Portfolio review, may 31st 2021

 Another quarter, another review. That's how it goes. 

It's harder and harder to find something to write here. I feel like I'm 80 years old and I always repeat the same obvious things that nobody care about. I'd like to write about something else, but, let's face it, nothing happened in my life during the last year. I don't even know if I'll ever go out and have some fun. Maybe the best part of my life is over?

I'm currently planning a few trips during the summer. I'll go to a remote part of Quebec, I hope to be able to go to Ontario if borders reopen, I'll probably go to Saskatchewan and, if I get my two vaccine shots before summer is over, I'd like to go to Yukon. That would make 4 canadian trips this summer. Not very exotic but varied and probably a lot of experiences during these travels. By contrast, my life in my basement implies zero experiences.

It is time for the quarterly portfolio review. 

Number of stocks: 20

Three biggest stakes: Google, Facebook, Constellation Software (30% of the portfolio)

Average ROE: 30

Average forward PE: 32

Average Beta: 1

Estimated annual EPS growth next 5 years: 19%

Penetrator Portfolio Performance YTD: 6%

S&P Performance YTD:  14%

It's almost certain that my portfolio will be beaten by the S&P this year. I don't plan on changing my strategy to help my portfolio. I just accept, halfway through the year, that an index fund would beat me for the whole year. 

Yep, beaten by something without a brain.

The difference between Bitcoin and a company

Bitcoin is a strange thing. I'm not really sure what it is. But I know that it's not a company and that it doesn't grow. To me, it's like gold or silver. It's something that we can buy and use it to buy other things. 

So, buying gold is like buying Bitcoin for me. It's speculation. There may be good reasons to buy gold or Bitcoin, but even with a lot of macro-economics information, we don't know how things will go and how people will still think that Bitcoin is the next big thing. Currently, the thing that's related the most to Bicoin's value is Elon Musk opinion.

And when the opinion of someone, whatever his intelligence level is, is the main influence on something's price, I think that it's a very big warning sign. 

Also, there's so much volatility on Bitcoin. Between may 10th and may 23rd, Bictoin went from 59 000$ to 33 000$. What the fuck is that ? Nothing really happened meanwhile. Do you often see that kind of volatility on great stocks? 

Some people will say that, even if Bitcoin is down a lot these past days, it's price still went from 9000$ one year ago to 33 000$ today. That's right. It's still a great performance.

When you buy Google, you can see that it makes more and more money every year since the beginning or so. So, you understand that you own a company with a worth that's growing. But when you buy Bitcoin, you only hope that people will believe more in Bitcoin next year than this year. 

Discipline

Every year, around mid-may, there's a tradition: I take a look back at my portfolio since may 2009 to see how things are going.

I bought my first shares during the fall of 2008. So, at mid-may 2009, my portfolio was something like 6 months old. It's more or less the beginning of my investment life.

In 2020, I put a lot of money on my portfolio via a new mortgage. Since interest rates were very low, I thought that getting access to many thousands of dollars for something like 1,89% was a good idea. That's why my relative performance has been so fantastic between may 2020 and 2021 (on the other hand, there's a debt that comes with it, but a debt with almost no interests).

Don't forget that this increase of value is not only related to performance. It's also related to savings and I have to say that, in that field, I'm way better than at stock picking. So, don't take these numbers as an indication that I'm a great investor. I'm however a great frugal person. 

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%

2021: 39%

ANNUAL ADJUSTED PORTFOLIO GROWTH SINCE 2009: 34% 

In other words, my portfolio grew about 31 times since may 2009. And I've made big mistakes. Imagine if I knew how to select great stocks from the start? Imagine if I had kept all my 65 shares of Constellation Software bought in 2012?  

So, to achieve a 34% annual growth of your portfolio, I recommend the following:

1- Read great books about investment and analyze as much stocks as possible to be able to find exceptional stocks (you won't be able to find them if you don't compare at least 50 stocks, or even 100 stocks);

2- Save as much money as possible, year after year. Start early. And when you'll have 500 000$ or more, you'll be able to slow down and enjoy life before it's too late. With 500 000$ on the stock market, your annual savings may do some difference, but not a huge difference. That's when you'll have to be intelligent with your stock picking because it's gonna be all that matters (until then, your savings could mitigate your mistakes);

3- Learn how to balance your portfolio. Don't own any position over 10%. Yeah, Buffett is almost 50% Apple but I don't think it's a good idea. Why not 5 great companies with 10% each instead of only one for 50%? If you wanna gamble with speculative stocks, gamble small (like 1 or 2% of your portfolio);

4- After a few years, you must aim at being as independant as possible. It won't come before at least 5 years, maybe 10. But it should come, because you'll be an immature investor until then.

5- Probably not a great advice but you should try to get a job that pays a lot. You won't be able to save money if you don't earn money. In a world where everybody says that loving your job is the most important thing, that advice may appear not very popular. But I don't see how a passion at minimum wage could help you to get a massive portfolio. Well, try at least to not HATE your job. If you don't love it, be neutral about it. It could be a compromise. 

So, you the young 25 years old, apply all that. And when you'll be 37, you may contemplate your portfolio and see a 31 fold growth. You'll be able to say that you've achieved the zero-level-stress-related-to-money. 

A cautionary tale

Many years ago, I taught many things I knew about the stock market to one of my friends.

He opened an account and started buying stocks I recommended to him. Mostly blue chips. 

That's not a new story, I've written about that many times before. But there's a whole new chapter in the story, and if that story was written by Stephen King, it would be the chapter where the monster shows. 

So, my friend eventually sold everything I told him to buy and started to buy more adventurous stuff. Then, it was speculative stuff. Then, it was crazy stuff. 

Everything was fine and funny. My friend sometimes called me to tell me how a great day it was for his portfolio. Sometimes he made something like 20 000$ one day, then 10 000$ the day after... His life was perfect.

But, in february 2021, a market sell off happened. And all the stocks he owned got hurt like fuck. They didn't really recover in the coming weeks. 

Then, the may selloff hurted his portfolio even more.

In february, he had a portfolio of 1,1 million dollars.

Yesterday, the portfolio was slighlty under 200 000 dollars. 

And, worse, he used margin like there was no tomorrow. So, the market selloff forced him to sell many, many shares.

And, even worse, he managed his father holdings. His father is something like 75 years old. And all his portfolio went down too. 

My friend told me yesterday that he was freaking. He had dark thoughts. 

Pretty sad story, but fuck, I told him many, many times to not buy that kind of stocks. I actually told him that I would NEVER buy that kind of stocks when he asked for my opinion. But he bought these stocks anyway. 

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

Since the beginning of the year, my portfolio is still positive (not by much, but positive anyway). He's down 90% since february with margin calls, day after day.

That's exactly what happens when you see the market as a big casino. You really want high emotions? You'll get them. But be sure to play with money that doesn't matter to you. Otherwise, you're going directly to depression or suicide. 

Use that story as a reminder: if you buy nonsense stuff, you'll eventually get nonsense results.

This is perhaps the most important post on that blog. 

Being hurt by the exchange rate

The last days have been hard on my portfolio. But, more than the performance of certain stocks, the exchange rate is probably what had the more impact on my portfolio over the last months.

In november 2020, we could buy 0,76USD with one CAD

In February, we could buy 0,79USD with one CAD

Today, we can buy 0,83USD with one CAD

That's a 9% difference in only 6 months. So, if your portfolio is mainly made of american stocks, you've probably took a hit. Like me.

But, what is better? Being on the best market of the world and being exposed to some short term turbulations or being on the canadian market and having very little choice for great companies?

I'm on my way of underperforming the market this year, mostly because of the exchange rate. But, whatever. In the long run, such things as exchange rate and dividends don't matter. 

NASDAQ *** EDIT ***

Since the beginning of the year, my portfolio had about the same performance as the NASDAQ. Not surprising because I own a lot of stocks that are listed on the NASDAQ. 

What's the composition of the NASDAQ ?

These 10 stocks, represent a bit more than 50% of that stock exchange: 

1. APPLE INC.
2. MICROSOFT CORPORATION
3. AMAZON.COM, INC.
4. TESLA
5. ALPHABET INC.
6. FACEBOOK
7. NVIDIA
8. PAYPAL
9. COMCAST
10. ADOBE INC.

By taking a look at the names on that list, we can see that most of the high-margin and highly predictable stocks are listed on the NASDAQ. 

So, for now, my performance is not as good as the S&P. But I own businesses that are first-class and it took me years to reach that. It wasn't that complicated after all. I just thought I could find gold nuggets by myself. But I couldn't do that. It was just a fucking dream. 

As of may 2021, I stick to the NASDAQ for more than 75% of my portfolio.

Correction: More than 60% of my portfolio. I'm not even able to add simple numbers. Don't trust me too much.