8,5% VS 11,8%

8,5% VS 11,8% is the difference between the annual return of an investment on the TSX\S&P500 composite and the same investment on the S&P500 on a 39 years period (1979-2018).

Click on this link to see the reference: https://www.taxtips.ca/stocksandbonds/investmentreturns.htm

I don’t understand why some people don’t buy american stocks.

The best stocks are there and the exchange rate has almost an unsignificant impact on the long term. So why not putting all the chances on your side and hunt on the American market?

Of course there’s a few exceptional Canadian stocks, but apart these 8-10 great stocks, in my opinion, you should look south of the border. Try it, it won’t harm you. You’ll feel a little weird at first but you’ll get used to it.

And these supplimentary 3,3% will make an important difference on the long term. A much bigger difference than the exchange rate.

Portfolio review (october 27th 2019)

It's been about 3 months since my last portfolio review. 

It's time for the quarterly report.

Number of stocks held: 22

Average forward PE: 20

Average ROE: 48

Average Beta: 0,7

Cash held: 7,3% of the portfolio

Performance of the portfolio YTD: 22%

Performance of the TSX/S&P500 YTD: 13%

Performance of the S&P500 YTD: 19%

I have to admit that I'm pretty proud of the performance of my portfolio. There's probably a shitload of people beating my performance once again, but I still beat the canadian/american market by 9% and the american market by 3%. For my size of portfolio, I think it's a very good performance. And I have to tell that my biggest position is MTY which is going not that good these days (-15% YTD). And all of my stocks are large caps (more than 1B$ market cap). 

Whatever the stocks I own, it's been a pretty steady couple of investing years for me. I feel like I have found the stocks that correspond me the best, and more, the balance between all of them. The balance between risk and a predictable performance. I may be redundant here, but I now believe that finding the right balance is the most important thing to achieve. It takes years. And sometimes, you never achieve it, because you just don't really know that you do and you just look for posts like where somebody recommends you a stock or another.

I may sound a bit cocky with that post. But it's not the case. The next recession will hit me like it will hit everybody. But I'm pretty sure it will hit me less than most investors. 

Here's my top 5 positions: MTY, Constellation Software, Couche-Tard, Google, Carmax.

Get your thrill

Like every investor, I've never been inclined towards weed stocks. Whatever the weed stocks did on the market, I never thought it was a good investment, mostly on a valuation basis.

I wasn't that smart. Anybody could see that, with a valuation of 25 billion dollars and no profits, Canopy growth was a strange investment. Even if the stock dropped a lot over the last year, it's still vastly overvalued in my opinion.

Recently, I went to a poker game hosted by my famous anonymous friend whom I initiated to stock markets.

He told me that he sold (with a loss) all his weed stocks for which he was so excited last year..

He also told me that he sold his MTY shares some time ago. Such as his Biogen shares (that went up something like 20% yesterday). Such as almost every good company I told him to invest in, instead of weed stocks.

But he didn't listen to me. He tried to speculate everywhere. And he seems to have sold almost all his positions with a loss. But he continues to be on the market.

Frankly, I don't understand how he sees investment. Well, actually, I know. He sees the market as a big casino and he gets his thrill from ups and downs. That's what he's looking for.

It doesn't hurt anybody expect his finances. If that keeps him out of heroin, rape and rampage, it's not a bad thing, after all.

It may be a good thing for you too, investors who'd like to rape kids. Please, continue to invest in weed stocks and bitcoin if it's sufficient to get your thrill. It's better for everybody that way.

MTY Food: One of the best at a bargain price

Here we go again: MTY is at it's lowest price over the last 52 weeks.

Why? Because even if sales grew a lot in the last quarter, income didn't grow that much. Rising costs don't appeal to investors. But, after a 250 million dollars acquisition (Papa Murphy's in april), I don't think any rational person would have thought that everything would be wonderful after 6 months.

To tell the truth, I don't have a clue if that acquisiton was a good one. We never really know how things will turn in the short term. The growth of Papa Murphy's wasn't spectacular. Actually, if I remember well, it what a negative growth. MTY seems to be aiming at some kind of rationalization there.

MTY achievemenents is pretty good: EPS have doubled between 2014 and 2018. However, we never know if the trend will continue forever. But, that's the same for every company out there. Anyway, you better bet on companies that achieved something great than speculate on a company that never did anything good.

Everybody is praising MTY managerial practices. For instance, low compensation for managers and humble headquarters.Will Eric Lefebvre (the new CEO) will be as frugal as Stanley Ma? I can't be sure. But, at least, he's been in the company over the last 10 years, so he probably agrees with the culture. So, I give him the benefit of the doubt, even if I don't believe in him like I believe in God.

Actually, I don't believe in god.

Whatever the situation looks like, we should never own a position equivalent to 10% or more of a portfolio. But, to me, MTY is a rare case where a position could reach the maximum level. It was a great company 8-10 years ago and still is, in my opinion.

Well, my experience with Dollar Tree tells me that a permanent stock can become an indesirable stock overnight. But, worst case scenario for me is that MTY could stall for many quarters. I don't see it going much lower than it's current level though. At 15 times next year's earnings, it's a pretty good price for such a high grower. Many stocks with very low growth rates are selling for more than that.

There's not that much occasions out there with great companies. For me, two current occasions are Ulta Beauty and MTY Food Group. 

Respect the market

In the beginning, I thought that it was easy to find great stocks: just find something with a good ROE and a low PE and bingo, you're a great investor.  

But that's not how it works. A stock with a low PE is usually (90% of the time) cheap for some good reason. It may not be obvious at first sight and you may be tempted to buy the stock, but you should be careful. Take some time to think about it before buying it. I think that I'm giving a good advice here.

Lately, I've realized that I now respect the market a lot. The valuation given to stocks is usually correct, if we exclude the hype stocks like Shopify and Canopy Growth or some really depressed stocks that had some bad quarters in a row.

Let's take a look at two examples that explain, in my opinion, why we should most of the time respect the valuation of the market. Obviously, there's a bias there, because these are two stocks I know. But fuck, I'm doing what I can.

First example: Linamar (a cheap stock)

Share price october 2013: 34,50$

EPS 2013: 3,52$

PE 2013: 15

ROE 2013: 19

Net profit margin 2013: 9%

Share price october 2018: 61$ (currently 38$)

EPS 2018: 8,94$

PE 2018: 5

ROE 2018: 17

Net profit margin 2018: 10%

Second example: Intuit (an expensive stock)

Share price october 2013: 67$

EPS 2013: 2,83$

PE 2013: 28

ROE 2013: 27

Net profit margin 2013: 23%

Share price october 2018: 211$ (currently 263$)

EPS 2018: 4,64$

PE 2018: 41

ROE 2018: 65

Net profit margin 2018: 25%

Observations:

Both are good businesses in my opinion. We can't say that Linamar (auto components) is a bad stock. It's well managed, growth has been very good so far. But it's cyclical and related to the state of the economy. However, the current PE (5) is very low and I'd be tempted, even if I respect the valuation of the market, to say that it's undervalued right now. 

Intuit (tax softwares) is a great company. But I'd say that it's overvalued right now. There was a massive expansion of the PE over the last 5 years (50% higher).

 

However, there was a massive compression of Linamar's PE (66% drop) over the same period.

It's very strange to see that Linamar's PE has compressed that much with such EPS growth while the PE of Intuit increased a lot with a good growth, but not as spectacular as Linamar.

I don't really understand what has happened here with both stocks. But the market told us to be careful with Linamar 5 years ago and told us we could expect something good from Intuit 5 years ago (on a PE basis). That's exactly what happened.

That's sorcellery.

It's happening again

Are you like me? Every 4-5 years, I go through a cycle at work where I say to myself that some things are too crazy for me. I can't take it anymore. I need to retire. I need to stay at home and practice some hobbies, some sports and travel the world. I need to be an inactive citizen with active hobbies.

I'm currently right in the middle of one of these cycles. I won't tell why, because it's always a bad idea to reveal details on the web. These details would be shocking and funny at once, but I keep them for later.

Anyway, my feeling now is that I really need to own one million dollars as soon as possible.