Viemed (VMD or VMD.TO)

Jason Del Vicario recently went to BNN and talked about Viemed, a company from Louisiana that provides equipment for patients with pulmonary diseases.

Here's a few numbers:

Performance since the beginning of 2019: 84%

Performance since december 2017: 290%

ROE: 27

EPS: from 3 cents (2016) to 26 cents (2019) per share

Debt level: almost no debt

Current PE: 39

Forward PE: 21

Free cash flow growth: Steady growth over the last 2 years

These number are great. There are however 3 caveat: 

1- It's a small cap (280 million USD). I don't really like small cap nor shall you;

2- They missed the estimates over the last 2 quarters;

3- It's on the stock market only since december 2017 (very short track record).

If you can read behind lines, you'll understand that it may be a buy, but a small buy. A long track record is very important in my opinion, which isn't the case here. But, still, on paper, that company has a lot of things I'm looking for. 

 

A very rare case of an interesting small cap. 

A meeting with Jason Del Vicario

Last july, I'm walking across the Vancouver Bridge with some members of my family to visit the town (don't know the name of the bridge, but it's the main one). Just as the bridge is over, we cross a guy who's injecting himself something, probably heroin. It's about 7 PM. There's still sunlight. There's also a lot of trafic all around.

What the fuck am I seeing at a few meters from me, with my 9 years old son?

The last and only other time I saw someone using heroin on the streets was in january 1997, still in Vancouver.

When I saw that guy, in july 2019, I immediately thought about Jason Del Vicario, who represents Vancouver in my mind. I was going to write on this blog that he was responsible for what happens in his city, because he's the face of the town for me and many other investors from all across Canada. After all, which other celebrity is from Vancouver? Bryan Adams? Yes. But he's an has-been. Vicario is in his prime.

But I didn't write that. And I didn't even tell him that story yesterday while he and I sat together for a few hours at le Sacrilège in Quebec City (my favorite bar). Oh yes, ladies and gentleman, two of your favorite characters sat together in normal chairs, among normal people, taking normal beers, taking normal piss.

Here's 10 random facts about Vicario:

1- He talks a lot. My estimate is that he talked 80% of the time;
2- He's a nice guy;
3- His culture is wide. He has visited many countries. He went to Russia, Mongolia, China, Poland (Auschwitz);
4- He knows a lot of stuff about World War II and concentration camps;
5- He fishes salmon and smokes it by himself;
6- When he was younger, he played violin and piano;
7- He speaks a pretty good french for a guy who's from Vancouver;
8- He crossed the way of several heroin addicts in Vancouver and has his own theory about how to fix it;
9- He likes poutine;
10- He doesn't receive any money when he shows up on BNN.

I haven't met millions of investors but my opinion hasn't changed a lot over the last years. I still think that they're either very boring people (most of them) either degenerate people (a smaller percentage).

I don't know Vicario that much but he probably doesn't fit in any of these categories. He's an interesting guy and seems honest.

I now form a magical alliance with him in Vancouver and Be Smart Rich in Toronto.

How to get richer (you and your family)

1- Spending habits: Don't spend your money on expensive stuff that lose their value over time. It's the most important rule to follow, in my opinion. 

2- Stock market: if you're not an entrepreneur, it's the only place where your savings can double, triple, and so on. You should put the emphasis there. 

4- TFSA: Don't pay any taxable capital gains on your investments with that great invention. Invest on the stock market there.

3- RRSP: Prepare your retirement and get some tax exonerations from the government. It's a double good effect. You can get a bigger tax return and put that money on your next RRSP contribution. Don't pay any taxable capital gains there either. Invest on the stock market there.

4- RESP: The canadian government will add 20% of what you add in the account and the Quebec government (if you're a quebecois) will add 10%. You'll get 30% of your investment for free. The stock market can't beat that. Help your children and benefit from that generous governmental contribution. 

5- Credit Cards: I'm a little bit crazy about all these credit cards promotions. You won't get rich with these, but you'll get some interesting returns (some credits cards give a cash back of 4 or 5% on everything you purchase and some have even a better return for a few months). Some other will help you to travel for much less. I personnaly use many credit cards for that reason. For instance, in Alaska, almost all my hotel rooms were free because of points earned with credit cards. Also, the plane for 4 people was at the price of only one person. It's a great place to look for some interesting benefits when you're responsible and pay all your bills. 

6- Real estate investments: Not my cup of tea, because you need to put a lot of time, efforts and money there (after the initial investment, you still have to put money to pay taxes, services, janitors and so on). However, I know a few people who are really fond on that kind of investment. Personnaly, I only own my house and a forest land. I have no intention to invest more money in some land or buildings but it may be a good investment for someone with the right profile. 

That's what's easily accessible for you if you want to get richer. Try that now.  But first, save your money.

A return on 2019 picks

At the end of 2018, I picked 5 stocks that should do well in 2019, in my opinion. Here's my picks:

Alimentation Couche-Tard:  Up 29%

MTY: Up 4%

Five Below: Up 27%

Alphabet: Up 17%

Visa: Up 32%

Average performance: 22%

S&P500/TSX Performance: 16%

S&P500 performance: 20%

What strikes me the most is that, while I've beaten both the S&P500/TSX and S&P500 indexes, I realize how hard it is to beat them both. Just take a look at the 5 stocks I've picked. They're all great businesses, among the 5% of best businesses on the stock market in my opinion. 

I've only beaten the S&P500 by 2%.

These are not momentum stocks. These are buy and hold stocks. And while that expression looks honorable (like eternal love and eternal faith), very few people apply it. It's buy and hold as long as they keep growing at an interesting rate and as long as they don't do something stupid, like buying another company that doesn’t grow that much for 25 times earnings.

Really, most people should buy an index fund. That's a lot of work and reading to be able to beat the market by a slight margin without taking too much risks.

Is it OK to gamble a bit with your portfolio?

Is it OK to gamble a bit with your portfolio?

Well, some people gamble ALL THE TIME with their portfolio. So, if you search just a bit, you'll surely find people who see the stock market as a casino. You're probably wiser than these people because you wouldn't read my blog if you were interested in diamond mines.

In my opinion, everything is a question of proportions. For instance, if you have a portfolio of 5000, 10 000 or 20 000$, you shouldn't gamble at all with it.

If you have a bigger portfolio, let's say 100 000$, you may gamble a bit. Like 5000$ for instance (5% of your portfolio).

But what is gambling? I don't know the exact definition. Because, in a way, investing is always a bit of gambling. But reasonable gambling is what we usually call "investing".

I'd say that buying stocks of a company that doesn't make money is not gambling, it's worse.

Gambling, to me, is the acceptable limit of investing: it's buying very expensive stocks that grow a lot and are making tons of money. You have many examples out there: Shopify, Amazon, The Trade Desk, Adobe, etc. These are all great companies, but very expensive companies.

Today, I bought some TTD shares for a very slight proportion of my portfolio.

I'm not saying I'm right. But I control the risk. That's the point of that post.

I don't see at all that stock as going to zero, but even if it would happen, I would just lose 1% of my portfolio.

Like many other things, it's only a question of balance. I'd never buy loads of shares of that stock given it's current price. And that kind of buy is something I wouldn't recommend at all for any new investor.

Instead, I would recommend to play safe, build something bigger, then take some very small risks, once in a while.

The little story of a tragic investment

In 2013, I was a shareholder of Questcor Pharma, a controversial company selling Acthar Gel, a drug that was very expensive, but very profitable for the company. 

But even if Questcor was aimed by Citron Research, the stock did mostly well and I managed to about double my money with it. Then, in 2014, Questcor was bought by Mallinkrodt. 

I kept my shares for a few months after the sale, but, soon, things looked not so good anymore, so I decided to sell all my shares, with an interesting profit. 

Things looked so-so for the last few years, but in 2019, things got awful. There's a big scandal now around several pharma companies which are blamed for their marketing practices which downplayed the risk of addiction from opioid-based drugs. Theses companies boosted the use of their drugs even if they knew that there was risks. And Mallinkrodt is one of them.

The scandal and the financial impact on Mallinkrodt are so important that the price of the stock decreased like crazy this year. For instance, on march 1st, 2015, a share of Mallinkrodt was sold for 126$.

These days, you can buy a single share of MNK for about 1,90$. 

A drop of more than 99% over the last 4 years and a half. Is that a good example of value destruction? Very few people could have done worse than that.
 

Some time ago, while the stock was much more expensive, Citron Research wrote that Mallinckrodt was heading to zero. It looks like they were right. 

The pharma sector looks like a sick and immoral place to invest money.  A lot of stocks have collapsed over the last 5 years, some from bad management, some from immoral decisions, some from bad conjecture and some from a mix of all that : Valeant, Concordia, Mallinkrodt, Allergan, Lannett, Teva…  Just take a look at a chart to see how bad it's been for all of them. 

I retain two lessons : 1- Avoid this industry (said that before, but I maintain my opinion) and at least, listen to Citron Research. Sometimes, they’re wrong, but, they are right slightly more often. 

I think I will build a hall of shame for all the greatest value destructors of the last 10 years. Please submit names. It would be a service to society to let that list be visible on my website.

On that list, there surely would be Mike Pearson (Valeant) and Mark Thompson (Concordia). Feel free to suggest some names.