Crazy fucking 2020

We lost Neil Peart, probably the greatest drummer ever, at the beginning of 2020. Later, in october, we lost Edward Van Halen, one of the best guitarists ever.

In between, we got COVID all around the world, another plague coming from China, just like all the stuff on the shelves of Dollarama. Probably that everybody who reads this blog has lived the crazy month of march as an investor. Depending on how much money you had on hand, you lived that crisis with joy, anger, fear or indifference (although I'd be surprise to learn that some people may have stayed indifferent after a market drop of 30%). 

Me, I was very happy. It was one of the best times of my life, on the investing level. I really like a good old crisis, because people become irrational and sell everything. We just have to buy the best stocks and we're almost sure to be well rewarded in the medium term. I like when everything is a no-brainer, which happens only when everybody shits in his pants. I like a big scent of shit all around me. 

So, while there was a major panic, I bought some expensive stocks and they recovered quickly from the crisis. But i didn't buy Shopify or Mercadolibre (both more than tripled since their lowest point) or Tesla that was multiplied by more than 8 since it's lowest point. 

But I did OK anyway. 

This year, I opened a margin account, after about 12 years on the stock market. This margin is a tool for occasions to come. If the market drops a lot, I plan on using the margin aggresively. If the market is high, like these days, I'm not planning to use the margin. 

I also reduced the numbers of stocks held. I decided to keep the number of stocks always between 15 and 20, no more no less. I currently hold 20 stocks. When I'll get my Topicus shares from Constellation Software, I'll have to sell one of my stocks to free some space. That's how I now work. 

If I add my performance of 2020 to my performance of 2019, my portfolio got a combined performance of 51% for these two years. Not amazinly superior to the market, but great anyway, isn't it? But after such a year, and a succession of good years, I can't believe that the current valuation of the market will remain. It's just too much expensive. 

Anyway, another year has passed and I just thought that I should mention that things are going great for me, on the portfolio level. I could be a little more aggressive sometimes, but you have to respect your own personality. I prefer to stay closer to "cautious" than adventuring too much on the "gambler" side. With my style, I'd be surprised if I ever beat the market by a lot. But if I beat the market by a few points more than 75% of the time, it will mean that I do a good job. 

Performance of the Penetrator Portfolio in 2020: 19% (including dividend)

Performance of the S&P500 in 2020: 17% (including dividend)

P.S. This year again, please, lose any respect for the fund managers who will compare themselves against another index than the S&P500. It's the only real index. If a fund did less than 17%, it was simply not a very good performance. At best, it would be OK. 

Picks for 2021

At the beginning of 2020, my 5 picks for the year were:

Couche-Tard: 8%

MTY: 1%

Boyd Group: 12%

Facebook: 30%

Alphabet: 30%

Average performance (excluding the impact of US$ and dividends): 16%

My selection did OK, but it's about the performance of the S&P500. I don't look like a genius here. People who bought Shopify look much more like geniuses than I do. And while I'm still not that comfortable with Shopify, I bet that people investing on that stock will do well or very well in 2021. 

Now, here's my picks for 2021:

Square (SQ)

Facebook (FB)

First Isaac (FICO)

Epam Systems (EPAM)

Nike (NKE)

I invite you to suggest your 5 highest conviction stocks for the year ahead. There's two conditions: 

1- Propose 5 stocks, not more. Because I want only very high conviction stocks (you'll probably like it more too if it's short);

2- These stocks must be stocks you own. 

3- Thank you.

4- Goodbye. 

Debt and cash

Yesterday, I took a look at some of my favorite retail and restaurant companies, to see if the pandemic had a big effect on their debt level.

I was surprised to see that the effect of 9 months of pandemic was generally not that bad. For instance, the debt level of MTY, O'Reilly, Ulta Beauty and Richelieu Hardware hasn't reached a worrying level at all. 

For Ross Stores and TJX, the debt level is now much higher than it was one year ago, but it's not that bad. These two have always had a low debt, so, even if their debt has increased a lot, it's still OK. 

Of course, having a huge debt isn't good. For instance, there's two companies which I like (FISV which is a financial company and BURL which is a kind of TJX) that are great on every aspect except for their debt level. But how much is the debt a threat, given the fact that interest rates are very very very very low?

At the current rates (some banks have recently offered mortgages under 1%) and with the governments printing  money like their was not any toilet paper left to wipe our asses, what is the real value of money? I'm talking here as much about "positive money" (cash on hand) than "negative money" (debt). 

What's the advantage of a company like Google that has about 120 billion dollars cash on hand? If a competitor (Google has virtually no real competitor, but it's just an example) has less money, it can borrow money for almost nothing.  

So, I think that we are in a very different period that requires to analyze things in a different way. 

The real advantage is not to have a lot of cash or to have a very small debt. The real advantage is to grow very quickly. It's always been the real advantage, but other things such as cash and debt seem to me less important these days than they were before. 

Given the current valuation of growth stocks, it seems that many people have understood that long before me. 

Finding your niche

Finding your niche as an investor is, in my opinion, very important.

Some people like oil and gas stocks. Some others like value investing. Some others like very high growth companies, whatever the valuation is. And while I'm not comfortable with these approaches, it's fine. As long as it works for them, it's OK. However, if they don't analyze their performance and don't compare themseleves with the S&P500, I think that an important piece is missing. Like I wrote in my last post, why doing all that if you're underperforming year after year? An index fund will give you 8-10% on the long term without any effort...

Anyway, your niche is your niche and you better have some criterias to respect before investing on a company. Almost everytime I buy a stock without taking the time to analyze it and compare it to my other stocks, I regret it. 

Here's an example of how it works for me:

Recently, I had CGI Group in my portfolio. I've always thought that it was a good stock, but the growth has never been amazing, except after some acquisition. Let's forget the PE ratio and just take a look at some metrics for the two stocks

I decided to buy Enghouse Systems instead (a stock that I had some years ago).

Performance last 10 years

CGI: 528%

ENGH: 1322%

Performance last 5 years

CGI: 74%

ENGH: 90%

EPS growth from 2015 to 2020

CGI: + 67%

ENGH: + 200%

Average ROE last 5 years

CGI: 17

ENGH: 19

Margins:

CGI: 10%

ENGH: 20%

Debt Level

CGI: medium debt

ENGH: No debt

Cash on hand

CGI: good position of cash (about 50% of the recent annual earnings)

ENGH: lots of cash (2,5 times recent annual earnings)

Enghouse wins on every aspect.

Of course, the PE of both stocks is not the same. Enghouse is more expensive than GIB. But that's always like that. The better performer is more pricey. However, as long as the price is not completely irrational, I'm now going towards the best performer. That's how I work. 

CGI Group is a very good company. I might very well go back to it one day. But for now, I've found something better and I plan to go on for a while with Enghouse. Anyway, it's not a debate between these two stocks, it's just my way of doing and I encourage everybody to always compare what they hold with what they could hold and what they would gain and loss with a change. 

Domination with margins

About 3 years ago (january 2018), I wrote a post about some high margins stocks.  

Here's an interesting exercice. I will take the exact same list of high margin stocks to show the performance of the stocks over the last 3 years (from december 17th 2017 to december 17th 2020). 

Visa: 83%
Credit Acceptance Corp: 4%
Netflix: 176%
Mastercard: 116%
Canadian Pacific: 88%
Priceline (now Booking Holdings): 19%
McDonald’s: 23%
Microsoft: 152%
Alphabet: 64%
Apple: 194%
Disney: 56%
Starbucks: 77%
Tiffany: 29%
Fastenal: 86%

O'Reilly: 89%

Average performance of the group: 84%

S&P performance: 39%

The result is not really a surprise: a high margin stock is usually a dominant company. Because, if the company makes a high percentage of profit over 1$ of sales, it's because it has a position that allows it to do it. Which means that the company is probably dominant in it's sector. So, who says dominant company says dominant performance. That's a kind of sorcelery. 

Combine high margins with a high ROE and select 15-20 stocks who share these qualities and you will probably do well. Of course, you'll get a few underperformers like Credit Acceptance Corp, Booking Holdings, McDonald's and Tiffany but most of your stocks will beat the S&P. More, you'll sleep well and won't be too tempted to make transactions with your portfolio. 

In these crazy times of crazy valuation caused by the vaccine against COVID, let's remember what's really important. 

Penetrator, the voice of reason. 

When you should do the things you really like instead of investing on the stock market

People who read the comment section have probably seen the extremely long comments from a guy named "($)o($)".  

While looking nice, that guy seems to have problems managing his money via the stock market as we can see below (this is a copy-paste from his comment received on my latest portfolio review). 

PERFORMANCE:
Jan-Oct 2020
Mine: _ _ _ _ _ -10.69%
TSX: _ _ _ _ _ -6.11%
Cumulative since inception
Mine: _ _ _ _ _ 2.23%
TSX: _ _ _ _ _ 20.44 %

You know, there's nothing wrong watching porn all day long or doing any other stuff you like if the stock market is not for you. First of all, if the TSX beats you on the long term, it's not a good sign, because it's simply not a very good index. Then, if your performance since inception (who knows when exactly is the inception) is 2,23%, you really should think about stopping all that and simply buy the S&P Index. You're losing your time and money. As fascinating as the market may be, you should not accept being beaten by the TSX by a very wide margin and the goal of that hobby should be to make money, not spend your time. 

Maybe that such a post could be the wake-up call for you. You will kick your ass and try to become the best investor in the world. 

But for now, you are simply a bad investor. Perhaps a very, very good human being, but let's put it this way: you probably excel more in any other field of your life than in investment. 

Dividends and maturity

I don't understand why some people write about how dividends make them happy. 

For me, it's not important at all. I never invest on a stock based on the fact that it comes with a dividend or not. Actually, if the dividend is high, it's a warning sign for me. I probably won't buy a stock for which the dividend is higher than 3%. There may be an exception or two, but for 99% of stocks, a high dividend indicates that growth prospects are limited. 

To me, someone putting too much emphasis on the importance of dividends shows that he's not yet mature as an investor. Just like me in 2008 when I bought Yellow Pages only for the high dividend yield (another embarrassing confidence for those who discovered my blog recently). 

Sorry if I'm hurting a lot of these people who like dividends. But that's how I feel. I'm such an honest guy. 

XPEL, the story of a penny stock that's far from being a penny stock anymore

Most of my regrets as an investor are related to all the crappy stocks I've bought over the years. I've been lucky with most of them, selling them before losing too much money. But, there were some exceptions where I lost A LOT of money. Like enough money to buy an expensive car or to put braces in the mouth of my two kids.  

Among the few regrets related to stocks I've sold too early, there's a few names. First, there's Boyd Group which I bought when the stock was around 10$ and I sold when the stock got to 11 or 12$. Yes, I did that. 

The stock is now at 215$ and I came back when it was around 100$. 

Then, there's XPEL. I bought 3000 shares in april 2014 at 1,75$ and sold them about one month later for 1,55$ each. 

The stock is now at 42US$. I realize that if I had kept these shares that cost me only 5900 CAN$ 6 years and a half ago, the total worth of that investment would now be about 170 000 CAN$. Isn't it funny? 

Of course, it's very easy to say that with hindsight. At the time, XPEL was on the edge of being a penny stock and I owned many other penny stocks (I invested in many cheap stocks and I think that I sold XPEL as a statement against all those crappy penny stocks that are almost always a loss of time and money). In fact, when I look at all the other penny stocks I owned (or stocks just slightly over 1$), I'm happy to have sold them all. 

But, once in a while, you get the penny stock that has a future and XPEL was one of them. 

I'm currently thinking about being back in the stock. Just like Boyd Group, I've lost the chances of getting a spectacular twenty-bagger but, I still could double, triple or quadruple my money. That stock has everything I'm looking for, plus it's not a penny stock anymore. 

You may have fucked, but you may always get back on track. 

Valuation VS Risk VS Performance

I think a lot about the importance of valuation of stocks recently. 

I wanted to analyze a bit that topic by examining two group of stocks. A group with stocks that grow well and a group with stocks that grow substantially more. 

Obviously, these studies with only a few stocks imply a certain bias and they're not that scientific. However, I've chosen only top notch stocks for the two categories. I think that everybody will agree with me that the 10 stocks listed here are great companies. Of course, they're not in the same sector.  But, anyway, as imperfect as it may be, here's my study.

I've compared the performance of these stocks on three different time frames:

1- For the last year (since december 6th, 2019);

2- For the last 3 years;

3- For the last 5 years. 

First group

In the first group, I've chosen 5 great canadian and american stocks. They all have a very high predictability and have been incredibly well managed in the past. Also, they all offer at least a good, but not spectacular, level of growth. Their PE has always been reasonable (mostly from 15 to 20 since the last 5 years). 

Here's their performance over the last year, 3 years and 5 years: 

Carmax (KMX): (1 year: 0%) (3 years: 43%)  (5 years: 68%)

O'Reilly (ORLY): (1 year: 2%) (3 years: 79%)  (5 years: 71%)

TJX (TJX):  (1 year: 11%) (3 years: 80%)  (5 years: 89%)

Metro (MRU.TO): (1 year: 3%) (3 years: 46%)  (5 years: 55%)

Canadian National (CNR.TO): (1 year: 19%) (3 years: 35%)  (5 years: 74%)

AVERAGE: (1 year: 7%) (3 years: 57%)  (5 years: 71%)

Second group

In the second group, I've chosen 5 great canadian and american stocks. The predictability of these stocks is a little more uneven here, but it's at least OK. They've also been very well managed in the recent past. The difference here is that these stocks are much more expensive (they were always expensive over the last 5 years) but offer a much better growth.

Edwards Lifesciences (EW): (1 year: 6%) (3 years: 128%)  (5 years: 218%)

Paypal (PYPL): (1 year: 107%) (3 years: 199%)  (5 years: 518%)

Netflix (NFLX): (1 year: 64%) (3 years: 164%)  (5 years: 304%)

Constellation Software (CSU.TO): (1 year: 16%) (3 years: 102%)  (5 years: 177%)

Boyd Group (BYD.TO): (1 year: 8%) (3 years: 112%)  (5 years: 216%)

AVERAGE: (1 year: 40%) (3 years: 141%)  (5 years: 287%)

In each group, there's contraction or expansion of the PE ratio every year. I don't try to bet on a possible expansion of the multiple. I think that the right way to see stocks is to consider their historical PE ratio over time and to see if the current valuation is comparable or very different to the historical one and if the prospects of growth for the stock are still there. For instance, in the second group, the PE ratio has always been high for Paypal. Does the growth prospects for that stock are still there? I'd say yes without hesitation. Of course, some bad results would affect the stock as it is "priced for perfection" like some may say. But, is it really less risky to buy cheap stocks like Linamar or Home Capital Group? Even with a small PE ratio, we have seen a drastic contraction of their PE in the past. 

So, in my opinion, it's not riskier to buy expensive stocks, as long as their high valuation has always been high and their results still match their valuation. Of course, buying just one of these stocks, for a big position of your portfolio, is not a good idea. But if you buy 10 of these stocks, I'd bet that you'll beat the market by an appreciable margin, in a bull or bear market. 

With the first group, you would have had a performance of 71% for the last 5 years. It's a good performance, but with the second group, you would have got a 287% performance. 

Imagine the impact of such a performance on a 100 000$ or 1 million $ portfolio. Or just imagine that impact on your portfolio, as small or big as it may be. 

Portfolio review, december 1st

Here we are, december 1st, 2020. Christmas songs all over on the radio. Like "Do They Know It's Christmas Time" and "Last Christmas" and "Happy Xmas". By the way, it's gonna be 40 years since John Lennon got shot in New-York. What were you doing at the time? Me, I was probably taking a shit in a diaper, being one year and a half at that time.

Before entering into the subject of the present post, I want to adress a specific topic which I'm thinking about when I read some of my ancient posts.

As you probably know, my first language is french. I don't use any english daily, because I live in the suburb of Quebec City which is a place where very few people live in English. So, the english I write is not that natural for me. I don't speak a superb english but I'm probably better in english than 99% of english canadians are in french. 

That fucking english language is surely easier than french, but Guillaume de Normandie hasn't done a perfect assimilation in 1066 when he invaded England. So, while many of your words come from french, you have strange habits like putting capital letters in song titles like "Do They Know It's Christmas Time". In french, we put capital letters only on few words like first and last name and country names. Also, we don't use the verb "have" for everything like you do. It looks like you're all a fucking bunch of illiterate because that verb can be used for everything. Like "I'll have breakfast", "Thank you for having us", "Have a nice weekend". What the fuck? How come don't you make it a little more complicated? And why does your age comes with the verb "be" and not the verb "have"? In french, you say "J'ai 41 ans", you don't say "Je suis 41". And why do you put adjectives or colors before the noun? Like "A green shirt" while in french we put the adjective or the color after the noun. Yes, we say "A shirt green" as stupid as it may look for you, badly assimilated culture. How do your fucking brain works? It amazes me because many of you seem intelligent while using such strange fucking sentence structure. 

Anyway, here's my almost traditional quarterly portfolio review:

Number of stocks: 24

Average ROE of the portfolio: 42

Average forward PE of the portfolio: 30

Average Beta of the portfolio: 1

Performance YTD: 17% (including dividends)

Performance of the S&P-TSX YTD: 1% (excluding dividends)

Performance of the S&P YTD: 13% (excluding dividends)

I probably beat the S&P by 2% if we assume a 2% dividend for the market. It's not bad, but not a glorious victory. And I wonder how my very average beta coefficient has risen to 1. A lot of stocks I own have seen a strange increase of their Beta coefficient. You probably don't care about that. 

A question for those investing only in canadian equities: Why the fuck are you investing only in Canada? Have you seen the performance of TSX vs the performance of the S&P on a long time frame?

You don't invest in the USA because you're afraid of the conversion rate? Yes? Then fuck you. Stick with your fucking oil company and their fucking dividends that are the only fucking thing on earth that gives you a boner. 

An exercice of nostalgia

2015: Among all the stocks I owned, only 3 of them are still in my portfolio, 5 years later (Constellation Software, Couche-Tard and Ross Stores).

2016: Only the same 3 stocks are still in my portfolio.

2017: The same 3 stocks plus O'Reilly are still in my portfolio. 

2018: The same 4 stocks are still in my portfolio + Boyd Group + Google + Carmax + Facebook + Mastercard + Edwards Lifescience. 

2019: The same 10 stocks are still in my portfolio + Visa. 

2020: I currently own 24 stocks. So, only 11 of these stocks have been in my portfolio for more than one year. Only 3 of them have been there for more than 5 years. 

That's not really what you could call "fidelity". 

I'm not writing that to preach for an heavy rotation of stocks. Not at all. I'm mostly writing that because it shows how random I've been at picking stocks over time. Not so long ago, I owned stocks like Valeant, Concordia Healthcare, Nobilis Health, Callidus Capital, Chicago Bridge and Iron.  These stocks have only known a few months or 2-3 years of glory. It shows how much a good track record is important.  

Life is full of mistakes. But what's beautiful is that, even if life bring diseases, loss of friends-parents-lovers-job-health and all these things, it also brings experience and, in that aspect, you can't regret getting older. I now know that it would be stupid to sell a stock like Mastercard or Visa. These stocks should always remain on a portfolio because there are 8 chances out of ten that you won't be able to find something better for the long term. 

"Investir à la bourse et s'enrichir"

Investors from Quebec know Bernard Mooney while those from other provinces probably don't know him. Short story, he's retired now, but he used to write articles in "Les affaires", which is probably the most known website about investment in Quebec. He's also a friend of François Rochon, the CEO of Giverny Capital, one of the best investment firms in Quebec (which you should follow via www.whalewisdom.com if it's not already the case). 

I bought the book "Investir à la bourse et s'enrichir" ("Investing on the stock market and getting richer", for you, fucking unilingual assholes from the rest of Canada) as a Christmas gift for my 19 years old nephew which is in a period of his life where he seems to be clueless about his future. He's been saying for years that he wants to work for Google in California, but mostly for the glamour of it. He's got poor grades and is unable to succeed a philosophy class which he failed 3 times in a row or something like that. Also, he  mostly smokes pot and play video games. But he wants to become rich and drive a tesla. Just like thinking about being rich was enough to become rich. That's why I bought him this book. I don't know if he ever read an entire book just for fun, outside of school, but I thought it was a good idea anyway. 

This is the book in my environment of work everyday. Let's admire my jogging pants. 

Anyway, in this new edition of the book (first written in 2001 but the new edition was made in 2020), there's no big changes. I think that the only new thing is a comment from Mooney saying that he thinks that the initial version of his book telling that looking for stocks that grow 20% every year is too ambitious. Even 15% is too ambitious. He says that he thinks that 10-12% is the right growth to look for, but it's partly because he's retired now and wants to preserve his capital. However, he says that companies that grow too much are riskier in the long term that those who grow by 10-12%. 

I don't disagree with him (he's 62 years old now) but I think that a younger investor should be a little more aggressive. In my opinion, with 10-12% per year, you will get something good, but not exceptional. The key is to mix some high growth companies with medium growth companies. And to exclude any company with an annual growth under 10% (realized and expected).  The PE should be considered only on the angle that a very expensive PE (let's say over 50) should be avoided except on very rare occasions. Other than that, with a PE of 15, you'll usually get an average company because it's the average PE of the market. If you're willing to pay a PE of 30, just make sure that this company is twice better than the average company (and that the PE has always been expensive and the results have always been growing in a solid and steady way). If it's the case, paying 30 times earnings may be the right price to pay. 

Ce que les meilleurs achètent

I think I've never written about that, but I'm fascinated about the Bill and Melinda Gates fundation. There's rarely some action with the holdings of that fund because those who manage it seem to stick with their choices over time. 

And that's something I admire. Because a great company usually remains great over time. Sometimes, they become OK or average but they rarely become mediocre and it looks they've understand that, at Gates Fundation. In that specific case, two stocks represent 51% of the fund: Berkshire Hathaway (40%) and Waste Management (11%). You add Canadian National, Caterpillar and Walmart and you've got 75% of the fund. These stocks are not spectacular, but they've all done well over the last 5 years. Once you're rich, you buy 7-8 of these no-brainer stocks and you remain rich and you'll surely get a little richer every year.  Why looking elsewhere? You're already rich and you take virtually no risks. 

But if you want to become rich, following Gates Fundation is probably not the shortest path. For that, you will probably follow Pat Dorsey. He's much more aggressive because he invests a lot of money in stocks that aren't profitable yet but that are growing their sales at an impressive rate. I'm not that comfortable with that approach, but it seems to work for him. 

It looks like, after all, what most people seek is nothing else than a speed that suits them to achieve their goals. And, frankly, it seems that I make my investment decisions based on a speed that suits me. And on some kind of virtue that is probably not always adequate. 

The fucking problem with that market is that it doesn't reward traditional virtue. You'll be rewarded for your patience in the long run, but you may very well be fucking much more rewarded if you're impatient. 

In that regard, "Ce que les meilleurs achètent" is just an exercice of curiosity, because  most of them buy stocks which are not interesting. And they buy and sell stuff in a random way. You try to understand what they do, but there's nothing to understand because they're almost all drug additcs. 

Anyway.

Buffett bought about 5.5B$ of three pharma stocks (Merck, AbbVie, Bristol-Myers). It seems a lot but it's about 2,5% of his portfolio, so please, remain calm. He also sold 46% of his Wells Fargo stake which should never have been bought in the first place. And 48% of his total portfolio is represented by Apple only. 

Akre added 10% to his Roper position. Good stock, but it doesn't grow that much. I don't understand what's so interesting with that stock.

Pat Dorsey added 30% to his Wix position (total position = 16% of his fund). He initiated a 6,74% position in Ebay. Wix is one of those stocks with which I'm not too comfortable but it will probably double in the next 3 months or so. I'm saying random shit here but this stock will surely outperform most of my portfolio. And I still won't buy it, because of my virtues.

Giverny Capital reduced their Berkshire stake by 20%. They also increased a shitload of other positions but very small positions (0,2% positions or shit like that). 

Using the money they lend you for almost nothing

I believe that disciplin and strategy are as important as stock picking.  

That post is for those who own a house and have some flexibility to increase their mortgage. I know, I've written about that before, but this time, my example is more precise. To me, that strategy can have the same effect as invest money on a super great stock. 

For instance, a mortgage increase of 100 000$ at a 5 years rate of 1,89% with a term of 10 years implies that you pay 10 000$ of interests (which is very low). There's virtually no use of paying down your debt with such a low rate. For instance, if you reduce your mortgage by 5000$, you'll save only 500-600$ of interests on  a 10 years time frame. 

What's the use of paying down debt under these circumstances?

With such low interest rates, a person who knows how to manage money should take some debt and invest on the market. 

If you own a house and you can borrow more money on your mortgage without having to finish paying your house at 70 or 80, this is for you. Why not add 100 000$ to your mortgage and invest that money?

100 000$ invested on a fund that reproduces the TSX should return about 8% on the long term.

100 000$ borrowed implies that you have to pay about 10 000$ of interests during 10 years.

These 100 000$ invested on a fund that reproduces the performance of the TSX should become about 215 000$ after 10 years. Substract the 10 000$ of interests and you'll double your money without a lot of risk. Isn't it crazy? 

I strongly recommend to anybody that lives a frugal life and is not too much indebted to do that. You do that at 25 or 30 and you'll be richer than all your high school friends and even your parents when you'll be 40. Later, when you'll be 60, you'll be able to buy a mustang and fuck 20 years old girls. 

Think about the future!

About the impact of the vaccine on the market

This week, with the news of a vaccine against COVID, the market was very excited. Many brick and mortar companies were up like if it was trendy to go to a shop and buy stuff. 

Tourism related stocks like Booking Holdings (BKNG) and Marriott (MAR) were also up a lot, just because that potential vaccine would heal the world. 

And, at the opposite, many tech names were down a lot, like if the pandemic was finally over and these tools would be less useful in the future. 

I'm bad to prophetize about the future, but I'm almost sure that work from home will survive in some industries. And I also think that these 8 months of pandemic (which will probably become a 12 months pandemic) will be a trauma for a lot of people. Some won't travel for many years. Some others will just shop for what's essential. Will everybody go back to shops like before? Surely not everybody. Pandemic or no pandemic, shopping online is always practical. 

Also, with all that toxic stuff we put on our hands before entering any shop, I'm pretty sure that a lot of people will get hand cancer and will be amputed of their hands. Nobody talks about that, but to me, it's the main threat of all that pandemic.  

Best case scenario, most of canadians and americans will receive the vaccine during the spring, which is about 4-5 months from now. Will everything be like before the pandemic after 12 months of lockdown? I'm sure not. 

In Quebec, the government is currently thinking about closing schools once again, like it was the case during last spring. I don't think that things will look better in the short term. And in the USA, things are going way worse than in Canada. 

In that regard, I think that:

A- Tourism won't recover before at least 2 years (optimistic scenario);

B- Tech companies related to commerce or work from home will continue to do well after the pandemic;

C- Traditional stores will recover as soon as there's a vaccine but they won't do as well as before the pandemic;

D- Watch out for global debt (governements and businesses). A reflexion about that topic would be useful because I believe that this new reality will result in some opportunities for investors (please, feel free to suggest some opportunities because I don't see any at this moment). 

Big emotions with big pharmas

Big pharmas are tough stocks to understand. One day, they're up a lot, the next day, they may be down like  if the company's going bankrupt. But no, the company won't go bankrupt. It's only some patent question or some good or bad news about a potential new drug. 

For instance, let's take a look at Biogen (BIIB). Last week, the stock was up 46% on a single day (from 246$ to 360$) on optimistic news about some Alzheimer treatment. Today, the stock is down 30% because the drug may not be that effective. It's not the first time I've seen that, for a pharma stock. It's a frequent thing. 

Today, Pfizer (PFE) announces a vaccine that would be effective by 90%. So, when the market opened, the stock was up 8%. It's not amazing but it's a good performance for such a giga cap (220B$ market cap). However, over the last 5 years, PFE is up by only 20% (including today's performance which helped a lot). And 20 years ago, the stock was more expensive than today. 

Of course, there are plenty of exceptions to these two examples. But I've had my share of pharma stocks in the past and I think that this industry is a bit too hard. And while pharmas are way easier than financials to understand and analyze, I'm not sure that, on the ethical level, they're much better. 

Maybe that Pfizer will do well with their vaccine. Actually, I think chances are high that Pfizer will go up substantially from here, because their announcment about a 90% effectivness sets the bar high and the company will be badly punished if the bar that they set themselves is not reached. In other words, it would be very stupid for them to prepare their own fall. But, who knows, the stock market is full of bad companies and stupid managers. 

Nobody gives a fuck

I thought that the american election would have a lot of impact on the market.

Many people on the media said that this election was the most important for the future of USA.  

Well, on the day following the election, we still don't know if Trump or Biden is elected president. Given the fact that the S&P is up 2,3% today, I would dare to say that the market doesn't give a fuck about a democrat or republican president. The market doesn't give a fuck if there's an actual president, may he be blue or red. 

It's a formative experience because I would never have thought that such optimism would come out of ambiguity. So, for all those stupid people who sold 25 or 50% of their holdings prior to the election, remind that day and slap yourself on the face until you bleed. You deserve it. 

A few well known names that nobody talks about these days

 While the market is still expensive, there's a few very well known names which are available at a fair price and I would even dare to say that are a little cheap.

Couche-Tard (forward PE: 16) is probably my favorite stock of these three. About 40 years after it's beginning, Couche-Tard still knows, probably more than ever, how to make cash. And even if electric cars are coming, the vast majority of cars will remain powered by fuel for a lot of years. That company is incredibly well managed and they do wonders with margins that are so small that most of us would do bankrupt. There's a very short list of stocks that we should just buy and let go and Couche-Tard is one of them. 

Dollarama (forward PE:20) Even if I hate China, Dollar stores will continue to make a lot of money selling their cancerigen stuff made in China to canadians. That company makes a lot of money. It's ROE is astronomical, debt level is OK, business operates in a free-market, in a sector where a big scandal has little chances to happen. One of the best, if not the best, in retail in Canada. 

CGI (forward PE: 15 ) is probably my least favorite of these three stocks, but still a very good company that reduced a lot is debt during the last years and is now in a very good position for a big acquisition. I feel it coming. But I've felt it coming for at least 5 years. My prophet skills don't seem to be very helpful. But anyway, even without a big acquisition, that stock will do at least OK. 

I don't see any big risk of buying any of these three names now. They're all solid and they're all not pricey at all. Plus, they all got a good or great track record, which is one of the most important things to consider.

Two new stocks: CDNS and FICO

 Quebec City is a beautiful place. It's surely part of the Top 3 most beautiful cities in Canada. 

The problem is that some of the worst tragedies in Canada have happened here in the last few years. In 2017, it was Alexandre Bissonnette who shot a lot of muslims. Yesterday, it was a 24 years old guy from Montreal that came to Quebec City to randomly kill two people and hurt about 5 people more with a sword during the Halloween night. Imagine that: the guy used a japanese sword to open the chest of a 61 years old woman then he sliced her throat without even knowing her. 

That's completely crazy. You must be pretty fucked up to use a sword to almost decapitate your victims. It requires a lot of determination to do that. Much more than to just shoot randomly with a gun without seeing your victim and feeling her guts with your weapon. 

**************

Last week was a very red week. Red like a sword full of blood. All stocks went down a lot. And while many people seem to think that it's time to buy, let's remind that the stock market is more or less at the same level than it was at the beginning of the year (when the pandemic didn't exist) and that a lot of stocks related to tourism are still sold at a PE of 20-25 (Marriott, for instance, has a forward PE of 28). 

But, I think that we should stay ready for the right moment to buy which may come soon. Here's two names I've discovered when I screened the market yesterday: Cadence Design Systems (CDNS) and Fair Isaac Corporation (FICO).

Cadence Design Systems, Inc. provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company offers functional verification services, including emulation and prototyping hardware. 

Fair Isaac Corporation develops analytic, software, and data management products and services that enable businesses to automate, enhance, and connect decisions

Both are expensive but great stocks. Not too expensive though. They have qualities which qualify them as high quality stocks, which allows them to be expensive. That's how it works. Here's some numbers:

CDNS

Stock performance in 2020: 67%

Stock performance over the last 5 years: 391%

Fwd PE: 38

Debt level: very low

Net profit margin: 28%

Average ROE: 30

Annual EPS growth last 5 years: 19%

estimated EPS growth next 5 years: 15%

Predictability: 95%

FICO

Stock performance in 2020: 29%

Stock performance over the last 5 years: 322%

Fwd PE: 39

Debt level: medium

Net profit margin: 18%

Average ROE: 60

Annual EPS growth last 5 years: 31%

estimated EPS growth next 5 years: 16%

Predictability: 85%

I like both stocks. I'll probably end up buying both if the market drops enough. And I'll perhaps buy them even if the market doesn't drop anymore. That paragraph has no value, finally. 

Liberté 45

There's a well-known guy in Quebec. His name is Pierre-Yves McSween. He's exactly my age (41 years old), he has a crazy curly haircut but a nice smile and appears on TV, on Twitter, and on various other medias. 

He recently released a book called 'Liberté 45' (do I really have to translate that in english?). 

I haven't read the book yet but I plan to do so. However, I know what he's writing about because so many people talked about that book lately. 

It's about making the choice of not spending too much while you're young to enjoy life later in life (around age 45, for instance). 

I couldn't disagree with that. Because that's exactly what I've done with my life. And now, I can travel 3 or 4 times a year without having to face any consequence on my budget. But I keep my cars 10 years. 

However, life has learned me that what's good for someone may not be for someone's else. We don't have the same genetics, the same background, the same values. For instance, if my parents would have died in their 40's, I think that I would feel much more the need for enjoying life each day of my life. I think it would be almost stupid to plan a far future when your genetics may not be on your side. Also, if you're inclined to depression, why wouldn't you do some parachute, buy new shoes or change your haircut every week to avoid becoming suicidal?

There's no truth for everyone. The truth of Pierre-Yves McSween and me is that we're insecure and money gives us a security that we can't find elsewhere. Most of our actions come from our fears and insecurities. That's how it works.  The important thing is to make the choice that suits you fine. 

But everyone should take consideration of all the possibilities you have as soon as you can. It includes reading that book about living an humdrum life followed by a more exciting life or reading the book of Frank Abagnale about starting early with something exciting and illegal. 

There's a wide range of choices and even if I couldn't recommend the illegal way of living your life, it's still a possibility and it could save you from depression or suicide. 

The Trade Desk (TTD): When a great stock is too expensive

Here's my approximate opinion about forward PE:

FWD PE under 10: Don't touch that stock;

FWD PE between 10 and 15: That stock won't probably rise that much but there may be a few exceptions among the group;

FWD PE between 15 and 25: Good place to look. Very few stocks with an explosive growth, but possible to achieve 10-15% every year with a good selection;

FWD PE between 25 and 35: Usually, some very solid companies in that range. A good place to look if you're sure that you've found an exceptional company that did well for the last 5-10 years;

PE between 35 and 50: Very expensive territory but some explosive growth there;

PE over 50: Speculative territory. Some ultra-growth stock there, but very tough to fully understand what the future could be.

Let's take a look at The Trade Desk (TTD). When I first bought the stock, it was already expensive, probably selling for something like 50 or 60 times next year's earnings. But the growth was great and the stock had almost everything I was looking for. 

Recently, TTD hit 600$. The forward PE is now about 150. So I decided to sell my shares. Because how can someone be comfortable with such a forward PE ratio? I mean, even with a PE of 15 or 20, we're never sure about the exact value of a specific stock. When the PE is over 100, the margin of error is very high. It doesn't mean that the PE won't expand even more. But it means that you're in the fog. And my conception of an investor is someone who knows what he owns and is able to value it. 

Last summer, my friend reminded me that I told him to stay away from Tesla though the stock more than quadrupled since the beginning of the year. I told him that the FWD PE of the stock was already extremely high before (something like 80-100) and it's now 130 while the current PE ratio is over 1000 (!!!!!). My commentary was that even if the stock performed incredibly well, it was even less rational to own it now than before.

I strongly believe that we must be able to fix a limit above which we can't keep a stock anymore. Otherwise, investment is only a question of feeling and it may even become some kind of irrational love. 

Time to be aggressive

In case Joe Biden is elected three weeks from now, the market should go down because business taxation should be increased under a democrat governemnt. 

If Trump is reelected, the market will probably go up a lot, because it looks like that the market is crazy about that cocksucker. 

It's gonna be an exception, but I wouldn't care losing some money for being rid of that fucking asshole. Also, the market is expensive, so I'd take a 10-15% drop with pleasure.

I wrote something about that lately, but I think that it's time to gather as much money as possible because banks make it easy for us to get money for almost nothing (rates under 2%).. 

For instance, I've increased my mortgage and I'm gonna put the money in my margin account, which will allow me to use more margin (more money on the account = increased margin). That recipe will throw you off a cliff if you're a gambler. I don't recommend that to anybody.  .

I'm doing that because borrowing money is extremely cheap these days but also because I feel that I'm gonna lose my mind sooner or later. Being unable to go outside my house because of that red alert is becoming to be hard on my nerves. I need some thrill. Borrowing money, buying electronic drums, eating my own shit. Anything to make that isolation exciting.  

The social dilemma

On Facebook, I follow Dave Taylor who's Bryan Adams former bassist (he was with Bryan Adams  from the beginning of the 80's to the end of the 90's). Don't ask me why I follow him. He hasn't achieved anything and his bass lines are not that brilliant. . 

Dave Taylor recently wrote on Facebook that he would delete all his social media accounts because of "The Social Dilemma", a documentary on Netflix about the dangers of social networks (mostly Facebook). 

So, I watched the documentary to learn a bit more about the dangers of my daily life on social medias. 

I just finished it and, frankly, it's not that good. A lot of Google, Facebook, Twitter and other medias ex-employees talk about the dangers of social media. We hear that people become addict to Facebook (mostly teens) and that they are manipulated to some extent. Then, we see some fake scene where a  teenager receives "likes" on Facebook and a single comment about the size of her ears that make her very sad and preoccupied (in other words, 100 likes and we're happy and a single bad comment and our confidence his destroyed). 

The documentary ends with some crazy scene with riots and insurrection all over the world caused by disinformation on Facebook. What the fuck?

It was too much for me. 

That documentary looks like an episode of "Black Mirror". And while I surely know that Facebook is not a virtuous company, I still think that it has some good and some bad. It's like alcohol. If you drink moderately, you'll have fun. If you're always drinking, it's not gonna be OK.  So, I have to say that I don't really care about people who can't control themselves because if it's not Facebook, it's probably cristal meth that's gonna kill them. 

Frankly, the documentary shows how brilliant are the people running Facebook to make us a bit dependant about it. If they weren't that brilliant, Facebook would be an average company. Like Bed Bath and Beyond. 

To my understanding, one of the worst brainwashed country on earth is China and they don't use Facebook because the governement doesn't allow people to use Google and Facebook. How could our society be so ill because of Facebook? 

Of course, anybody could use Facebook with evil intentions and teenagers use Facebook to bully other people instead of bullying them in real life like in the good old days. Is that really worse? At least, the victims have the proof of the bullying on their phone, which wasn't the case in the past. 

So, no big deal to me with that documentary. I still like Facebook with it's 30% margins and it's ROE of 25. No competition in sight for Facebook and Instagram and people working there know how make people dependant. That's what every business is looking for, as horrible as it may sound. 

I'll keep my social media accounts open. I don't see the threat, probably because I'm not addict at all.

No great bass lines, no writing credits for the music, conspiracy views… I think I see why Dave Taylor isn't Bryan Adams bassist anymore. The question that remains is "Why did I follow him on Facebook"? 

How stupid people are

We're now in the second wave of COVID-19 in Quebec. Yesterday, I learned that there was a COVID case at my son's school which is located something like 10 000 kilometers away from China. That fucking virus has traveled literally to my front door. 

What is more worrying than the virus itself is surely how stupid people are. You've surely heard about all these "covidiots" who think that the virus is a scam and everything the governement is doing is part of a plan to take control of our freedom. If you're one of these people, please, don't even write a comment to explain your point. I don't want to read what you have to say. Please, just shut the fuck up and chose the way you want to disappear. 

Today, there was a girl on a facebook group of my neighbourhood writing "Since there's a case of COVID at our school, I will give a lot of my maternity milk to my kids and since my breasts are full of milk, I can give some to you to reinforce your immunitary system". 

DO YOU STILL DOUBT THAT PEOPLE ARE CRAZY? 

If you'd be one of these people accepting the offer of drinking maternity milk of a girl you don't know, please, don't write anything in the comment section because I'll be able to identify you and I'll despise you forever. Even if you're a very good investor and bring nice things in the comment section, I won't have any respect for you anymore. So, please, shut the fuck up. 

We have a couple of obligations: first, to stay away from these people. Second, to act in a different way to these people, which implies to read a lot of things and develop our judgment (which usually goes with reading a lot). Third, to question our own choices and try to see what's rational and what's not (which is difficult because we're all conditioned to consider some things "normal" to some extent). 

At least, in the investment world, most of us seek only profit. So, we don't discuss too much about opinions and convictions, which is a very good thing, because convictions and opinions open the door to a lot of things we don't want to know about other people. Like when we learn that they drink maternity milk or their own piss for detoxing purpose. And, while some invest like braindead, most "real" investors have a rational approach most of time (even if they're wrong, their decisions are based on something that's usually a little bit intelligent. 

And we don't argue too much between investors. Most of us try to improve, try to learn how things work. And when we see that something doesn't work, it's not always easy, but it's a very good idea to look somewhere else. For instance, I've recently realized that I owned some stocks that didn't grow as much as I wanted. I even sold one of the stocks that I considered a "permanent stock". Only time will tell if I was right or wrong, but at least, my decision wasn't based on a fucking conspiracy website about some gigantic imaginary hoax. 

 

How to become your own hero

Over the years, a few people have told me that I've influenced them. Lately, there's even a guy ($o$ in the comment section) that told me that I was his investment hero. 

Wait a minute. That's too much. 

And while I'm sure that some people would feel glorified to hear such things, I think that it's not appropriated. Anybody that's curious and that reads on investment could learn and understand what I'm doing. However, you must have a good bullshit detector, which is not the case to all intelligent people. 

But once you've reached a certain point, you can almost decide in 10 minutes if you want to invest or not in a company. Because you know how rare are some attributes of a company. So, when you find these rare great things, you usually know that it's gonna be hard to find something similar. In august, while I was at Vicario's cabin in Vancouver, he explained me how he chosed stocks and I saw that he knew in a few minutes what he wanted to buy or not. Which made me understand that he could probably spend not too much time on investment and spend most of his time on his boat, trying to catch salmons between a beer, a sandwich and a piss in the ocean. 

That's what all these people who need a guru should try to reach: the level where you know how special a company is versus the rest of the market. And for that, you don't need anybody. You just have to analyze hundreds of companies by yourself and compare them on various levels. It's not that hard, but it's long and you have to be curious. 

If you want a metaphor, it's like checking girls and rating them. For instance, at the beginning of the 90's I discovered Mary Elizabeth Mastrantonio (lady Mariann in the movie Robin Hood). Now, 30 years later, I've seen tons of other beautiful girls, but I still find her attractive (well, mostly on her 80's and 90's pictures). To know how beautiful a girl is, you must know what the average is. So, check as many girls as you can, and find the ones that are exceptional. And then, give them all they want. After my metaphor about luxury cars and great sport players, here's another one. I wonder if I'll be able to find a fourth metaphor. 

You can start with Constellation Software, Google and Facebook. You'll see quickly that these companies are different from at least 90% than what's on the market. And while you'll be a better investor, you'll also be able to judge other's people picks instead of blindly following them.

Post #500

Holy fucking shit. This is my 500th post on that blog! 

You know what? You won't believe it, but I NEVER take a look at the number of posts of my blog. But yesterday, I took a look at it and I saw that the number was 499. What a fucking coincidence! 

What a useless coincidence in the history of mankind! Or, would I say, what a useless coincidence in the history of the basement where I write my posts! Maybe I'm giving myself too much importance here. Let's just qualify that coincidence as a moment like another.  

So, for this post #500, let's take a look at 6 years and a half of blogging here and tell me either what was the first post you've read on my blog or the post that you liked the most. 

My answers to these two questions:

1- First post I've read: the first one I wrote; 

2- The post I liked the most: probably a post where I used some nasty words like the one where I said that technical analysis meant seeing fucking patterns in a curve. Like some fucking shape of a cunt. Or some others where I wrote that you should believe in nothing. 

I could try to make you believe that anything is possible and that a specific recipe will make you rich but I’d rather make you feel some unease. 

Mortgage rate under 2%

If you own a house, you can now have access to money for almost nothing. 

In Quebec, you can now have a 5 years mortgage at a rate of 1,79 - 1,99%. 

Do you realize? Rates have never been so low! Thanks to COVID and all that money spent by the governement. The ship is sinking but even in these circumstances, someone will take advantage.  

In that ultra low rates context, paying down debt makes no sense (if you don't have too much debt, of course). If you have too much debt, you should pay it and, more than that, you should never have borrowed that much money. Kick your ass and get your things together.  

Of course, the stock market is not that cheap (but probably not overly expensive). But why not getting a 50 000$ mortgage at 1,8% and invest that money on the market? Plus, you can deduct the interests on your tax declaration (at that rate, the deduction won't be that exciting, though). If you can manage to get a 10% performance on the stock market, you'll take a lot of advantage of that situation. 

Imagine that: you're 25 years old, you have a house and your mortgage can be raised by 50 000$. Do you realize how helpful will be that money on your portfolio in the long run? OK, you'll have to pay more on a mensual basis, but you'll get 50 000$ for almost nothing. And your small portfolio will take a very interesting proportion overnight. 

I believe that it's better than a margin, because the rate is lower and you're not exposed to a margin call. On a psychological level, it's also quite positive to know that your 1,8% interest won't change for at least 5 years. 

That advice is for those who know how to invest. 

Actually, I'm always writing to people who know how to invest. I assume that the others are somewhere else. I don't know where. Probably on Tik-Tok. 

Nike (NKE)

Few people think about Nike when it comes to investment. That name is known by everybody since bronze age or so. Nobody wants to talk about something that's so old. 

It's a mistake, because Nike is a very good company that's still growing after all these years. Their last results were out yesterday and the stock is up 10% today and we're talking about a stock with a 200B$ market cap. Not that easy to move the needle on such heavy-weight. 

Revenues are mostly flat (which is an achievement during a pandemic), but digital sales were up 82%. It seems that Nike does the right things about electronic commerce. 

Nike is one of the strongest brands that exist. That link shows us that it's ranked 13th on Forbes lists of most valuable brands

With a ROE around 30 and a growth rate much higher than the average, a dominating position, a very high predictability and a product associated to sports (which is not an evil sector... even if they employ 3 years old kids in India), I believe that Nike is a great name for any portfolio. But it's very expensive (about 35 times next year's earnings). 

Once again, if you want Michael Jordan in your team, you have to pay the price. However, you pay a lot for something that's understandable and not overly trendy like so many other hot names. 

Fuck banks

I'm not an expert in the field but, I affirm with confidence: "fuck banks". Oh yes, fuck them hard. 

Frankly, why anybody would invest money in banks? First of all, financials of banks are hard to understand. Second, most banks offer an average performance (most sectors beat banking, except natural resources, of course). Third, it's a sector where there's a lot of irregularities, if not fraud (which is linked to the first point, because when things are hard to understand, crooks have an easier try). 

My first transactions on the stock market were canadian banks, but since I've sold them all, I never wanted to come back (well, I've bought some shares of Bank of the Ozarks a few years ago, but even that performing bank hit a wall, because some crap happened). 

Today, we learn that big banks like HSBC and some others where related to money laundering. 

A few years ago, we discovered that Wells Fargo, the favorite bank of Buffett was involved in dishonest practices with customers. 

"Yeah, but my bank is clean! Nothing ever happened to Royal Bank!". Well, fuck you. Maybe your bank is clean, but in that sector, a lot of things are not that clean. There’s much more chances to see rats in a sewer than anywhere else. 

You'll see other shit like that if you invest in bank stocks. It's 100% sure. They'll sell your data to China or they'll do some shit with your social security number. You'll end up fucked because you deserve it, you fucking piece of shit that thinks that your bank is pure. 

Last regrets

I don't have that much regrets related to investment lately. My biggest regret would probably be to have not been enough aggressive in march, at the time of the big drop. I should have opened a margin account sooner, which would have helped me taking advantage of the drop. But, all in all, I did OK, and probably better than many people (let's remind that many people get anxious when a major drop happens, which may lead them to stupid actions). 

However, yesterday, on a complete other register, I made a mistake which will probably remain of the most ridiculous things that happened to me in my life. Due to COVID, the teacher's meeting of one of my kids was on Internet. I logged to the Google platform used for the meeting and I saw the teacher and all the parents of kids of the class. After maybe 5 minutes, I realized that the name associated with my camera was "Master Penetrator".

Do you fucking imagine??? Parents of 11-12 years old kids seeing a parent with such a name? I probably looked like a fucking pedophile or some lunatic or whatever the shit. I usually don't care that much about what people think of me, but this time, I really look like an asshole: "un osti de trou de cul" would I say in french. 

So, after these 5 minutes that killed my reputation forever, I closed the camera, logged out on my Google account (Master Penetrator) and logged in with my kid's account. Probably that the damage's done, but what can I do? I am currently waiting for the police to knock on my door.  

******************

One of the slight regrets of the recent past as an investor is to have sold Sherwin Williams (SHW) during the pandemic. I said to myself that this stock had a beta coefficient a little too high for a crisis and that paint was the kind of expense that people would trim after losing their job, getting depressed and killing themselves. 

I was wrong. That pandemic didn't destroy entirely the economy. Of course, bars and restaurants are often desert (in Calgary, Banff, Jasper, Vancouver and Quebec City, I've seen how bad things are looking), but people stay at home and invest on their home or their hobbies. I don't know if people bought more paint over the last 6 months, but the thing is that a great company remains a great company in most situations. I sold my shares on march 19th, the same day I bought many stocks that did as well as Sherwin Williams since then. So, is it really a regret when I've simply reajusted my portfolio? I don't know. But it's a great stock and a no-brainer, which is not the case of all the stocks I own. 

I think that Sherwin Williams is one of the best stocks. If we experience a second big drop, that name should be on a watch list. 

Portfolio review, september 9th, 2020

Almost 75% of the year has passed. It's funny how time flies when you're always high on meth and heroin. Days are just like a dream. Well, not me, but almost everybody in Vancouver would tell you that. 

So, after almost 9 months done in 2020, here's a portfolio review: 

Number of stocks: 25

Average ROE: 42

Average Forward PE: 32

Average Beta: 1

Annual estimated growth for the next 5 years: 14%

Performance YTD: +11%

Performance of the TSX YTD: -4%

Performance of the S&P YTD: +4%

OK, my performance includes dividends while TSX and S&P performances don't include dividends (around 2% I guess?). Depending on how we see it, I'm beating the TSX by 13-15% and the S&P by 5-7%. Still good. Not spectacular, but my method worked so far this year. However I find it strange to see my average Beta so high lately. It should be much lower. 

According to my portfolio, the price to pay to get an estimated growth of 14% per year for the next 5 years is about 32 times next year's earnings, which is a lot. But I think that's the right thing to do: pay for performance and have enough diversification to have some stocks that compensate for others in case estimates would not be OK. 

The stock market is probably my best friend now. Not because I like it particularly, but because it's my main companion every day and one of the few that didn't get on my nerves over the last 12 years. 

Not particularly thrilling to spend an evening with a closed market, though. 

Couche-Tard still kicks your ass

We're all talking about techno stocks while Couche-Tard, one of the most boring companies in the world, makes more and more money, every year since 1986.  

I'm a little late about this, but forgive me, I was staring at some mountain in Alberta while it happened: during the last quarter, Couche-Tard earned 70 cents per diluted share, up from 48 cents per share a year earlier. Analysts estimates were 40 cents per share for the last quarter. 

A lot of people still overlook Couche-Tard even if their business model still kicks asses. Their same store sales are still growing in a very nice way, which has hardly been the case of MTY (a business with much more diversity) over the last years. 

Average estimates are about 2US$ EPS in 2021 and the stock is currently sold for 33,60$ US $. So it means that the stock is currently sold for less than 17 times next year EPS. For such a great company, it's not expensive. I wouldn't say that it's cheap, but for a company that may very well double it's earnings over the next 5 years (it's debt level is currently medium but it drops every quarter), it's to me one of the best buys on the market right now. 

It's a recession proof model, what do you want more? You want the next big thing? 

Well, fuck you. 

Poles apart

My last travel with a friend of mine made me understand much better his approach to the stock market. I knew we were far away from each other, but this trip made me understand that we were on different planets:

• I introduced him to the stock market maybe 5 years ago;
• Back then, I told him to buy these companies: MTY, Apple, Couche-Tard, Biogen, Dollarama (and some others);
• He bought them all, but sold them all some time after. I don't know when;
• One day, he told me that he had bought some oil and gas company. I told him that it was exactly the kind of company that he shouldn't buy;
• He didn't listen to my advice and started to buy more and more of these companies and he eventually sold all the ones I recommended;
• Lately, he told me that he had buy airlines, mines and he was heavily into oil and gas companies;
• During the trip, he told me that some stock was up 25% or so and he told me that he planned to buy it, solely on the fact that this stock was rising;
• Everyday, he told me that this stock or that stock was up 5% after-hours or another stock was up 20% since he sold it. Everyday, he watched the market with emotions and regrets about stocks that went and gone in his portfolio;
• During the last days of the trip, he told me that one of his stock was up 3000% or so. He told me he had made 8000$ and it was the most beautiful day of his life. The next day, he realized that it was a reverse split and he actually made almost no money during that day.
• While we were in Vancouver, Vicario and me talked about some stocks for a couple of minutes (95% of our time was devoted to fishing or talking about anything else than investment). My friend intercepted this discussion and said that he would buy the stock Vicario was talking about. And also another stock which I talked about that Vicario liked but didn't own. I was shocked. After 5 years of telling him how to invest, he stopped listening to me and bought stocks which I didn't like at all. And now, after 2 minutes of a quick discussion, he told he was going to buy some stocks which he knew jack shit about, just because a guy that works in finance in Vancouver tells a very brief opinion about that stock. 

Frankly, I was sad. How can someone put thousands of dollars on the stock market without trying to understand what he owns? How can someone trusts somebody he doesn't know just because the guy works in investment and live in super expensive Vancouver? 

I tried to make him understand that if we were with Vicario, it was because him and I shared a similar approach about the stock market. Otherwise, how could have we got together if our philosophies were very different? In other words, why trusting Vicario if he didn’t trust me?

I wrote that before but it's as true as ever: that friend wants emotions with the stock market. He sees it all like a big casino and acts with feeling instead of reflexion. He never took the time to calculate his performance and I bet that he would be pretty disappointed to see it VS the market. But I don't think that it matters to him. He wants to come back from the casino one night, telling his friend that he made 1000$ on the roulette. Not poker, not Black Jack: the roulette. The game were your chances are as random as possible to make money. 

********************

After all, buying a mine or an oil and gas company, is comparable to buying a normal retailer that sells clothes like 100 other retailers. Why would you buy Sears over Macy's? Which one has an advantage over the other? What's promising with these businesses? 

Worse than that, an oil and gas company depends on the price of the resource which is fixed by a cartel and there's a shitload of competition in that field. That's the exact opposite of a company that builds and sells Iphone, for instance (yes, there's competition with cell phones, but each company has it's edge and they can charge the price they want, if they have a big edge). 

Vicario's Costco Basket

I just come back from 10 days in the west (Alberta and BC). I really enjoyed Banff and Jasper because of their incredible sceneries. But the most incredible scenery will probably be getting close to Jason Del Vicario and his family.

Because Vicario invited me to sleep at his cabin located on an island, close to Vancouver. We went to Costco together, we went to some Liquor Store, we took his boat to go to his cabin, we drank beer, we smoked a bit, we swam in the cold water of the Pacific Ocean in front of his cabin, we ate salmon and shrimps together (both caught by him) and we fished for almost 12 hours the next day. Holy fucking shit, what an adventure it was. 

I hear you asking: "What does Vicario put in his basket at Costco?". Yeah, great question my friends. Nothing better than a picture to answer that question:

Vicario is kind of a hippie. He lives in a cabin that is almost autonomous with solar panels and barrels to receive the rain. That guy is surely not the kind that buys a Ferrari and snorts coke. He's much more the kind of guy that lives in nature and that washes in the Pacific instead of in a shower. I wouldn’t be surprised if  he’d piss and shit there too.

It takes a lot of trust to invite someone you've only seen for a couple of hours in a bar in Quebec city to your cabin located more than 3000 kilometers away. 

In contrast, I'm someone who doesn't really like people in general, and I don't usually trust people on the Internet. I usually think that some shit will happen to me if I trust them. But Vicario invited me at the place where he shits every day, among his wife and four boys. He's been very generous and simple and didn't try at all to impress me. Oh shit no. There was food dropped on the floor by his kids at many places, it was really "what you see is what you get". How can you not trust someone like that?

I'm not saying to have a blind trust on Vicario, such as a blind trust on me or anyone else. But he's cool and simple and so many people are fucking assholes or search exposure for the wrong reasons (they couldn't play the guitar and become a rock star, so they try to become star investors). Vicario is not like that... well, I don't think he's like that from what I've seen. 

So, him and Be Smart Rich are, to me, the two only guys related to investment in Canada that get my Penetrator love stamp. 

The 15% rule

The rule I try to follow the most in investment is the 15% rule.

It means: try to find a stock with a growth rate approaching 15% per year (which is hard and very often expensive) and a ROE of 15%. 

The stock market offers new stocks every year and some rookie stocks seduce a lot of people. Some people say "things have changed, it's not like before, we now must value stocks in a different way!".

Well, some people said that in 1999-2000, just before the mega Internet bubble bursted. And probably that some people said that in 1929 too. But I don't remember exactly. It's too far for my memory to be accurate. 

My portfolio is based on that 15%  rule. I try to be rational but a bit agressive. Once again, it's just my method and it may not be the best in the world. But that method implies that I buy stocks that offer a good growth, but not a crazy growth that would bring too much competition or that would be very hard to manage. 

First and foremost, I understand what I do with that method. It should always be the first thing to consider: do you understand what you're doing with the savings of your life? 

The Darkest Hour

I just finish watching "The Darkest Hour" on Netflix. It's a movie based on the beginning of World War II and the struggle of Winston Churchill to remain at the reins of the government while some political opponents made pressure upon him to negociate with Mussolini for some kind of peace treaty. 

It's very good. Of course, there's some flaws in the movie, but, mostly, it's a great story about a great character. 

Do you realize how hard it may have been to see all of Europe fall to the hands of Nazi Germany and be the only free country on the entire continent (except from some small neutral countries)? Seeing how strong are the german armies and how easy it is for them to defeat everybody, including Poland, France and Russia... And seeing the Luftwaffe bombing London for many weeks. 

The movie ends with what is probably the greatest speech in the history of mankind: the famous speech where Churchill says that England will fight on the streets, on the fields, everywhere, and they will never surrender. That speech has been heard by millions of people and is even sampled in some songs like "Fool's Overture" by Supertramp.  

That's very inspiring to see Churchill in action. He may have been an alcoholic and, to some extent, a white supremacist (who would not have been in the 30's and 40's?) and an angry person, he saved Europe more than anybody else. To me, he's the ultimate symbol of resistance. 

I recommend you this movie. As I recommend "Greatest events of World War II in colour" which is also on Netflix and probably even better than "The Darkest Hour". 

The big thing with Berkshire and Barrick Gold

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Slow and steady

Here I am: 41 years old and at a point where I could leave my job for something else, drop my income by 50% and live relatively well (I couldn't travel as much as today and I couldn't have that much latitude, but I could be OK and my savings would be OK for the future). 

You probably know it: there's a lot of ways to invest on the market. There's also some different ways to get richer on the market. But there isn't that much ways to get rich in my opinion. Because the gambler way isn't viable on the long term and the cyclical way always hits a wall. 

I think that my way is a good way to get richer. In my humble opinion, buying 20-25 great companies that are a bit expensive but that have proven that they were very solid will help you to beat the market. You won't make 50% during a specific year, but if the market does 10%, you'll probably do 12-15%, if you picked well. 

Why playing with your money? You've worked hard for that money. You've made sacrifices for that money (you didn't buy a porsche... you saved your money and ate carrots). This isn't a casino or a poker game. 

What's the goal? Getting rich as soon as possible or getting richer slowly but surely? By slowly, I don't mean starting to invest at 18 and being rich at 80. I mean doing about 12-15% per year. 

When you aim too high, worries are not too far. You take more risks, you don't sleep well. You think too much about your investmens. 

To me, a portfolio is a partner. It will follow you all your life and you have the entire control on it, contrary to most of the things in your life. You don't even have the control on your health. You have even less control on people around you. 

And when life gets tougher with you, your portfolio is a comforting aspect of your life. And the future, on that aspect, looks bright. Even if you have 3 fucking months to live. Well... I don't know. 

I won't leave my job tomorrow. Actually, I plan to work at least until I'm 50 and keep my good income until then. But I may get another crazy boss one day or another and my plan might change. Who knows? One thing is sure, I won't work for 20 more years. The maximum I see is 55 years old. 

Anyone's got a philosophy different than that? You won't convince me to change mine, but you can share it in the comment section.  

Akre Capital + Giverny Capital latest transactions

A few years ago, I had the worst boss I've ever had in my life. I hated my job. The guy was mean. He acted like a cool guy in public, but we saw how mean he was when he started to intimidate a lot of people by various methods and even fired some people. 

Recently, I learned that he has cancer. It was such great news! It may sound cruel to be happy with that kind of news. But to me, it would have been much more cruel if people being intimidated or fired by him would have got cancer before him. I've felt like shit for months and one of my friends was basically destroyed by that boss. I also know some other people who slept badly while they were under the orders of that boss. So, that's good for him. 

I don't know exactly what kind of cancer he has but I wouldn't give a fuck if he had pancreas cancer. 

**************

OK, now that I've written another of these things that will keep me for many more years from being publicly praised by anybody with some notoriety, let's talk about the lastest transactions of two of the only firms that deserve respect: Akre Capital Management and Giverny Capital. 

First, for Akre, the two only "conviction" transactions made during the last quarter ended on june 30th were Costar Group (CSGP) where he added 117% to his position (the stake represents 5,11% of the portfolio) and Ansys (ANSS) where he added 30% (1,34% of the portfolio). 

Akre is usually not that active. I like that. To me, it means that  he stays focussed, which lacks to a lot of investors. 

That focus seems not to be as important for the guys at Giverny. They've been hyperactive during the last quarter. It looks like the bargains of the spring made them crazy like shit. 

They initiated a shitload of small positions. However, their conviction transactions were as follow: 

Alphabet: added 6% to GOOG and 38% to GOOGL (both representing 6,4% of the portfolio

Progressive (PGR) added 6% (4,81% of the portfolio):

Facebook (FB): added 24% (4,76% of the portfolio)

Heico (HEI): added 5% (4,11% of the portfolio)

Markel (MKL): added 7% (4,05% of the portfolio)

Charles Schwab: added 7% (3,21% of the portfolio)

Five Below: added 10% (3,07% of the portfolio)

Intercontinental Exchange (ICE) (which I wrote about not so long ago!): new position (2,34% of the portfolio)

They also sold entirely their long time stakes in Mohawk and Union Pacific. 

When I take a look at Giverny Capital's stakes, there's too much financials, in my opinion. But, except for that, they buy some of the same stocks as me. 

Well, maybe I copied their approach a bit.

Another approach (part II)

 These last years, I've spent a lot of time trying to balance my portfolio the best possible way. 

Some aggressive stocks here, some defensive stocks here, many stocks with a low debt level and a few stocks with a higher debt level but with good growth prospects. 

Almost all of these stocks were highly predictable. 

But then, I realized lately that I could be more aggressive than I was. 

Of course, Be Smart Rich is responsible. But there's also Pat Dorsey. 

So, I decided to rebalance a bit my portfolio. I trimmed some less performing names and I bought 4 very aggressive stocks. All of them are very very expensive, one of them is barely profitable but growing very quickly. These 4 stocks represent about 8% of my total portfolio. 

Here's my rational: if these 4 stocks had a performance over 100% during the last year, at least one of them should continue to do very well during the next year. So, if one of them is doing 100% during the last year and the three others do nothing (negative scenario... because I don't think that 3 of them could suddenly achieve a negative performance and only one positive), the average performance for these 4 stocks would be 25% (100% divided by 4). Of course, things are not that simple. You have to believe in these stocks, not just take a look at a chart and chose randomly the stocks that performed better. 

I would never do that with 50% of my portfolio. Very expensive stocks (stocks with a forward PE of 80 or 100... and sometimes even more) are very difficult to value. But I think that I mitigate the risk by chosing 4 of these stocks instead of only one and keeping the total percentage of these stocks lower to 10% of my total portfolio. That's what I'm writing to convince myself that I'm right, at least. 

That approach is contrary to everything I've written over the last years. It's a bit like Cat Stevens leaving everything for islam in the late 70's. 

Well, not really. Let's say that it's like Cat Stevens chosing to eat halal food for a couple of months just to see if animals that suffered before dying are more delicious. 

Another approach

Yesterday, I had an interesting discussion with Be Smart Rich, the nice chinese guy from Toronto. 

First, I have to say that, since the beginning of the year, my portfolio had a performance of 12% VS 1% for the S&P500 and -5% for the TSX-S&P500. So, I beat these indexes by 11% and 17%, which is very good in my opinion. It's not just skill and intelligence, it's also a question of chance. 

But anyway, I'm going somewhere else...

Be Smart Rich told me that his performance so far in 2020 has been close to 60%. Yes, sixty percent. That's fucking crazy. How come someone gets such good returns?

Well, I don't know the whole story, but he seems very interested by Livongo Health, Sea Limited and Mercadolibre. These three companies surged by 430%, 230% and 105% since the beginning of the year. 

Plus, if you use margin, you can magnify your returns substantially. 

It looks easy and simple, but who's really comfortable to buy stocks that grow their revenues a lot but for which EPS are very low or even negative? Actually, these three stocks have negative EPS. Investors bet that the revenues will continue to grow a lot and, eventually, the break-even will be reached (or margins will be increased). 

It's contrary to all I've learned. And, you can't value your portofolio with that kind of stocks. There's a lot of unpredictability, may it be positive or negative. 

But it works. And it works much better than what I do.