vendredi 13 septembre 2019

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.

6 commentaires:

  1. Hyam Minsky once wrote that “investment is a process in time.’, so the trouble with picking stocks that you think will outperform in any individual year is that the timeframe involved is too short. The shorter the timeframe, the more randomness will affect the results…If an investor has an edge, it will show itself through the passage of time.

    Actually with the short-term emphasis that riddles the markets these days, an investor who can sit on his ass and wait for his investments to bare fruit has a huge edge on his competition. One guy on Market Call said that long term investing is over-rated…I almost fell out of my chair…long term investing to my way of thinking is under-rated, not over-rated, but that is the mindset of most investors these days.

  2. Congratulations Penetrator on wonderful perfomance and enviable long term track record!

    The house I rent a basement room in was burglarized this spring and so I lost my laptop with my spreadsheets from December. Nonetheless, these were my trades for 2019 (Jan to Apr; hoarding cash since spring):

    SELL EQB @ 66.85 = opportunity cost 49% = weighted loss 8% (generated 17% of my newly deployed capital)
    SELL EFN @ 7.14 = opportunity cost 50% = weighted loss 6% (generated 11% of my newly deployed capital)

    BUY EQB @ 66.83 = return +49% @ 29% of newly deployed capital (move from TFSA to non-reg; average down)
    BUY HCG @ 15.17 = return +64% @ 20% of newly deployed capital (average down)
    BUY ENGH @ 33.64 = return +17% @ 21% of newly deployed capital (new position)
    BUY NFI @ 32.70 = return -7% @ 9% of newly deployed capital (average down)
    BUY ECN @ 3.63 = return +24% @ 9% of newly deployed capital (average up)
    BUY LNR @ 43.32 = return -2% @ 8% of newly deployed capital (average down)
    BUY LAS.A @ 171.02 = return +3% @ 4% of newly deployed capital (average down)
    Weighted return on BUYs is 32% on 12-SEP-2019. Factoring the opportunity cost, the weighted return is only 18% due to the SELLs.

    I sold EQB to buy HCG in my TFSA which was an OK decision: 64% vs 49% return and still makes sense on price to book value at this point. I sold EFN to buy ECN in my non-registered account which was not a good decision: 24% vs 50% return, although I think ECN has a less risky business model (flow-through no recourse origination and loan administration with very little debt on the books) and better growth prospects in the long term even though not a dominant market position.

    Since the timing for the transactions was all over the place and I was using newly earned money for 72% of the purchases, I do not have a comparable index performance. I also did not run bank reconciliation to see how much excess earnings was allocated to cash reserve and what interest was earned on it to provide an accurate picture of my performance on new capital allocation.

    I have been holding the alt-a banks since before their collapse for several years and underperfomed all of that time. I was lucky this year and finally broke even on them (because of averaging down, even though HCG still trades at a fraction of my initial purchase price). Overall, I still have abysmal performance. July 2019 was the first month I broke even since June 2015 despite of putting new money in every year since then. As of end of August, I have a cumulative total investment return of only 7.68% and my RRSP is still 55% in the red. The TSX index total return was up 28.68% for the comparable time period. The inflation for the period was around 9% so I am still in the red overall although again I have contributed more money in the later years than the earlier years. This raises an interesting set of questions.

    How do you guys account for the new contributions when comparing yourself to an index? The index assumes you have been invested for the same amount for the whole time. Most people in accumulation stages, however, are recent-heavy in their capital allocation so using an unweighted index seems to not be accurate. Do you also factor in dividends and interest as part of the return or part of the input? When compiling your results do you use geometric mean or is some other technique more appropriate? Do you factor in inflation and future tax obligations in your calculations? Do you measure portfolio underlying cash flow or some other non price/NAV metric to evaluate yourself over time?

  3. There are also lot of other opportunity costs I did not mention or factor in. For e.g. I bought ENGH instead of CSU since I though it was cheaper and had more opportunity to grow due to 1/10 the market cap... but clearly this was not a good decision from stock market return perspective. I also bought more LNR instead of NFI since it appeared cheaper etc. even though it has been much more volatile this year. I also passed on ATD and many other better quality, high performance stocks since they ranked more expensive on my spreadsheets than the mediocre bottom of the barrel companies I seem to be irrationally attracted to.

    For future comparisons, I think we should primarily consider our overall portfolio and not just our top picks or most recent transactions. Most of my purchases were for rebalancing existing positions with only 1 actual new purchase and 1 exit for the past year. Although maybe some of you sell most of your holdings every year and only buy your highest conviction new year stocks and then your top picks make sense since they would be the majority of your portfolio...

  4. Alimentation Couche Tard ATD.b +22,5%
    Mastercard MA +46,5%
    Copart CPRT +71,2%
    Dollarama DOL +46,8%
    KraftHeinz KHC -32,0%
    Moy +31%...

  5. Any thoughts on the laggard in the group (MTY)?

    I don't follow this one closely and would appreciate insights.