Heico (HEI)

Heico designs, manufactures and sells aerospace, defense and electronics-related products and services. They have an aftermarket division which has almost no competition. About half of their sales are related to commercial aviation, which may not seem a good thing at all these days. But they've got a large moat. Something similar to Precision Castparts (which was bought by Berkshire Hathaway, a few years ago).

Thanks to Giverny Capital, I've discovered Heico about 3 years ago, because I've got the habit of following closely the transactions of that fund. However, I never bought Heico shares until recently because that stock has always been expensive (the word "expensive" is relative to what I'm usually willing to pay, because for some people who buy stocks like Shopify, Heico may not seem that expensive).

Here's Heico PE since 2010:

2010: 24
2011: 28
2012: 26
2013: 27
2014: 30
2015: 29
2016: 27
2017: 34
2018: 38
2019: 45
Current PE: 37

I'm always a bit reluctant for such pricey stocks, but, like I've written before, when you've found an exceptional stock, you must pay the price.

In which way is Heico exceptional? First, they've got a large moat, the kind of moat you can't find easily. Then, their net profit margin is close to 20% and their ROE is about 20. Plus, their EPS growth was about 21% for the last 5 years, which is great (very few companies have these 3 numbers above 20%). Then, it's a sector that should continue do to well in the years to come (after a hard time due to coronavirus). Finally, the company has almost no debt.

Over the last 5 years, the stock has risen by almost 300%.

When you can gather all this positive information about a specific stock, you know you've got something special. And HEI latest results which were out recently, right during a pandemic affecting a lot the economy, showed how great this company is.

Heico could probably become one of my forever-stocks. Actually, there's some place on my list since Dollar Tree and MTY are not there anymore.

Where the autist wins

Many years ago, when I was 17 or 18, I really thought that I could be a musician. I learned musical theory by myself, trying to create chords with what I knew. And I tried to write songs with complex chords, because C, D and G were for losers.

I spent a lot of time, practicing guitar and bass. I remember spending hours with my favorite CD's on my stereo, playing over and over the same songs with my guitar or my bass.

You have to be a little bit autist to do that kind of thing. You have to be very focus. You have to listen to one song, to try it, again and again to recreate the song in a perfect way.

When I was about 26 or 27, I stopped writing songs and recording them. I started to teach music to some people. And once again, the autist stuff came back. Because it was learning things and repeat them, over and over. That's the only thing that works: try something slowly, then try it quicker and quicker and quicker. Very often the same stuff, but quicker.

I finally realized, somewhere in my mid-twenties, that I would never be a professional musician. And probably not a semi-pro musician either. But I never gave up on guitar or bass. Because I liked playing music and I still like it.

Recently, I bought a new bass, for my birthday. I started to play once again, after more than one year without practicing bass at home. It felt great. And I've started to play new songs. And I realized that, when you try to play a complex song, it's about the same thing as learning to invest:

You have to be very careful on details. You have to understand what you do and what the band is doing. If you want to play a song perfectly, you'll have to play it a lot of times. That's where many people won't understand. Because most people don't want to put the effort in something. They'd rather lay on the couch with their phones, watching people masturbating on Tik-Tok or taking a crap on Instagram. Most people want to rest their brains at the first occasion.

Well, I really like to rest my brain. Actually, it's probably my favorite hobby. But, once in a while, I like to stimulate my brain or another part of my anatomy. That's why I like to invest on the stock market and why I like to play music.

Both are an intellectual challenge. And they're two of few places where the autist wins over normal people.

Yeah, if you're a good investor, you're probably a fucking autist.

Exceptional stocks (looking for the 5% or the 1%)

Here's some stocks with exceptional numbers. These stocks were picked from a database of about 2500 stocks. So, the ones that are showed in this post really standout. I think that there's not a bad stock in that list. Every one is either good or excellent.

Super high predictability stocks (5% of the database)

Canadian National
Home Depot
Ross Stores

Super high profit margin stocks (5% of the database)

AbbVie (40%)
Arista Networks (36%)
Facebook (35%)

Super high predictability + EPS growth over 15% for the past 5 years (1% of the database)

Carmax
Sherwin Williams
Starbucks

ROE over 20% + profit margin over 20% + EPS growth over 15% for the past 5 years + super high predictability (0,2% of the database)

Booking Holdings
Edwards Lifescience
Visa

When you realize that only 1 or 0,2% of the stocks available possess what you're looking for, how much are you willing to pay? About 15 times earnings, like the normal price that you have to pay for 50% of the stocks on the market?

I've compared that situation to luxury cars in the past. But now, with the documentary "The Last Dance" about Michael Jordan on Netflix, I'd be more tempted to make a comparison with sports:

If you have Michael Jordan or Wayne Gretzky in your team, do you think they will accept to be paid like the average player of the league?

Portfolio review (may 18th, 2020)

Penetrator portfolio

Number of stocks: 24
Average ROE: 50
Average Forward PE: 25
Average Beta: 0,88
Biggest position: Alphabet (8,6%)
Smallest position: Heico (1,4%)
Cash on hand: 0,8% of the portfolio
Performance YTD: 2%
Performance of the S&P500 YTD: -10%
Relative performance: +12%

On december 31th 2019, my portfolio was about 10% cash. It helped a lot to have that much money left to face the crisis.

Plus, almost all the stocks I own recovered quickly from the crisis. So, I wasn't hurt that much, except for a few weeks. And I used these weeks to invest all the money I had. I could have done a bit better, but not that much.

I own less and less canadian stocks. There are a few great stocks here, in Canada, but most high-margin stocks are located in the USA. Actually, we have nothing that could be compared to Mastercard, Visa and Microsoft margins in Canada. And usually, a company that grows a lot (+15% each year) and that has high margins is a company that you should never sell (as far as things still look OK for these companies). How could these companies with a profile shared by only 1% of stocks should be sold for the same price as the usual stock?

Once you assimilate and accept that fact, you've made a giant step.

Transactions of the last quarter (especially in march)

I'm changing the formula of my traditional "ce que les meilleurs achètent" posts. This time, I'll write about interesting transactions (in my view) from interesting investors.

Giverny Capital
They bought a big chunk of Five Below (FIVE) shares during the last quarter. Their FIVE stake now represents 2,35% of their portfolio (0,04% before). By the way, I was a big supporter of FIVE in the past, but I've sold all my shares some time ago.

There was a substantial increase of their stake in Bank of America (+34%) and Progressive (+25%). Both companies are at least OK, but I don't think that financials and insurance companies is an easy way to invest.

They sold their entire stake of O'Reilly, which is in my opinion one of the best US stocks. I don't understand why they did that. Perhaps they're crazy? They also reduced a lot their stake in Union Pacific (-67%), a great company, almost as good as Canadian National (CNR.TO).

Chuck Akre
Chuck initiated an important position in Adobe (3,5% of his portfolio or 363 million dollars if you prefer) during last quarter. He also initiated a position in Live Nation (LYV), a concert company. I'm not sure that it's a good idea to invest in that kind of company in 2020. Actually, it sounds like a very dumb idea. But I respect Chuck anyway, even if that investment may indicate an early stage of dementia. On the buy side, he also increased his positions in Mastercard (+8%), Visa (+7%), Roper (+8%) and Carmax (+21%). All of them being great companies. But my favorite are by far Mastercard and Visa.

An interesting thing about his selling is that he sold about 90% of his Berkshire Hathaway (class A and B) shares. Probably to have more money to invest in stocks that dropped much more than BRK (that was the strategy of someone in the comment section, a few weeks ago). It's an interesting strategy, if that's really what Akre did. Because when Berkshire drops by 10% and Mastercard drops by 30%, you're probably right to sell the first to buy the second, when it's available for 22 times earnings.

Warren Buffett
What the fuck? He did almost nothing during the last quarter. Of course, he sold his airlines stocks, but apart from that, the only important thing he did was to reduce his Goldman Sachs stake by 84% (now 0,17% of his portfolio... why keeping such a low position?). Frankly, I'm puzzled about so little transactions by one of the richest conglomerate in the world.

Ok, now let's take a look at 3 stocks I've talked about recently and which seem attractive to me: Google, Facebook and Berkshire Hathaway.

Google
Pat Dorsey (+352% to his position, now 13,7% of his portfolio);
Seth Klarman (new position representing 5,2% of his portfolio);
Thomas Russo (+25,9% to his position, now 4,6% of his portfolio).

Facebook
Pat Dorsey (+35% to his position, now 25,5% of his portfolio);
Michael Burry (new position representing 12,7% of his portfolio), I don't know who is this guy BTW;
Seth Klarman (new position representing 4,9% of his portfolio).

Berkshire Hathaway:
Bill and Melinda Gates Foundation (reduced their position by 10%, now 47% of the portfolio);
Allan Mecham (reduced the position by 26%, now 38,3% of the portfolio);
Glen Greenberg (+18%, now 18% of the portfolio);
Bill Ackman (+36%, now 15,2% of the portfolio).

Many other people were active on these 3 stocks. I neglicted some of them. You may look by yourself because there's a little bias here.

Discipline

Here's my birthday once again and here's the moment to take a look at my portfolio over time.

More precisely, heres the growth of my portfolio from mid-may to mid-may, since 2009.

2009: year 0
2010: 75%
2011: 41%
2012: 38%
2013: 31%
2014: 50%
2015: 54%
2016: -8%
2017: 22%
2018: 19%
2019: 32%
2020: 16%

Compound annual growth of the portfolio from may 2009 to may 2020: 34%.

In other words, my portfolio grew by 22 times since 2009.

The important thing to notice is that this growth is in absolute numbers. For instance, if the value of my portfolio was 1000$ in 2009 and I added 750$ to the portfolio on may 15th 2010 with a 0% increase of value of my shares during the year, I would set 75% as an increase of the value of my portfolio. So, that tracking doesn't show the performance of my portfolio at all. And it doesn't matter that much for this post, because that's not my goal to write about performance.

To me, the most important thing, just after finding an approach that works, is to have the discipline to invest more money on your portfolio, every month and every year. That means saving as much money as you can (if you're able to save 50% of your net income, that will make a huge difference over time).

Since 2018, I write a post around may 16th which is titled "Discipline". Because I think that discipline is the recipe of my success, if I can qualify my performance as a "success". I've bought a lot of crappy stocks, I've done some terrible mistakes. But my savings did a substantial difference in the end.

If you're in your 20's or your 30's, go for 10 frugal years and see the impact 10 years later. Your frugality will bring you a freedom that few people have around you. And you won't have that much to care about saving any more money.

That's very important to be free. Perhaps you don't understand that when you're 25, but when you're 40, you must be pretty stupid if you don't see the priceless value of getting rid of any financial stress.

The curse of high dividend

According to many people on Twitter, dividends seem an important aspect to consider before investing on a specific stock.

First thing that comes to mind is that dividends were important when I was beginning on the stock market. That came from Stephen Jarislowsky, in his book. He said something like: "Everyone in the company gets paid. I think that investors should be paid too, because they are the ones who take all the risks!". Great sentence. True and correct. 

However, excellence of a company doesn't come with dividends. That sentence should also be considered.

Back in 2009, I owned some shares of Yellow Pages. It was one of the worst stocks in Canada. And one of the best dividend stocks (14% dividend in 2009-2010). 

If I would have been able to understand the metrics about Yellow Pages, I would have been horrified instead of being excited. To me, that company, even if it's one of the worst possible examples, represent the fact that dividends can't compensate for all the rest. 

The higher the dividend, the less a company keeps money for itself to pay back debt, to buy back shares, to invest in itself, to buy another company, to keep money for a crisis like COVID, etc. In that regard, a dividend reduces the possibilites that a company could have. 

Plus, these days, we've seen many GREAT companies cut their dividend. There may be very little chance that this would occur in the future, but right now, we see that dividends shouldn't be taken for granted. For instance, Disney, TJX, Estee Lauder and Richelieu Hardware, all great companies, have suspended their dividends because of the crisis. 

Plus, very few high dividend stocks are great performers in the long term. Let's take a look at some names (I've taken stocks from various sectors: energy, banks, publicity, public services and technology):

Suncor Energy

Current dividend: 3,5%

Performance last 5 years: -39%

Payout ratio: 90%

Scotia Bank

Current dividend: 6,8%

Performance last 5 years: -20%

Payout ratio: 52%

Wells Fargo

Current dividend: 8%

Performance last 5 years: -54%

Payout ratio: 69%

Omnicom

Current dividend: 4,7%

Performance last 5 years: -27%

Payout ratio: 43%

AT&T

Current dividend: 7%

Performance last 5 years: -14%

Payout ratio: 105%

IBM

Current dividend: 5,3%

Performance last 5 years: -28%

Payout ratio: 64%

All of these stocks have had a negative performance over the last 5 years. During that time, the S&P500 had a performance of 42%. 

The shareholders of these 6 big companies that are qualified of "Blue Chips" by many, have been paid to keep shares that did way worse than the market over the last 5 years. 

Unemployment and bankrupcy

20 million jobs lost in april, in the USA. Unemployment rate: 14,7%

2 million jobs lost in april in Canada. Unemployment rate: 13%

Unemployment rate in Quebec: 17%

Crazy numbers. Worse than in 2008-2009.

How many shops have gone or will go bankrupt?

Great interviews: A random guy from Winnipeg on Twitter

Yesterday, I was on Twitter and I said to myself that I could try to reach some big CEO's (Google, Microsoft, Shopify), to interview them on my blog. These assholes need the exposure that I could offer them but they act like they don't. That's the game they always play. They want to show their independance. Well, they better hurry, because I may change my mind.

So far, they haven't replied. But a random guy from Winnipeg named Jordan Maas wrote to me that he would like to be interviewed and talk about whiskey and penetration. That's not the angle I wanted to use, but I'm flexible.

Here's the interview:

1- What are the 5 biggest stakes in your portfolio?

1- XAW
2- RBC Canadian Equity Income Fund series D
3- Algonquin Power
4- GoEasy Financial
5- CAE
Without funds and ETF - include Artis REIT & Transcontinental

2- Who is your biggest influence (any field of influence)?

David Chilton (Wealthy Barber) is probably who really got the idea of paying yourself first, compound interest stuck into me at a young age - and I recommend the book(s) to everyone starting out.

3- What's your main goal in life?

It's probably changed over the last few years. Be the best dad I can.

4- Would your rather have a long and boring life or a short life full of crime, sex and money?

Would anyone actually pick a long and boring life? Then again, how short are we talking? Probably somewhere in between. I'm definitely a "enjoy life" kind of person.

5- Would you penetrate your biggest influence (see question #2)
Ha... even if I said yes, pretty sure neither he or my wife would let me - lol

6- What's your favorite whiskey?
Currently a tie between Blantons & Weller Antique

7- Do you feel superior to beer drinkers?
Impossible, I love beer too. Though I definitely feel superior to coors light drinkers (I'm looking at you @PassiveCndlncom haha jk)

8- Would you rather die rich and alone or very poor with full of homeless friends?
Are those my ONLY two options... i mean jeebus.. is there no in between? It's great if you can be financially secure - but there is definitely more to life than having money or being rich. I'd rather be comfortable and happy than uber rich and miserable... let's put it that that way.

9- Would you rather penetrate or be penetrated by Freddy Mercury?
Can't it be both?


Jordan Maas
Twitter: damaaster
Blog: moneymaaster.com

Three high flyers (Shopify, Wayfair and Mercadolibre)

Here's three stocks I don't own and don't plan to own that would have made me way richer if I had put all my money on them 15 days ago.

Yes, I'd have 65% more money today than only two weeks ago if I had put all my money on Wayfair, Shopify and Mercadolibre.

Probably that nobody on earth put all his money on these three stocks. But, let's dream...

A few words on these 3 stocks:

Shopify: One year ago, you could buy a SHOP share for 350$. Today, it's prive is over 1000$. And yet, even if revenue grew like fuck, profitability is hardly there. For instance, EPS were 0,19$ for the last quarter. I can't understand how people value that company. I prefer to buy some expensive but very profitable stocks with a PE between 25-30 than some crazy valued company that's little or no profitable. Even if it's revenue grew by 50% each year over the recent past. When you don't know in what you invest, sooner or later, you'll get it in the ass.

Wayfair: A few months ago, I saw that the guys at Sequoia bought Wayfair. The performance of the stock was horrible and stayed horrible for some time. Revenu grew by about 100% between 2017 and 2019, but earnings kept on being negative. A similar case to Shopify. Both stocks however benefited a lot from shifting of shopping habits because of Coronavirus.

Mercadolibre: Same thing here. A lot of revenue growth (almost doubled in 2 years), but negative earnings.

So, they're 3 stocks with similar characteristics: very high revenue growth, no or very little profitability and very high valuation of the stock.

That's how that fucking market works. Excitation and presumptions about something that's not there but that could happen.

A message to Warren Buffett

Hi Warren,

You probably don't know me even if I'm a celibrity here, in Canada. My name is Penetrator. It's not my real name. It's from a porno movie.

I know a bit about you, because you're rich and obsessed about money. It seems that all your life was devoted to making more money instead of enjoying travels or wonders of the world (like that time where you visited the Great Wall of China and didn't give a shit about it).

Even if I despise a bit your lack of perspective about the world, I have to admit that making many billion dollars in a lifetime deserves some respect. And being 89 years old deserves also some respect.

But, even if you're an old billionaire, I have to admit that, when I saw that you bought some air carriers, I asked myself why the fuck did you do that. Were you senile? Were you losing grip on reality? Was it a "end-of-life-crisis"? How the fuck a rational man would chose to invest in one of the toughest sectors of the economy?

I don't know.  But the positions were small (Delta Airlines: 1,7% of the portfolio, Southwest Airlines: 1,2% and some others under 1%). I said to myself that it was perhaps a calculated bet.

But yesterday, you said that these investments were mistakes. You sold them all.

I said to myself : "That's what happens when you own too much money". You don't know what to do with it, so you try new things.

Come on Buffett, you're now almost 90 and you should aim to die at the top of the game, not with rookie mistakes. Many people say you're the greatest investor alive but you chosed to own bigger stakes in two airlines than your stakes in Mastercard, Visa, Costco and Amazon (all these four being stakes under 1% of the portfolio)? I don't know a fucking single good investor that would bet more money on an airline than on one of these four stocks. What the fuck did you do?

I respect you, old fucker. But I don't understand that move, and I don't understand why you own 130 billion dollars cash and do nothing with it. You could pay a dividend, buy back BRK shares, buy an entire company (like Couche-Tard or Ulta Beauty, two stocks not too expensive that fit right with your philosophy). But perhaps you'd like to pay no more than 8 times earnings for each of them, you crazy old stingy asshole.

Regards,

Penetrator