Google's latest results

The problem with businesses is that they are living beings. They eventually die. Almost all of them.

So, even if some businesses are extremely solid at one time, they eventually grow old, get cancer and die. 

 

I mean, I really like some stocks, but most of them ride a wave. They benefit from a certain fad which will fade. 

Google is in another dimension to me. OK, Google probably won't last forever, but among all my portfolio, it's probably the stock for which survival won't be a issue for a long time.

When I read, a few years ago, that Google build their servers close to dams, I realized that it was one of the strongest barriers to entry. Who could, overnight, start a company that will have sufficient funds to reach that level?

Their last results were out yesterday. What about a 20% growth for a 870 billion dollars company? Isn't it incredible? And don't forget that Google is the center of our world when it comes to Internet. It's a reflex. It's a no-brainer. You go on the Internet? You use Google. 

These results would be very good for a small cap. How could we qualify them for a giga cap? 

"Excellent" would be the weakest word we could think of.

The fucking greatest name of a CEO

Do you know about Ameritrade Holdings (AMTD)? No?

Why? I wrote something about that stock a few months ago, saying it was a good company, if not great. How come do you come here if you don't remember what I write? Are you just looking for some random nasty words? You don't like my boring but great companies suggestions?

FUCK YOU.

Anyway, today, I read that the name of AMTD CEO is:

TIM HOCKEY

Yes. Like Tim Horton, but with Hockey instead of Horton.

THAT'S SO FUCKING HILARIOUS.

Please share below the name of a CEO which is funnier than that one.

Boring is beautiful

About one year ago, on july 30th, 2018, I wrote a masterpiece about NVR, the homebuilding and mortgage company.

At the time, the stock was selling for about 2700 USD a share. A few months later, the stock went as low as 2040$ (in october 2018) for no other reason than an unjustified panic. The stock went back with a lot of vigor and is now at 3525$. 

If you had bought the stock after my writing, you would have got a very interesting 31% return. And if you had bought at the bottom, you would have got a 73% return.

I look like a fucking genius, but I've only been a shareholder for a few months in 2018. I sold my shares, thinking I had found something which looked better but that wasn't better. I made a very slight profit with that short adventure. 

The problem with that stock, even if the Beta coefficient is low, is that it's linked to interest rates and to the general state of economy. The relation is way less important than banking or car companies, but it's related to it anyway. That's something I try to avoid. But it's nevertheless a great company.

Once again, you don't have to look at high-tech stocks or IPO, or the brand new trend. Actually, you better look at that kind of stocks that made profit last year and that will again make profit this year. 

And, once again, the so-called investors who take a look at the price of the shares won't invest there because they'll be afraid of a single share at about 3500$. That's something that should appeal to you.

When the perfect stock is expensive

Usually, great stocks can only be bought at a high price like 20 or 25 times current earnings. But when they reach another level, such as 30 times forward earnings, an investor should ask himself some questions, even if everything looks great with the stock.

For instance, I own two small positions in Visa and Mastercard. Both are perhaps the best companies in the world. You may disagree with that affirmation, but you can't disagree that both are incredible businesses and their decline looks far away.

However, both are currently priced at about 30 times next year's earnings. It's a lot, even for two companies that make a lot of money and that are very well managed. But should I sell them to buy a cheaper company not as great as them?

Maybe. Sadly I'll only know the answer to that question in a few years.

But here's a short analysis with which I'll decide to sell or keep them. Please, note that I know that both companies have incredible margins, good ROE (Visa) and unbelievable ROE (Mastercard). Both are growing a lot every year and that trend shouldn't stop. And both have a name that everybody knows. So, that approach wouldn't be valid for every stock. Actually, that approach is only valid for very special stocks (5% of stocks).
 
Mastercard
Current PE ratio: 47
Forward PE ratio: 31
Average PE last 5 years (2014-2018): 32

Visa
Current PE ratio: 37
Forward PE ratio: 29
Average PE last 5 years (2014-2018): 32

These are stocks that you can only hope to buy at around 25 times current earnings in a panic. Or at 20 times current earnings in a big crisis like 2008-2009. Otherwise, they'll be sold for 30 times current earnings or more.

If we look at the numbers above, both stocks are currently selling at a forward price that's a little smaller that their average PE for the last 5 years. It's still expensive, but on an historical perspective, with future potential similar to past performance, it looks like the price to pay.

Of course, if I would have a 10% position in both stocks, my reaction would be different. But with a small position, you can be more tolerant towards a high price. That's your job to mitigate that "risk" with some cheaper stocks in your portfolio.

That's where the real game is.

Penetrator feels too rich

My portfolio is way ahead of where it should be now. During the last days, it reached a level that I thought it would probably reach in one year or maybe two (without a crisis or a recession).

It makes me think a lot:

1- I could almost stop working now. Not entirely, but I could reduce speed a lot. Get a small job at Costco, work 20 hours a week and let my portfolio work for me. I'm not unhappy enough with my condition to try this, but it could be an option, sooner or later. That's what I've worked for, over the last 11 years, with a lot of discipline. It came sooner than I thought. Maybe some gigantic shit will happen before the end of summer and what I've written here won't be valid anymore. But anyway, I feel that I am a little too young to have the "money" part of my brain so little worried;
2- I never had money problems of my whole life, even if I don't come from a rich family. It looks like it won't happen for the rest of my life;
3- How do I deserve to be so lucky? Karma will get me another way. Will some of the guys I've fired will put a bullet in my head one fine day?
4- How come are we getting more and more alone as years go by? Are money and comfort some consolations?
5- What will I do with all my money? Let it grow, like a fucking blob which gets bigger and bigger?
6- Will I be generous with everybody, even people that I don't know?
7- I live so fucking under my needs, it's crazy. But I can't change that. I don't really care to earn a lot of money but I care a lot about not spending too much. Is that a control issue?
8- What comes with a relative wealth? Trust in yourself? Freedom? Chosing the full big mac meal when you go to McDonald's? Perhaps. But you're not wiser or kinder or more intelligent. You only have the possibility to be fully the kind of person that you are. As bad or great as you are.
9-  I haven't made any major investment mistake for some time now.
10- What's next? Should I try LSD? Do I need a vision of some kind to see something?

Chosing between the two typical investor types (A-Boring wanker who watches pedophelia on the dark web and B- Coke-head guy who has a lot of accounts on Ashley Madison), I'd chose the third-one which was not mentioned: C- The guy who takes LSD and go to the Himalaya.

Has anybody ever tried LSD and did it change something?

A review of pharma/healthcare

A few years ago, I was very fond of the pharma industry. I thought it was the best sector in which an investor could put money. I was sure about that because health was to me the only sector which couldn't be affected by new technologies and Amazon, and all that revolution that's happening.

Time has passed, and once again, my opinion has changed. Even if they're much easier to analyze than bank stocks, I now believe that pharmas are on the same level than banks: unpredictable. There are some exceptions, but, most of them could hit an Iceberg tomorrow because of regulation, patent expiration, failure of some new drug, etc.

It's not like Dollarama, for instance. If Dollarama or TJX builds one more shop, they'll sell more stuff. But if Merck builds one more factory, people won't go there to buy more drugs. That's as simple as that.

Let's take a look at the market performance of 12 of the biggest pharmas/healthcare stocks over the last 5 years:

Johnson and Johnson: 33%
Roche: -7%
Pfizer: 46%
Novartis: 15%
Merck: 47%
GlaxoSmithKline: -23%
Sanofi: -16%
AbbVie: 31%
Bayer: -51%
Eli Lilly: 81%
Amgen: 55%
Bristol-Myers-Squibb: -4%

Average return for the 12 biggest pharma companies: 17,25% over the last 5 years
TSX/S&P500 return: 9,3% over the last 5 years


Even if they've beaten the market as a group, these 12 stocks only achieved a 17,25% performance over 5 years. That's less than 3% per year. Would you really be happy with such a performance?

If we take a look at some of other pharmas which are smaller, but big nonetheless, the results are much less interesting. I won't even talk about Valeant (-75%) and Concordia (-99%):

Celgene: 9%
Jazz Pharma: -9%
United Therapeutics: -14%
Biogen: -20%
Perrigo: -66%
Teva: -82%
Mallinkrodt: -89%

My opinion was negative. These numbers confirm my opinion.

Visiting O’Reilly

Being an O’Reilly (ORLY) shareholder for a few years, I never entered a shop before. So, while I was on my way back from a Taco Bell in Alaska (I’m a fine fourchette), I stopped at an O’Reilly and decided to enter.

First thing to say, I’m not a car guy at all. I have almost no interest in the subject and I’ve never made  any manipulation on a car except for checking oil level and using traction aids. So, I don’t have the right profile to be excited by that kind of place.

And it happened exactly like it should: I wasn’t excited about that american equivalent to a Canadian Tire. It smelled car stuff, it was full of parts and furniture for the car. The prices didn’t look like a bargain. But, again, I’m not the right guy to judge about that kind of place.

It’s a bit like Ulta Beauty. Both are great businesses/stocks (high ROE, very high predictability, good growth) but both are aimed at a specific target (girls and alpha males) and are not that cheap.

However, both offer almost all you need in a single place (stuff and service) and have a wide network. So, you don’t go there to save money. You go there because you’ll find what you need and you’ll get help if you need it. 

But, boring visit if you ask me. Five minutes in a Ulta Beauty and an O’Reilly were enough for the rest of my life.

Happy 4th of July by the way, you, fat-eating Americans.