lundi 24 février 2020

A great day

I don't know for you, but I've been very active as a buyer today. Actually, I'm almost excited about all these 5-7% drops of prices today.

First of all, MTY released good results. I bought back some shares that I've sold for a couple bucks less last week. OK, I've lost a few hundred dollars with that move, but I wanted some security and I believe that it was the right thing to do at the time.

On the canadian side,  there's also Dollarama which is down a lot lately.

MTY and Dollarama may only grow by 10-12% on an annual basis from now on, they're still among the best stocks in Canada. Well, I have some doubts about MTY, but I still like it.

Then, many great american stocks were down 5-7% today:

Facebook, Amazon, Keysight Technologies (down 6% during the day, then up 6% after-hours because of great results), Paypal… I've bought more shares today than I've done over the last year. The stock market may continue to drop over the next weeks, I don't care.

I still have a lot of cash left, so I'd only be happy with a crisis with that harmless coronavirus. Come on, more people die of flu than coronavirus. And even if it's an epidemy at some point, I don't care, because if we all die, the value of our portfolio doesn't matter: we'll all die. Oh yeah, at last, we'll all fucking die like we deserve to do.

So, come on, you fucking stock market: go lower. Go to a point of absolute panic and give me Copart for 15 times earnings. Yeah, drop that fucking price by a half.

13 commentaires:

  1. Economical Impact (In no specific order):

    => Over 50,000 flights cancelled to/from China (Many airlines are bombarded with refunds/rescheduling)

    => Global tourism to decline to due travel restrictions/fear

    => Global oil demand to drop significantly due to declining air travel / factory shutdown in China

    => Global supply chain squeeze will follow up shortly in the west as companies run out of parts/supplies from their vendors in China

    => Global supply chain dominos; a lack of a cheap part (e.g. specialize screw/bracket) can halt production on higher value items like electronics, cars, machinery, etc.

    => Hyundai in South Korea ceased all production in early Feb due to part shortage from China. Toyota was looking for new suppliers for auto parts around same time.

    => Many businesses closed in China (e.g. Disney Land, Starbucks, Lukincoffee, etc etc).

    => Chinese restaurants in North American/UK severely impacted due to fear/xenophobia/racism. This is also raising racial tensions in NA/UK as well...

    => Current estimates on global wage loss due to shutdowns to be over 1 Trillion USD.

    Medical Impact:

    Firstly, the comparison between Novel Coronavirus (COVID-19) to the seasonal flu is hugely, HUGELY, misleading. While the total death toll for the season flu is significantly higher, it's also very well studied with extensive documentation on incubation times, symptoms, treatments, recovery times etc. While COVID-19 is a new strain with very little information (Hindsight is 20/20), there is still so much we don't know about how it spreads, etc. Furthermore, the fact it's very contagious, combined with a low mortality rate actually makes it MORE deadly in other ways. Reasons range from:

    Lower mortality combined with high R0 factor means it will infect MORE people for a LONGER period of time.

    Higher infection rates means it will overwhelm current medical infrastructures; doctors, nurses, medical supplies, etc - to be clear, there is no medical infrastructure in the world that can handle a sudden spike in patients (e.g. from 500 season flu patients to 5,000 patients infected with COVID-19).

    A longer infection duration on the general population gives the virus a higher probability to mutate (possibly into something more devastating).

    Well the corporate earnings for companies might be good for right now, that might not be the case in 3 months from now.

  2. I was buying yesterday too. Still have some cash, but now about 90% invested.

  3. Another day, another 3.22% drop in portfolio. I should be getting my cheque at the end of week and might deploy the remaining reserve tomorrow.

    I have done a back-of-the envelope summary of interesting TSX comapnies. The hurdle rate is expected earnings yield at 5 years of at least 12.7% (1%/month), based on price per 2020 earnings, 5-year average ROE, and TTM price per book, payout ratio, and dividend yield. The calculation assumes all dividends are reinvested at current prices and the company is able to compound at historical average. Note that this is probably quite inaccurate - for e.g. it does not factor in buybacks.

    Out of my current holdings, the following were the most interesting investment options looking at back-of-the-envelope projected 2024 earnings yield at current price:
    LNR = 36.56%
    EQB = 23.13%
    CTZ = 17.61%
    NFI = 13.02%
    DOL = 12.93%
    none of my other holdings/watchlist pass the apriori threshold without adjusted numbers

    Looking at 10 year horizon, we get slightly different results:
    LNR = 94.16%
    CTZ = 85.99%
    CSU = 64.53%
    TC = 50.78% (not current holding)
    EQB = 48.74%
    Most of the other holdings pass the threshold - but some like ENGH and BAM do not... even though if we dig deeper and would make the necessary adjustments we can be quite sure they would... just from their track record of EPS growth and for BAM for e.g. in their future carry earn outs... Interestingly, some companies like VCI, which I have been watching for years and hoping to buy at P/CF below 7.88 (its EV/EBITDA is already below this) does not make the cut... because of no growth. I got burned on CMG several years ago... and that is why not just high ROE but also lots of reinvestment opportunities are important.

    Right now, I am considering buying more of CCL.B or DOL and maybe MTY, EQB, CTZ, or ATD.B since they have all dropped by quite a bit and especially CCL and DOL are about 20% below their full position target, I set out in January. I also hold part of them or all of them in non-registered account while some other holdings (like LNR) are only in TFSA etc.

    Their numbers are as following
    ticker = projected 5yr yield; projected 10yr yield ; ROE ; ROIC ; EV/EBITDA ; 5yr EPS growth ; operating margin ; leverage (net debt/EBITDA)
    CCL.B = 11.18a ; 23.23a ; 20.35 ; 10.70 ; 9.21 ; 10.83 ; 12.94 ; 2.37a
    DOL = 12.93a ; 34.05a ; 23.66a ; 21.04 ; 17.04 ; 18.64 ; 18.66 ; 2.59a
    MTY = 12.53a ; 25.90a ; 19.03 ; 15.45 ; 12.21 ; 12.52a ; 28.02 ; 5.57a
    EQB = 23.13a ; 48.74a ; 16.75 ; n/a ; 7.77a ; 12.13 ; 41.45a ; -0.28a
    CTZ = 17.61a ; 85.90a ; 37.33 ; 37.33a ; 14.02 ; 18.56 ; 31.39 ; -2.31a
    ATD.B = 11.51a ; 30.62a ; 23.85 ; 14.75 ; 11.44 ; 15.67 ; 3.56 ; 3.05a

    I do not have a lot of time, so I just pulled the numbers from morningstar without verifying them / updating them to most recent quarter or adjusting for cash holdings, buybacks, etc.

    I will put limit orders to buy a few more shares of DOL @ 37.65 and CCL.B @ 43.80 (numbers rounded to allow whole share purchase with money I have available just below closing price).

    If the market collapse will continue, I will gradually evaluate the situation and allocate surplus cash accordingly. I am underwater on most of my holdings and wish I did not buy in January but instead now.

    What are your thought processes in current market? What are you buying?

    I expect worse than usual Q1 and slowed earnings growth in global economy. However, at least for Canadian companies, this should be already priced in share price which is below levels they were trading several years ago. Moreover, most should have fairly resilient business models with active growth or turnaround plans which allow them to grow earnings in the future. Several of my holdings are heavily investing in vertical integration and streamlining/efficiency/automation/logistics initiatives which are dragging down earnings but should benefit the future.

    Good luck everyone!

    1. Picking stocks based on conventional metrics alone is often not a worthwhile exercise. If it was that simple then all the CFAs would be the best stock pickers. Don't let currency conversion rates stop you from buying American stocks. The capital appreciation from good American stocks will make that fee negligible. Besides, maybe you'll make money from the shifts of currency value.

    2. What is your stock picking and due diligence process? I got burned on the adjusted earnings of the health care growth stocks a few years back. My lesson from this was to focus on actual earnings / cash flow and be mindful of the actual yield the company produces. It should be difficult to cheat on accounting for multiple years in a row. I find knowing that if I were to invest 10k in a company, it would earn 1.4k now and still grow organically in mid teens than a company which makes 300 per year now but might grow much faster if it can roll-up several smaller companies which may or may not work out in the end. Maybe this is a cognitive bias I should try to get rid of for the future.

      I made most capital gains on stocks which I would normally probably never buy because they were too expensive - for example Constellation Software or Solium Capital. I originally bought them because I saw they were trading cheaper than prices at which some mutual funds whose financial statements I follow were buying them in previous quarters.

      I also hold some companies which look bad on paper because I have high hopes for their business model after researching their management and addressable market potential - for example ECN capital which is largely a non-recourse lending software middleman and asset manager. The business is still transforming and picking up so its numbers are very bad. I came across this business by accident though after seeing most EFN holders selling it and yet the former CEO chose to go with the new business and was buying heavily the newly spun out business.

      My CCL.B order got filled earlier today and I am already underwater on the purchase. DOL order has not been filled yet. My portfolio fell by another 1.13% today... and I am essentially all tapped out (I only have about 3 months of living expenses which is my safety reserve). I even filed my taxes yesterday to try to get my tax refund as soon as possible.

    3. You would laugh at my stock picking and due diligence process.

      "I made most capital gains on stocks which I would normally probably never buy because they were too expensive..."

      "I also hold some companies which look bad on paper because I have high hopes for their business model after researching their management and addressable market potential..."

      That's basically what I do as well. I invest with a forward thinking approach -- I ask myself which companies have been doing it right, will continue to do so and are in a good industry. Sometimes I buy companies because I like their business and find myself to be a repeated customer. But I think Warren Buffett is right -- most people should just buy a S&P 500 ETF. I don't exclude myself from that group either. In 2019 it returned 30%. How many people did better than that? And if they did, how much more risk did they have to put on the table?

      I have a mix of ETFs, tech stocks, Canadian dividend stocks and cannabis stocks. Many investors put their nose up at "speculating" but it's undeniable that's where the money is if you choose right. Many of today's blue chips were considered speculative at one point. It's a risk to reward deal.

  4. I bought more PYPL as well. And FB, MSFT, EL, ADP.

    1. I see you must like Terry Smith. Do you hold any Canadian stocks?

      If I move back to Eastern Europe after finishing my degree, I will explore going global. For now, the currency conversion costs are a bit discouraging for me.

    2. I think Terry Smith and Pat Dorsey will both outperform the SP-500. I use both to source many of my holdings. And US will beat Canada.

  5. to get around currency conversion, buy a dual listed stock like BCE or CNR. Buy on TSX and sell on NYSE. You pay 9.95 each way but no conversion fees. The risk is if the stock pulls back in the duration.

    1. Dear Twotime,
      Thank you for the advice. I have heard of Norbert's gambit before. What brokerage account do you use? Do you need to have both CAD and USD accounts open with the broker? Do you need to call the broker to settle on the foreign exchange (I think there is minimum charge of 30 or 60 per phone trade with my broker)? I am currently with RBC Direct Investing and would like to transfer to Interactive Brokers once I will have 100k USD equivalent in non-registered account.
      Have a nice evening!

  6. Tomorrow is the last day for RRSP contribution for the fiscal year 2019. With the ongoing correction, I will transfer a lot of money from m credit line to my RRSP account in cash, and buy shares later on. We are not done yet with this correction, and by transferring my money now and filling my income tax report this weekend, I will have a hefty tax return check in month. I have a lot of unused RRSP contribution though

    1. Do you regularly use margin (whether in account or through other lines of credit) when buying stocks? If so, do you put stop loss orders?

      What stocks are tickling your fancy at the moment?

      My portfolio is down another 1.81% today and my DOL order got filled. No outstanding open orders and no playing money until I can earn some more. Too bad in Alberta we cannot get paid for making a "donation" to certain type of "bank" like in Quebec... no quick bucks to be made here. Overall from couple of weeks ago, my portfolio dropped by 15.44% which is about two years worth of savings for me. If the stock sale will continue, I will try to allocate as much of my paycheques to adding more to my existing holdings. I only work part time though and have to pay for school, rent, etc so it will only be drops at the time.