Observations about so-called good investors

These days, I'm reading investment letters from so-called serious investors and professional firms. And it's almost funny too see how much people do rookie mistakes sometimes. 

First of all, I don't understand why some people have such a concentrated portfolio. For instance, how safe is it to hold only 4 or 5 stocks if you have a big portfolio? (Of course, if you have a small 50K$ portfolio, it would not be intelligent to hold a lot of stocks, but if it's way bigger, like 200K$ or more, I think that you need much more diversification). When you own only 4 stocks, if one or two of your stocks do bad, something like 50% of the portfolio is affected. 

We sometimes see people being overconfident, almost arrogant, about their stocks. It's not normal. Stocks are not our kids or our lovers. I like my stocks for now, but I may very well stop liking them tomorrow, which won't probably be the case with my kids. 

Also, I've seen some people talking about how macroeconomics hurted them during the last year. For instance, some people thought that the low interest rates couldn't go lower, so they invested in stocks that could only go benefit from a rise of rates. But, guess what. They got it in the ass because the rates continued to drop. Yeah, they got a big fat black vascularized dick in the anus and it hurted. 

Things can always go worse or better, whatever the state we're in, even if it looks like the basement level. Who thought in march 2020 that the pandemic would be as bad today as it was 11 months ago? Almost nobody. A month ago, when vaccines came out, everybody was excited, girls were wet, boys got a boner. At last, we would go out and meet people and drink and snort coke and fuck behind the dumpster. 

But no. Coronavirus is still there. And he's smart because he mutated. Just like in the movies or in that good little game I had on my Iphone a few years ago. And now, the virus is even more contagious. And borders are closing once again. 

These mistakes (over-concentration and macro-economics hypothesis) were commited by people who look like they believe a lot in their own opinions. You should always doubt about everything, including yourself. 

A portfolio should resist to most of the angles of any possible story. If not, make adjustments to your portfolio. And don't forget that any CEO may be a possible drug lord who's laundering money with his company.  

Having one drug lord among your 4 companies is very possible. Having 5 drug lords among your 20 companies is still possible, but less. 

FAANG Domination

 Imagine that you own a business that is gigantic and yet, year after year, revenues grow by 15-20% a year. 

Also, your profit margin is close to 30% (which means that every time you make a 1$ sale, you get 30 cents of profit). For a lot of people, including myself not so long ago, profit margins didn't really impress me. But after an analysis of a lot of stocks, I know that  profit margins over 20% is exceptional.  

Also, your products have almost no competition. Facebook/Instagram is the only dominant social media in the world. Windows/Office is the only dominant software/exploitation system for computers in the world. 

Also, your ROE is over 20. 

Also, you have a small debt, or almost no debt. 

Also, nothing shows that your products will face some serious challenges in the near future.

Finally, you've got enough money to buy any company which would represent a threat for you. Actually, you've got more money than a lot of countries. 

Everything written above could be applied to Facebook and Microsoft. It could also be applied, to some extent, to Google, Apple and Amazon. 

These businesses are the biggest in the world, yet they outperform at least 90% of the stocks out there. Yes, they are expensive, but their valuation is still rational because they make a lot of money. Tons of money actually ( revenues for the last quarter: 43 billion dollars for Microsoft and 28 billion dollars for Facebook). 

In 2021, that's the best sector to invest money. Perhaps it won't be the case forever. Perhaps the next big thing will be retail stores like Bed Bath and Beyond and Sears,  but right now, I don't see any sector better than that.  

Some other thoughts about Couche-Tard

Even if some people seem optimist about Couche-Tard, I can't help but being still a bit worried about them. 

Of course, like Jason Del Vicario says, Couche-Tard management is great. Being so successful in such a low margin sector (5-6% profit margins) shows us how great they are. And they've been great since 1980, so, they have a 40 years track record behing them, which is most than a lot of stocks. 

A great management in a challenging environment will probably remain great but probably less effective. How can any management fight against electric cars? Electric car will become cheaper and cheaper. It won't happen overnight, but in a few years, they'll be affordable for much more people than today. The market already knows that. 

Also, recently, I read that Couche-Tard thought these last years about a diversification via buying some groceries, fast food stores, dollar stores or airport stores (french reference here). They say that convenience stores are more expensive than they used to be, but I see that as an admission that they need to diversify to be less exposed to fuel sales. How come changing a recipe that works, if it really works? How would people react if Canadian National bought some truck delivery company? Why going that road after 40 years in a single sector? 

On the other hand, Alain Bouchard bought for 7,2 million dollars of shares last wednesday. Richard Fortin, a cofounder, bought for about 1 million dollars of shares last friday. Thus showing how they believe in their company. Of course, for a billionaire like Couche-Tard, 7,2 million dollars is no big deal. It's like the money we lose in the cracks of the couch for us. It's like 4$ amongst fruit loops in the couch. 

But, above all these informations, I think that the market is usually right, in a "no-panic" moment. Actually, I think that the market is currently overly optimist. And even before the big drop following the news of Carrefour acquisition, the market was a bit pessimist about Couche-Tard. 

Finally, I still own my shares, but I'm still doubting a lot about the rational behind keeping them. I don't think that there's a lot of risk with Couche-Tard in the short term. But I don't think that this is the easiest way to look for some performance in 2021. 

Another kind of expensive stocks

We often talk about expensive stocks like Tesla and Shopify: companies that earn 0,01$ per share and are sold for 1000$ a share. 

We speak much less about other expensive stocks: the ones that don't grow at all or don't grow a lot and are sold for what seems to me an expensive price.

When I think that some of my stocks are expensive, I think about the list below and I say to myself that growth has a price. Is it really expensive to pay 30 times earnings for a company that grow by 15% a year when some are sold for 20 times earnings and don't grow at all?

(Numbers below provided by Yahoo Finance).

General Electric (GE)

Forward PE: 30

Annual EPS growth last 5 years: -22%

Computer Modeling Group (CMG.TO)

Forward PE: 20

Annual EPS growth last 5 years: -9%

Procter and Gamble (PG)

Forward PE: 23

Annual EPS growth last 5 years: 4%

PepsiCo (PEP)

Forward PE: 23

Annual EPS growth last 5 years: 5%

Coke (KO)

Forward PE: 23

Annual EPS growth last 5 years: 2%

You want a blue chip? That's what you'll get. Something safe but dull and almost mediocre. 

Nothing to help you stop working before you're 70 years old.  

Couche-Tard buys Carrefour: The market doesn't like

Big news yesterday: Couche-Tard could buy hypermarket giant Carrefour.

Some people are thrilled, others are worried. Well, most people seem worried given the fact that Couche-Tard was down by more than 10% today. 

I'm a bit of both. I don't know Carrefour that much. I've only been in one of their stores, while I was in China, three years ago. I only remember that it was huge. But, was it because it was in Shanghai and everything is huge there? I don't know.

Here's a list of pros and cons about the acquisition. Please, feel free to use the comment sections to add your thoughts about it. 

Pros:

Couche-Tard would be much less exposed to electric cars;

It would be a huge international expansion;

Carrefour is very cheap (PE ratio between 8 and 9), even fraudulent companies are more expensive than that;

Interest rates have never been so low, which is excellent when you need billions of dollars;

Couche-Tard has a great track record related to acquisitions.

There may be synergies (I'm not sure about that...)

Cons:

Different culture (Carrefour is a french company that operates mainly in Europe and Asia);

It would be a very big acquisition (more than 28 billion euros (not dollars) including debt);

Low ROE;

Huge debt;

Decreasing revenues over the last 10 years;

Maybe french governement will do something to stop the acquisition.

I'll need a little more time, but to me, it looks like Couche-Tard wants to make us forget the fact that electric cars are coming and represent a big threat for their business model. While Couche-Tard is great for acquisitions and improving a struggling business, this time, they'll have to swallow a gigantic bite (which is not a bite actually, it's more like a blue whale) that has been struggling for years in a sector that isn't the historical strength of Couche-Tard.

At first glance, I think there's a lot of risks there. 

I don't know if I'll keep my shares. I'll think a bit more about it. 

Please, help me make my mind. I feel so alone. 

Why looking elsewhere to find things we already have here?

I wrote it many times: my first reading about the stock market was Stephen Jarislowsky's book (Dans la jungle du placement). While not being a masterpiece, the book was interesting and gave me some advices that are still in my brain to this day.

One of them was to invest only in companies listed on american or canadian stock exchanges. Or maybe was it to invest only in canadian and american stocks. 

Anyway, I've kept the lesson to invest only in american and canadian based companies.

Of course, I trust Europe as much as I trust North America. I probably trust Australia and New Zealand too (but is there any international company in these two countries?). But do I trust Nigeria and Bengladesh? Not really. 

In the recent years, I've seen a lot of people talking about their investments in JD.com, Tencent, Alibaba and some others. And while the growth of these companies seems huge, I've never considered buying any shares because I simply don't trust that fucking China.

Today, I learned that Jack Ma, the CEO of Alibaba, is missing. Since he's had problems with chinese autorities this fall, the first reason coming to mind might be that he's been taking in charge by the government in some reform camp. Some extended course about Mao Tse Tung and the benefits of communism. Or, perhaps he's only been taking a big shit over the last 2 months. But that's my only other hypothesis. 

Can you imagine that? The biggest CEO of China missing. Do you imagine what may happen to all the small CEO's? 

There's plenty of very high growth companies in Canada and USA.

There's plenty of american and canadian crooks.

Our governement doesn't always do what he should do to protect us. 

Why looking elsewhere to find things we already have here?