Some screeening to help the masses

A lot of people, including myself, have said numerous times that the market was expensive, but now,  I see almost nothing that's worth buying. What's worrying me is that I see a lot of people talking about buying stocks that are selling for 40-50 times their earnings. It seems more and more normal to pay that kind of price. 

Apple for 26 times earnings (21 times next year's earnings) with an estimated growth of 9% per year? What the fuck? It's not a normal price. 

But sometimes, impressions are not completely true. In these times, you should screen the market.

That's what I just did, via Value Line. And without any particular deep analysis, here's a list of 10 stocks that are highly predictable, that have grown their EPS by 12% over the last 5 years and are planned to grow their EPS by at least 12% for the next 5 years. Finally, all of them are selling for 24 times their current earnings or less.

Alimentation Couche-Tard

Autozone

Booking Holdings

Canadian Pacific

Genpact Limited

IQV

NVR

Charles Schwab

Ulta Beauty

UnitedHealth

My favorite in that list being probably Genpact and Couche-Tard. 

Where capitalism can lead

I don't believe in communism. I don't even really believe in socialism. But, as time goes, I believe less and less in capitalism.

Frankly, there's a lot of companies that only want more and more profit. We've seen dishonest practices for decades for many businesses. Recently, we've seen that with Valeant (well, it was maybe more immoral than dishonest), with Wells Fargo, with Volkswagen, and many, many others.

The most disgusting industry is probably the one I liked the more, not so long ago: the pharma industry.

Let's take a look at my current experience:

With my Crohn's disease, I began a treatment with a cheap drug. However, it made me feel ill, like a pregnant woman. It wasn't unbearable, but it was nonetheless not very comfortable.

Today, I met my doctor who said to me that we should change the treatment, because that drug didn't work with one patient out of two and it could be harmful in the long term (I said to myself that he could have told me that before, like when he gave me the fucking prescription, but well, it was just 4 months ago).

So, he prescribed me another drug that I'll have to take, like insulin shots (I'll have to prick myself). That new drug would be less harmful with less secondary effects. However, the annual cost of that treatment is about 30 000$.

Yes, 30 000$ for a disease in it's early stage. We're not talking about cancer or AIDS here. We're talking about a relatively common disease which is serious, but not fatal.

My insurance will pay almost all of it. But, come on. Even if my private insurance will finally become profitable for me, it's crazy to pay that price. Who the fuck could pay that price without an insurance or with a condition that doesn't make them coverable by an insurance? That's fucking crazy.

I don't have any financial problems, but without an insurance I'd be out of my fucking mind, thinking about how to pay that sum. Imagine if you have a disease so rare that there's a monopoly with the drug that's used to cure it (it's not the case with Crohn's disease, yet prices are astronomical).

That's capitalism my friends. And as long as you're not sick, you don't give a fuck about it. But, sooner or later, you'll get sick, or someone very close to you will get sick. And that day, you'll see those fucking pharma are not full of cash for nothing.

The magic number

Time is precious. And as time goes by, time is more and more precious because you know that you’ve got less and less of it. 

I'm right in the part of life where I haven't that much time left. I arrive early at job and come back a bit late (I'm away from home from 6:30AM to about 6 PM). But I have a job that gives me an income that sets me amongst the 1-2% of the canadian population, so it's hard to complain.  But nothing's perfect. There's not just the income. There's also the joy to be at work, and sometimes the two are inversely related. 

So, I often ask me at which point I'll say that this is enough? At which point will I drop my big job for something more quiet, where I could live without any worries, but I wouldn't get the income that lets me do basically whatever I want to do and buy anything that's not an overly priced luxury (well, for instance, I could buy a drum or go to Japan tomorrow, but I couldn't buy a Porsche…)

To me, the magic number related to freedom is 1 000 000$. Because if you invest that amount in a smart way, you’ll get 100 000$ each year (based on the historical performance of the market). 

If Penetrator can reach the 1 000 000$ level, he’ll be able to slow down, leave his job for a job with less responsabilities and less pressure. He’ll can easily get a job that earns 80 000$ a year, which would be enough to cover all his expenses (because when you’re a 40 years old professional, that’s about the income you could get).

With a 80 000$ income, the house and the car are paid such as the usual expenses (food, gas, school, etc). Penetrator still has some money for his hobbies and a little money to invest on the stock market. But not that much. Anyway, it doesn't really matter to save money when you have 1 000 000$. 

At 40 years old, there's a milestone in your life. You should think a little bit more about comfort. But with one million dollars in stocks, I think there's another milestone: you should stop thinking about saving more money and working for money. You should look for a balance about spare time and money. 

Donville Kent performance

Once in a while, it's interesting to look back to old influences, just to look if we've followed the right track or not. Just like when we take a look at that ex girlfriend on Facebook and we see that she's now very fat and spends her summer weekends on camping grounds with her retard-looking boyfriend and their three ugly kids. And under her profile pictures, she writes song lyrics. Holy shit, how could you ever have been interested by that kind of girl?

It's about the same when I look at Rifco, Cipher Pharma, Concordia, PHM, Pulse Seismic and many others, I realize how wise it was to stay away from these stocks... or to have been only shortly invested with some of them. They're my reference when I now firmly say that a penny stock or a few-bucks stock is almost always a bad investment.

And let's take a look at the portfolio of the guy who made me know about all these stocks.

Because the performance of Donville Kent is out for 2019 and here's how it looks (I've used that website to get a benchmark):

2015
S&P/TSX: -11%
Donville Kent: 4%

2016
S&P/TSX: 18%
Donville Kent: -2%

2017
S&P/TSX: 6%
Donville Kent: 11%

2018
S&P/TSX: -12%
Donville Kent: -5%

2019
S&P/TSX: 19%
Donville Kent: 19%

How would I qualify this performance?

Everything is relative. If you're a beginner and you make a lot of mistakes, that performance may look good. If you have a few year of experience and you know many things about investment, the most positive comment you could say would be "So-so".

But if you take account of the fact that Donville Kent employs professionals that have been active in finance for many years and run an office in expensive Toronto, I would say that this performance is disappointing. I consider myself as a medium-good investor, but not an outstanding one. Nonetheless, for the last 5 years, I've beaten Donville Kent by a wide margin. In 2015, my portfolio had the same performance as Donville Kent, but after that, I've beaten them, year after year.

When we compete against people that sit in front of their computers in their underwear (like I do currently), we must stay humble. But when we manage to beat people with suits and ties that work in an office that costs 50 000$ a month to rent, it's a very strange feeling.

A kind of unease.

Resources

You're a new investor or a gambler investor and you want to invest in resources? It's not a good idea. 

Every serious book about investing will tell you the same. And every serious investor (just take a look by yourself via dataroma) avoids resources.

You don't give a fuck about all of these opinions because your friend has made a lot of money with gold during the last crisis?

Here's some observations:

Exxon Mobil:

Current price: 70$

Price 10 years ago: 69$

Agnico Eagle Mines Limited

Current price: 60$

Price 10 years ago: 54$

Canadian Natural Resources Limited

Current price: 41$

Price 10 years ago: 36$

BHP (formerly BHP Biliton)

Current price: 55$

Price 10 years ago: 70$

Barrick gold

Current price: 18$

Price 10 years ago: 35$

A good way to lose against inflation is to invest in natural resources. OK, there's only 5 stocks in that list, but they're big companies, so, the picture would probably be worse with smaller companies. 

If you're serious, don't touch natural resources, even if they're sold for 3 times their earnings. It's only slightly better than micro caps: with resources, you'll do fine 2 times out of 10 while you'll do fine 1 time out of 10 with micro caps. 

Performance for 2019

I've seen that a loooooot of people had a great performance in 2019. Many had a 30% return. Some even had a 40% return.

Those who worship me (they are countless) will be disappointed to learn that I've only had a 27% return, which is equivalent to the performance of the S&P. I've beaten the TSX/S&P by about 9% though, which is my benchmark. And I've beaten all those people who only put their money at the bank (they had less than a 1% return).

But, I'm a bit puzzled by the fact that I own great businesses and they did only as good as the S&P500 which includes a lot of very average businesses.

Which one of my stocks did the best? The Trade Desk (up 118%), however, I didn't own it for all the year, so the real answer would be Boyd Group (up 84%).

Which one of my stocks did the worst? MTY Food Group (down 12%).

What is great to me is that most of stocks had a performance between 20 and 40%. I haven't known the joy of owning Shopify and getting a 181% return or the sadness of owning Canopy growth and getting a -27% performance. My portfolio is steady and I like that way. When stocks go up or down like crazy, it usually indicates that they're too much linked to the excitation or consternation of the market.

I only write that because I haven't beaten the S&P by a wide margin. Otherwise, I would just say that I'm very satisfied and I deserve a blow job from all of you.

Picks for 2020

My picks for 2019 were:

Alimentation Couche-Tard: up 21%

MTY Food Group:  down 8%

Five Below: up 25%

Alphabet: up 29%

Visa: up 42%

Average performance (excluding exchange rate and dividends): 21,8%

compared to...

S&P/TSX: 18%

S&P: 27%

That's an OK performance. I've seen a lot of people on the Internet that did much better than that. Actually, I did better than with my portfolio, but I'll come back to it later. For now, here's my picks for 2020:

Alimentation Couche-Tard

MTY Food Group

Boyd Group

Alphabet

Facebook

All of them have an estimated growth of 15% or more for the next year, except for MTY that's got an estimated growth of about 10%. Some people may aim much higher than that with their picks but I prefer to stay with agressive stocks that have high chances to achieve what is estimated and that are not too pricey.  

For 2020, I wish you to be financially independant. To leave your job and to stay in your underwear all day long without being exposed to people you hate. That's what you should aim for when you begin to invest and what you should continue to aim all through the road. 

Please, share your 5 best ideas for 2020 in the comment section.