stupid president like that over the last 53 years. But a president doesn't control the economy all by himself. And given the fact that Trump believes that his efficiency is related to the performance of the stock market, he's surely gonna do everything he can to do something positive for the market (like concluding a deal with China). Perhaps that 2019 is gonna be a hard year, but the probability of 2019 being a positive year is more than 90%. That's how I see things. And if it's not a positive year, 2020 will compensate, and probably 2021 and 2022.  And I should achieve at least a 10% annual performance, if I project myself in 2028.

So, you have 90% of chances to make money next year. You really want to stay sidelines?

Picks for 2019

Less than 2 weeks before 2019. It's time to think about where to put money. I've learned that chosing a very solid stock that's growing year after year and that had a great past is often the right place to look.

I still stay away from any scandal-related stock. I may put a little money in these stocks but they’ll never be a major stake. Like Facebook for instance. Perhaps that Facebook is undervalued at the moment. But the situation isn't clear and I believe it's a bad idea to capitalize too much on a stock related to some big concern. So, Facebook is not a conviction pick for me. And Dollarama neither. They're both great companies, but the momentum just isn't there and momentum is important. I’ve learned that a little late.

Here's my picks for the next year:

Alimentation Couche-Tard (ATD-B)
MTY Food Group (MTY)
Five Below (FIVE)
Alphabet/Google/Whatever (GOOG)
Visa (V)

I'm really excited about 2019. Perhaps it's gonna be hard for the first few months of the year, but I'm thinking about all possibilities for having more money to invest. That major drop of the market for no exceptional reason just gives me a big boner. I've busted my limits for some registered accounts and the market keeps going down but I don’t care. It might get 5-10% down from here and I wouldn't regret any investment made over the last month.

I need more money. A blowjob, anyone?

Quebec City: What the fuck?

Some crazy shit happened to my friend last weekend. While he was in a bar, he got beaten by some extreme-right mofo who asked him if he was "antifa" (anti-fascist) before punching him (and breaking his nose) then, finally, kicking his face.

It happened in 30 seconds. I wasn't there, but I'm sure my friend didn't provoke the guy. It's my friend with whom I crash random Christmas parties. The guy isn't aggressive at all. He can say a lot of crap, he can argue with people on Facebook, but he'll never get involved in a fight or some aggressive stuff.

For instance, while we were in a bar, just after crashing some boring christimas party, 2 weeks ago, a little cocky fucker pushed him for no reason and my friend didn't reply. I saw it and I said to the motherfucker: "Hey buddy, what's your problem? I'm a lawyer, and it could go wrong for you with what you just did".

Then, the guy just calmed down like a big pussy. He touched my arm several times, saying: "Hey! Sorry, I'm just here to have fun!" And I gave him my best murderer face which probably stressed him a little because he kept on touching my arm. .

But, anyway, my friend never said anything to provoke or to reply to this guy. It's me who got on the front line with the power of the uniform and some attitude. About 80% of the time, if you get the right costume and the right attitude, these stupid human beings will believe what you say. I can experiment it on every Christmas party.

Does it happen in Montréal, Toronto and Vancouver? I mean, everybody's crazy in these fucking gigapolis with all the smog and the diseases that everybody get from sleeping with whores. But in Québec City… What the fuck? I'm so mad at this little fucker. I hope he'll get fisted in jail.

Portfolio review (december 10th, 2018)

What a tough end of year. But what's beautiful in the investment world is that, when it's tough in the present, it's probably gonna be beautiful in the future. The problem is to determine if it's close or far future.

So, here's how it looks for my portfolio: 

Performance of the portfolio so far in 2018: 3%

Performance of the S&P/TSX so far in 2018: -10%

Relative performance of the portfolio: +13%

Top 5 positions:  MTY Food Group, Alimentation Couche-Tard, Constellation Software, Alphabet, Ross Stores

Numbers for my portfolio:

Average ROE: 42

Average Forward PE: 20

Average Beta: 0,7

Estimated EPS growth next year: 14%

Even if it's not a year to become millionaire, I'm satisfied with my performance. Actually, I think I'll always be happy when I'll manage to beat the market by more than 10%. 

To me, the current level of valuations is interesting. I don't see why the market couldn't offer us a performance of 10% for the coming years. OK, there's probably gonna be a third world war soon with all the crazy leaders that we have on earth. But, us canadians will survive. Because nobody thinks of bombing us. It would be like bombing Finland. Who the fuck thinks that bombing Finland would send a message? 

Anyway, you've probably seen charts about the stock market after the missiles crisis in the beginning of the 60's or the Vietnam War in the 70's or any other war or negative diplomatic event. The market always recovers. I don't think we're going through a worse crisis now than those from the 20th century.  

And after 10 years of investing, I've never been through such a market crash and wanting so badly to invest every penny I hold. Fuck all those bad analysts who say to hold cash right now. 

They're fucking late. 

A little value investing with Banque Laurentienne (LB.TO)

Value investing doesn't appeal to me. I despise most value investors because almost all of them have done pretty bad over the last years. Many of them invested in Sears Holdings, which was one of the worst moves one could do 5 years ago (and almost everybody knew it back then, but they invested in SHLD anyway). However, sometimes, a particular situation appears, and, with a value perspective, it looks interesting.

Banque Laurentienne is an interesting case to me.

It's another of these Quebec's stocks. However, this time, it's not one of the best canadian stocks. It's not one of the worst either, but it's probably a so-so stock. The stock is selling at 75% of Book Value, which is something we usually see only for stocks that go through a crisis that will probably lead them to bankrupcy. That was the case with AIG and Bank of America a few years ago, for instance. Both survived because they were "too big to fail" but the road since then has been hard and still is for AIG. I don't think that LB.TO is similar to these two. LB.TO faces some challenges, doesn't grow that much and has a lower ROE than most banks, but the situation looks better than many other stocks. 

So, for LB.TO, if you pay about 40$ for a share, you'll get a 6% dividend (the payout ratio is lower than 50% so the dividend appears to be safe), a share that should be at least 25% more expensive if it just respected it's book value and a sector that isn't at risk of a change of habits or a technological clash. I'm not sure that it's a good investment, because I respect what the market thinks about most stocks. In other words, the market is usually right for fixing prices. However, it's tempting to gamble a bit on that stock.

I don't do it, but I think it would be a good idea for most investors to gamble about 5% of their portfolios on stocks that don't follow your usual rules of investment but that appear interesting in a way or another (very expensive, unconventional, under book value…). 

It's all a question of balance. You don't have the same opinion of a portfolio with 5% on Weed Stocks than a portfolio with 25% on weed stocks.

Lowest point

We worry all the time about that question: « Is it a good price to pay? Is it the right time to buy this stock? ».

It’s impossible to get the answer. But when the TSX\S&P500 hits about it’s lowest point of the last two years, you know that an occasion is there. It may go lower, but over the last 750 days, the market has been this cheap only a few days.