Passé le cap des 40 ans...

J'ai lu le livre "Dans la jungle du placement" de Stephen Jarislowsky il y maintenant près de 15 ans. 

C'est un livre que j'ai beaucoup apprécié, bien qu'avec le recul, je réalise que d'autres livres sont davantage formateurs pour un investisseur débutant (ceux de Bernard Mooney et de Peter Lynch par exemple). 

Voici un des passages du livre de Jarislowsky qui est resté dans ma tête:

"Passé le cap des 40 ans, veillez aussi à jour de la vie. À ce stade, vous aurez probablement accumulé un joli pécule et, à mesure que votre horizon de placement rétrécira, vous n'aurez plus besoin de mettre autant d'argent de côté. Le temps sera alors venu d'améliorer votre bien-être matériel de façon durable, mais toujours à l'intérieur des limites de votre revenu". 

Je repense quelques fois par année à ce passage. Je pense qu'on à tous besoin d'avoir quelques lignes de ce genre qui nous dirigent (ça pourrait être pour n'importe quel autre sujet que l'investissement). À chaque année, je réalise de plus en plus à quel point ce passage se doit d'être visé et vécu.

Probablement que bien des gens de 40 ans n'ont pas accumulé un "joli pécule", mais ceux qui ont été assez chanceux et/ou disciplinés pour le faire pourront pleinement profiter de la deuxième moitié de leur vie... si leur santé le permet.

Ceux qui, comme moi, sont dans la jeune quarantaine commencent sûrement à connaitre des gens dont la santé déclinent. Par exemple, autour de moi, de nombreuses femmes pas si vieilles ont eu le cancer du sein. Aujourd'hui, j'apprenais d'ailleurs que l'une d'entre elles, qui a exactement mon âge, a non seulement le cancer du sein mais aussi des métastases aux os. Quand vous apprenez ça, vous voyez sûrement dans votre tête un sablier se retourner...

La vie ne nous fait pas de cadeaux. On doit s'en faire nous-même. Même si c'est fataliste, j'ai choisi de vivre avec l'idée que de grands malheurs allaient survenir tôt ou tard et que je devrais m'y préparer financièrement. 

Je vous suggère de faire la même chose. 

C'est bien d'être optimiste, mais l'optimisme ne nous protège pas des coups du destin. 

A great day to start to use margin

 I recently talked to my friend who chosed the dark side of investing. 

Over the last year, he's been much more quiet about his performance. When I ask him about how things are going with his stocks, he's a man of few words. Like:

Me: How things are going these days?

Him: How do you think it's going (without a question mark). 

He told me that his portfolio was down 80%. But he didn't tell me what was his reference period. I know that it was down 80% between january and march 2021. Is it down another 80% since march 2021? I wouldn't be surprised. But I guess I'll have to drink a few beers with him to get that information. 

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

My portfolio is down almost 14% since the beginning of the year. It's a bit too much for my taste, but I'm excited about all these stocks at their lowest point. I'm looking at Disney, Netflix, Intuit, even Shopify... Of course, I don't really have to look at these stocks because my own are down quite a bit.

I'm excited because it's in days like these that I start to use margin. And if the market go down even more,  I may become an heavy user of margin. Just like I would buy a second house. 

Some people ask themselves if it's the right moment to buy a stock they like. We never know the exact answer, but when you own predictable and growing stocks and they're down 15-20% for no reason, what are you waiting for? 

Stick with high quality

 Like everybody else, when I see somebody being excited about the drop of a specific stock (saying: "That stock is now down 50% and it went up 200% last year!", I'm not indifferent. Excitation of other people, as long as I respect them or I have a vague positive impression of the person has sometimes a slight effect on me.

These days, we can see many high-flying stocks of the recent years down by 50% or more. 

For instance:

Sea Limited (SE) is down 55% over the last 3 months;

Block/Square (SQ) is down 50% over the last 3 months;

Avalara (AVLR) is down 40% over the last 3 months;

Shopify (SHOP) is down 40% over the last 2 months;

Mercadolibre (MELI) is down 35% over the last 3 months

There are many many other examples. And while everybody is worried about the rising of interest rates and many more months or years of COVID, these stocks with very high valuation took a hit. 

That's not where I'm looking currently. I'm looking at more boring stocks than that.  I'm looking at stocks which offer a nice growth, don't carry too much debt (less impacted by rising interest rates) and have a rational valuation. Almost all the stocks I own respect these criterias in my opinion. 

Another one could be United Health (UNH). Their results were out today and they were great. That company has a very rational PE (about 20-22) and isn't part of the folly around interest rates. 

Considering it's valuation and current growth, that stock should double over the next 5 years. Of course, Mercadolibre may decuplate over the same period, but the road will be much bumpier. 

A lot of people seem to have forgotten that doubling your money with a boring stock in 5 years is actually great. 

Microsoft (MSFT) buys Activision Blizzard (ATVI)

We all carry great traumatisms in life. Some have been raped, some have been beaten, some have been raised by social care. And, when we grow up, traumatisms are still there. Actually, it's a life of sparse traumatisms.

When you're an adult, you think that you're safe from these traumas. You become an investor and everything is serious and rational. But no. You invest your money in Dollar Tree and that company which was great until then decides to buy Family Dollar and overpay a lot for it. Then, many years of stagnation follow and a great company becomes just a normal company.

Of course, it wasn't my worse investment. But it's the one that made me become fearful of acquisitons (I don't know why but Valeant crazy acquisitions like the feminine viagra which was way overpaid didn't traumatize me that much). 

Today, we learn that Microsoft will buy Activision Blizzard (a video game company). They should pay 95$ a share which is something like 25 times 2022 earnings. It's a bit expensive, but Activision grows by 12-13% on an annual basis with 29% margins (excellent) and a ROE of about 17. Also, their debt is low. 

It look like a good acquisiton. It may even be a great acquisiton.

I'll keep my Microsoft shares. 

Inflation

We hear that inflation could be around 7% this year, which is huge. Actually, it's been at least 20 years that inflation hasn't been so high. 

So, the cost of living should go up by 7% this year. 

Given the fact that houses are more expensive than ever (you ask 400 000$ for your house and you end up with a seller offering you 500 000$), it's not that hard to see that something doesn't work. Something similar has happened with the price of wood and various construction stuff, used cars, used motorcycles, used skidoos, etc...

Of course, it won't last. Because excesses like that blow sooner or later. It may last 6 months or 2 years, but it won't last 5 years because a significant percentage of the population will declare bankrupcy before that time. 

That's why interest rates will rise. Because when there's too much money available at a ridiculous cost, people and businesses borrow a lot and spend this money. Then, there's inflation because of high demand for everything. Then, the governement has to rise interest rates to reduce the access to money, thus reducing inflation. 

I finally understand what I've learned at University, 20 years ago.  

What to do as an investor in a period of high inflation? 

Maybe rebalancing our portfolios (for instance, Dollar stores would be a safe bet in an economy where everything is more expensive). 

However, I believe that an investor should stay on the market. Because astute companies always manage to do well in any condition. 

So, to resume all these lines in a very few words, I don't really care about inflation, as an investor. 

I only care about it as a consumer. 

So I shop mostly at Costco. 

Excitation

Some rookie investors may currently shit their pants, seeing their portfolio going down a lot. 

Mine is down almost 10% since the beginning of the year. I'm not unhappy at all. Actually, I'm excited because I like my stocks and I thought they were great companies before the drop. So, I think they're even better purchases now. In fact, I bought a lot of shares of my favorite companies today. 

I don't use my margin for the moment. But I'm very close because I almost got no money left. If the market goes down by a few percent more, I may very well use my margin. And if there's a crash, holy fuck, I'm gonna use my margin like a junkie would snort a line between the two extremities of a piano.

Which is actually what some people used to do in the 80's.  

ICON (ICLR)

I've recently discovered Polen Capital Management. I think it's my favorite investment firm listed on dataroma. So much of their stakes look like mine. 

For instance, here's their first 10 positions which represent more than 55% of their entire portfolio:

Facebook

Google

Amazon

Adobe

Microsoft

Mastercard

Salesforce

Abbott Labs

Visa

Accenture

Polen seems to like the same stocks than me. So, when such a firm owns a stock I don't know about, I'm always tempted to look further. This time, the stock is ICON public limited company (ICON). It's a company based in Ireland (they probably like to pay as little taxes as possible). Their website states the following: 

We are a global provider of consulting, and outsourced development and commercialisation services to pharmaceutical, biotechnology, medical device and government and public health organisations. We focus our innovation on the factors that are critical to our clients – reducing time to market, reducing cost and increasing quality – and our global team of experts has extensive experience in a broad range of therapeutic areas. ICON has been recognised as one of the world’s leading Contract Research Organisations through a number of high-profile industry awards.

The first thing I take a look at is growth. For the past 5 years, average annual growth was 16%. For the next 5 years, estimated annual growth is 25%. Why growth is supposed to get this high? Because of organic growth but also because of recent acquisitions like PRA Health for 12 billion dollars, last year. 

Then, their earnings are highly predictable (90% on Value Line). That shows the quality of the business. High growth and high predictability. 

Forward PE is "low" given such estimated growth and predictability. Actually, the FWD PE is about 21 (but if you add debt, it's higher than that). It shows that the market is cautious with the last acquisition because these days, we pay much more than that for such growth. However, the stock went up 58% in 2021. Recent history shows a great performance. 

Before the last acquisition, ROE was about 25 (very good) and margins were about 12-15% (good). The debt was well managed before the acquisiton but it's now high. There's also been a lot of dilution. But I believe that this acquisiton will pay. Of course, I may be wrong. But this industry is very specific and the last acquisiton made that company much bigger than it was. Actually, they now have a formal partnership with most of the top 20 biopharma companies in the world. 

So, I decided to reduce one of my stakes to enter a small position with that stock. 

Buy the S&P500!

Is it really worth it trying to find a good investment firm that will invest your money with a good performance? 

Of course, there are some good firms, but there are much more bad firms (surely 8 bad ones for 2 good). So, your chances are at least 80% to do worse than the S&P500 with a specific firm. And there is surely a substantial percentage of these firms that are simply fraudulent. Let's never forget this. 

Is it really worth it trying to invest by yourself? Making lots of mistakes buying crappy stocks that you should never buy and having lots of stress about the market? Doubting constantly about your stocks, trying to find something better, buying at the worst moment, selling at the worst moment? Having a performance most of the times worse than the S&P500. Sometimes better, but with lots of effort or chance. 

Buffett said that and many others said that. And now, having seen the performance of many firms for the recent years, I'm pretty sure about it: the S&P500 (SPY) or any index that reproduces its performance is the best place to put your money. 

Wether you own 5000$ or 1 billion dollars, just put it all there and stop thinking about it. Collect your annual 10%, year after year, until you die, without any effort. 

That index doesn't try to look smart. Or doesn't try to impress you. Or doesn't show you made up numbers.

Many investment firms try to do all that. 

Charlie Munger going crazy

Charlie Munger is very old. He turned 98 a few days ago. He has been an investor for many decades. And while I don't know him that much, the fact that he's very close to Warren Buffett makes him very respectable in our minds. 

Both of them have always been honest (I guess) and they invest with intelligence (usually). I don't like all their investments, but they never go crazy on some obscure stuff or some hype. There's so much investors doing weird stuff that Munger and Buffett often look weird just because they're normal.

Anyway, recently, I saw that Munger DOUBLED his investment in Ali Baba. 

This stake now represents 28% of his portfolio.

Now, that's crazy. I'd never ever think about having such a sizable stake in my portfolio. Even my favorite names like Constellation Software and Google would never be this important. And I trust their management teams at least 10 times more than I trust any chinese company. 

Is Munger crazy now? 

Will Buffett do the same and thus, pump Ali Express shares?  

A return on my 5 picks for 2021

On december 27th, 2020, I wrote that my 5 picks for 2020 were as following:

Square (SQ)

Facebook (FB)

Fair Isaac (FICO)

Epam Systems (EPAM)

Nike (NKE)

An astute observer would notice that I still own only two of these five companies. Which shows how faithful I am with my conviction picks.

Here's the performance of these 5 stocks in 2020:

SQ: - 27%

FB: + 25%

FICO: - 14%

EPAM: + 92%

NKE: + 19%

Average performance: 19%

Not bad, but easily beaten by the S&P. 

That's why I prefer to hold 15-20 stocks. You can manage to do a few mistakes with such a portfolio. With only 5 stocks, it's gonna be harder. 

By the way, I'd like to highlight the fact that most of the people who submitted stocks last year did pretty bad. Some of you suck big time. Fuck you.