I'm seriously thinking about using the magic formula (TM: Joel Greenblatt) in a near future.
This link show us that, from 1988 to 2009, the magic formula compound annual growth was about 24%.
Fuck. It means that in about 3 years, your money has doubled.
I've written a bit about it before, but this method consists roughly of selecting 20 to 30 stocks, of equal weight in your portfolio. You chose all the stocks for which the ratio between ROE and PE is the highest. And you repeat this exercice every year. That's the method used by Jason Donville for selecting a lot of his stocks.
Let's see some examples:
Rifco
Forward PE: 15
ROE: 45
ROE/PE: 3
McDonald's
Forward PE: 16
ROE: 35
ROE/PE: 2,2
Those two would be good candidates for a magic formula portfolio because you get a good ratio (the ROE is at least twice the forward PE ratio). Jason Donville establishes that a ratio higher than 2 means that the company would be a good buy.
One of the biggest ratio you could get is the one of IBM
IBM
Forward PE: 10
ROE: 95
ROE/PE: 9,5
In these times where value is hard to find, maybe we should put our faith in magic. A lot of great investors are in a stand still mode. So, let's be humble and do the same as those rich mofos. Or, let's put all our fucking money in Berkshire Hathaway. Or, dare I say, let's put our faith in magic.
So here's a list of some stocks that could be great choices in a magic formula portfolio.
Canada:
Cipher Pharma
High Arctic Energy Services
Rifco
Carfinco
USA:
IBM
AAPL
Gilead Sciences
Ruger
Smith and Wesson
TJX
Ross Stores
Nu Skin (watch out, but very cheap)
Herbalife (watch out, but very cheap)
dimanche 31 août 2014
jeudi 14 août 2014
The negative investor
Holy shit. My small cap stocks suck big time these days.
I'm so fucking mad.
Loyalist Group, Macro Enterprises, Avigilon and NTG Clarity Network are almost all at their lowest price in a year. I'm so fucking mad about the TSX and the Venture.
Of course, I have some stocks like Constellation Software, Alimentation Couche-Tard, Cipher Pharma and Questcor that are almost all at their highest, and I've put much more money in these stocks than in the ones above.
That's what it takes to make you understand what a negative person is.
I'm so fucking mad.
Loyalist Group, Macro Enterprises, Avigilon and NTG Clarity Network are almost all at their lowest price in a year. I'm so fucking mad about the TSX and the Venture.
Of course, I have some stocks like Constellation Software, Alimentation Couche-Tard, Cipher Pharma and Questcor that are almost all at their highest, and I've put much more money in these stocks than in the ones above.
That's what it takes to make you understand what a negative person is.
mardi 5 août 2014
What about Beta, bro?
Some investors are proud to tell us that they don’t use beta. They don’t give a shit about beta.
But what the fuck is a beta? An old videotape, just before the VHS? Oh shit, those investors are pretty up to date by letting down an old technology that’s been obsolete for 20 years.
But a beta is also a greek letter, a version of a software and maybe a lot of other very cool things.
In investment, beta exists too. So many fucking definitions of the same greek word, which is in fact a letter. Holy cunt.
So, in investment, a beta is a measure of volatility. A beta higher than 1 means that the price of a stock moves with more emphasis than the stockmarket. A beta lower than 1 means that the price of a stock moves with less emphasis than the stockmarket.
For example, if the beta of McDonald’s is 0,36, it means that the price of the stock moves with less emphasis than the stockmarket in a normal day.
In his last ROE report, Jason Donville tells that he never watches the beta coefficient of the stocks in which he invests. But it appears that most of the stock he buys have low beta.
Come on everybody, wake up! I’d even dare to say, come on Jason, wake up!
If the price of a stock moves with more emphasis than the stockmarket, it’s mainly because this stock is affected by the economy in general. If a stock is affected by the general state of economy, it’s because it’s earnings fluctuate in relation with the state of economy. And if you're looking for stable growth like Jason Donville or a lot of other good investors, you'll be looking for companies that grow in a steady way.
So, if you buy a stock with a low beta, earnings are generally more predictable than a stock with a high beta. That’s why beta coefficient tells something and has some importance in my opinion. It GENERALLY (there are some exceptions) reveals that the earnings are stable whatever the state of economy is.
Below are the Beta of some stocks. You’ll see that healthcare stocks have a low beta. And construction related stocks have a high beta:
SOME BETA'S
Alimentation Couche-Tard: 0,04 !!!
Berkshire Hathaway: 0,35
McDonald’s: 0,36
Merck: 0,39
Pfizer: 0,68
Valeant: 1
Deere: 1,29
Caterpillar: 1,59
Bombardier: 1,65
Appreciate low beta's, bro.
dimanche 27 juillet 2014
How much would you pay?
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dimanche 6 juillet 2014
Outside the crisis: Canadian Banks
Once upon a time, I was a big fan of Canadian Banks. My knowledge was limited about investing, so, I took up every advice from my friend at work.
He was a big fan of Canadian Banks. So I became like him. The first shares I bought were some Nova Scotia Bank shares, in the autumn of 2008. Then, I bought some Royal Bank shares and finally, some TD Bank shares.
I didn't know about the importance of growth at the time. I thought that choosing a blue chip was the most important thing in investing. Yeah, I can hear you laugh, motherfuckers. Laugh at the stupid cunt I was back then.
I sold all of my shares of these banks in 2012. I realized that I couldn't evaluate banks with the same precision as some retail or healthcare companies. So I took a big breath and sold about 40 or 50% of my portfolio in a couple of days. In retrospective, it was a good move.
Because Canadian Banks may be a secure investment. They may be some of the greatest banks in the world. But their growth rate isn't that high. Too many people are blinded by the fact that they're "blue chip" and about their high dividend yield.
Today, I don't own a single company with a growth rate inferior to these banks. Let's take a look at the earning per share (EPS) growth rates of the Canadian Banks in the last 5 years:
Royal Bank: 10,4%
TD Bank: 7%
Nova Scotia Bank: 11%
National Bank: 13,5%
Montreal Bank: 11,8%
Laurentian Bank: 2%
CIBC: -3,6%
That explains why not a single of those banks doubled in the last 5 years while a lot of other companies did.
Those numbers don't mention if the bank made a big acquisition that took a lot of money and resulted in a decline of EPS. So, don't take these numbers at the foot of the letter like we say en français. You should also take a look at the ROE to see the quality of the business.
ROE of Canadian banks is generally good but not excellent (between 15 and 20 for most of them). That's better than keeping some money under your bed, but you could easily find something better in the last 5 years. Just take a look at a chart of these banks VS some great American companies (TJX, ROST, DLTR, GWW, AAP, ORLY, GOOG, etc).
If you compare Canadian Banks with champions of the TSX (Dollarama, Home Capital Group, Badger Daylighting, Enghouse Systems, Alimentation Couche-Tard, Constellation Software, Stella Jones, etc), you'll see that in the long run, a big bank (or a blue chip) isn't generally a champion of performance.
It's mostly a good investment for insecure people or old people about to die.
He was a big fan of Canadian Banks. So I became like him. The first shares I bought were some Nova Scotia Bank shares, in the autumn of 2008. Then, I bought some Royal Bank shares and finally, some TD Bank shares.
I didn't know about the importance of growth at the time. I thought that choosing a blue chip was the most important thing in investing. Yeah, I can hear you laugh, motherfuckers. Laugh at the stupid cunt I was back then.
I sold all of my shares of these banks in 2012. I realized that I couldn't evaluate banks with the same precision as some retail or healthcare companies. So I took a big breath and sold about 40 or 50% of my portfolio in a couple of days. In retrospective, it was a good move.
Because Canadian Banks may be a secure investment. They may be some of the greatest banks in the world. But their growth rate isn't that high. Too many people are blinded by the fact that they're "blue chip" and about their high dividend yield.
Today, I don't own a single company with a growth rate inferior to these banks. Let's take a look at the earning per share (EPS) growth rates of the Canadian Banks in the last 5 years:
Royal Bank: 10,4%
TD Bank: 7%
Nova Scotia Bank: 11%
National Bank: 13,5%
Montreal Bank: 11,8%
Laurentian Bank: 2%
CIBC: -3,6%
That explains why not a single of those banks doubled in the last 5 years while a lot of other companies did.
Those numbers don't mention if the bank made a big acquisition that took a lot of money and resulted in a decline of EPS. So, don't take these numbers at the foot of the letter like we say en français. You should also take a look at the ROE to see the quality of the business.
ROE of Canadian banks is generally good but not excellent (between 15 and 20 for most of them). That's better than keeping some money under your bed, but you could easily find something better in the last 5 years. Just take a look at a chart of these banks VS some great American companies (TJX, ROST, DLTR, GWW, AAP, ORLY, GOOG, etc).
If you compare Canadian Banks with champions of the TSX (Dollarama, Home Capital Group, Badger Daylighting, Enghouse Systems, Alimentation Couche-Tard, Constellation Software, Stella Jones, etc), you'll see that in the long run, a big bank (or a blue chip) isn't generally a champion of performance.
It's mostly a good investment for insecure people or old people about to die.
mardi 1 juillet 2014
Top picks from 2009 to today (Part III: 2012)
Today, we'll take a look at Jason Donville's Top Picks of 2012.
Once again, every Top Pick for which the price has rised from 100% at least gets a rating of "good". Every Top Pick for which the price has rised between 0 and 100% gets a rating of "average". And finally, every Top Pick for which the price has declined gets a rating of "bad".
The Standard and Poors (S&P) index has been up 56% since January 1st 2012. That's why it's still required to get a 100% yield to get "good".
Precision: Some companies could go private or be bought a little after Jason made his picks. I don't consider anything else than the price at the time when the Top Pick was made and the last price recorded for the shares. Only the result in appreciation is considered.
2012-01-16
Paladin Labs: UP 230% (GOOD)
Carfinco: UP 23% (AVERAGE)
Constellation Software: UP 233% (GOOD)
2012-03-05
Carfinco: UP 15% (AVERAGE)
Constellation Software: UP 193% (GOOD)
Total Energy Services: UP 25% (AVERAGE)
2012-05-07
CGI Group: UP 74% (AVERAGE)
Jean Coutu: UP 55% (AVERAGE)
Paladin: UP 236% (GOOD)
2012-06-18:
Directcash Payments: DOWN 35% (BAD)
Jean Coutu: UP 50% (AVERAGE)
Paladin Labs: UP 208% (GOOD)
2012-10-03:
Badger Daylighting: UP 272% (GOOD)
Directcash Payments: DOWN 37% (BAD)
Softchoice corp: UP 70% (AVERAGE)
2012-11-23
Badger Daylighting: UP 273% (GOOD)
Enghouse Systems: UP 134% (GOOD)
High Liner Food: UP 79% (GOOD)
A few stats about those 6 appearances on the TV:
1/6, Donville has had 3 good top picks
2/6, Donville has had one bad top pick
2/6, Donville has had 2 or 3 good top picks
6/6, Donville has had at least one good top pick
If we attribute a note of 10/10 for each good top pick, a note of 5/10 for each average top pick and a note of 0/10 for each bad top pick, Donville would get the global score of 125/18 which is equivalent to 6,9/10. So, his top picks for that period were "average plus".
Once again, every Top Pick for which the price has rised from 100% at least gets a rating of "good". Every Top Pick for which the price has rised between 0 and 100% gets a rating of "average". And finally, every Top Pick for which the price has declined gets a rating of "bad".
The Standard and Poors (S&P) index has been up 56% since January 1st 2012. That's why it's still required to get a 100% yield to get "good".
Precision: Some companies could go private or be bought a little after Jason made his picks. I don't consider anything else than the price at the time when the Top Pick was made and the last price recorded for the shares. Only the result in appreciation is considered.
2012-01-16
Paladin Labs: UP 230% (GOOD)
Carfinco: UP 23% (AVERAGE)
Constellation Software: UP 233% (GOOD)
2012-03-05
Carfinco: UP 15% (AVERAGE)
Constellation Software: UP 193% (GOOD)
Total Energy Services: UP 25% (AVERAGE)
2012-05-07
CGI Group: UP 74% (AVERAGE)
Jean Coutu: UP 55% (AVERAGE)
Paladin: UP 236% (GOOD)
2012-06-18:
Directcash Payments: DOWN 35% (BAD)
Jean Coutu: UP 50% (AVERAGE)
Paladin Labs: UP 208% (GOOD)
2012-10-03:
Badger Daylighting: UP 272% (GOOD)
Directcash Payments: DOWN 37% (BAD)
Softchoice corp: UP 70% (AVERAGE)
2012-11-23
Badger Daylighting: UP 273% (GOOD)
Enghouse Systems: UP 134% (GOOD)
High Liner Food: UP 79% (GOOD)
A few stats about those 6 appearances on the TV:
1/6, Donville has had 3 good top picks
2/6, Donville has had one bad top pick
2/6, Donville has had 2 or 3 good top picks
6/6, Donville has had at least one good top pick
If we attribute a note of 10/10 for each good top pick, a note of 5/10 for each average top pick and a note of 0/10 for each bad top pick, Donville would get the global score of 125/18 which is equivalent to 6,9/10. So, his top picks for that period were "average plus".
lundi 30 juin 2014
Avigilon (AVO.TO): An exception of investment
Avigilon is one of the companies in Canada that offers the highest growth. In fact, the compound annual growth rate since 2008 is over 100%! In the last years, the CAGR is about 75% which is still great.
The company produces security equipments (HD video surveillance, door readers, security control software, etc).
Their HD cameras are way better than competition from what is seen on the website of the company. I know, my brothers, a website could say anything to sell crap. But the exceptional growth in sales must mean something about the quality of the products.
Recently, Canon has acquired a company named Milestone that produces security systems. By doing so, Canon wants to become a leader of security equipment. So, there's competition in sight. But, there's already competition for Avigilon because Milestone exists since 1998, so we'll see in a couple of years if this support of Milestone by a giant (Canon) will become a real threat. I bet that a couple of years of strong growth are still ahead.
The security market should go from 12.6 billion dollars in 2012 to 23.2 billion dollars in 2016. So, there's a lot of room for growth. Security systems have their place everywhere: stadiums, hospitals, airports, banks, offices, shopping mall, casinos, school campus, transportation (subway, bus), etc.
In 2013, the revenue of Avigilon was 178 million dollars. They plan to reach 500 millions of revenue in 2016 (180% of growth). So, they think that a strong growth will continue for at least the next couple of years. A couple of sentences before, I wrote the same thing. It looks like i'm already brainwashed by the marketing of the company.
Three important managers left the company in the recent months. The last departure caused a major drop in the share price (which is still expensive by PE ratio). That drop caused a lot of insider buying around 20$ (recent price is around 22,50$). In may, at least 5 executives of the company bought AVO shares for a minimum 50 000$. Insiders usually don't lose money, so it's a good sign to buy if you ask me.
And what thinks Jason Donville of that company (once again via Stockchase)?
2014-06-19 (BUY): Dipped down pretty low 3 or 4 weeks ago, and is sorry that he didn’t pick it up at that time. Has liked this company, other than it's valuation, for some time. If it comes back 5%-7%, he will be a buyer.
2013-08-22 (DON'T BUY): Outstanding technology but he thinks on valuation that the stock is rich. He questions if they can sustain the growth rate that they have had and this is why the stock is starting to flatten out.
2013-01-08: (DON'T BUY): When a company is growing like this one, they have to finance and one of the ways is by raising more equity. Growing pains of a great growth company. However, this company does not have a lot of recurring revenue so he has taken a pass on this. Thinks it is getting expensive, but so far he has been wrong.
Some important statistics:
Highest PE ratio last 5 years: 58
Lowest PE ratio last 5 years: 32,5
Actual PE ratio: 35,6
Dividend: none
Sales growth rate last 5 years: 102%
Sales growth between most recent quarter and equivalent quarter one year ago: 74%
PE/Growth ratio: 0,48 (under 1 is considered attractive)
Average ROE last 5 years: 17,2
Actual ROE: 21,4
Donville/Greenblatt ratio (ROE/forward PE ratio): 1
Disclosure: I've bought some shares on june 27th. With the actual evaluation, I can't build a massive position. But I'd be comfortable with something like 3 or 4% of my portfolio. The recent massive insider buying gives me confidence that it's a good time to buy. Let's see if i'm just being manipulated.
The company produces security equipments (HD video surveillance, door readers, security control software, etc).
Their HD cameras are way better than competition from what is seen on the website of the company. I know, my brothers, a website could say anything to sell crap. But the exceptional growth in sales must mean something about the quality of the products.
Recently, Canon has acquired a company named Milestone that produces security systems. By doing so, Canon wants to become a leader of security equipment. So, there's competition in sight. But, there's already competition for Avigilon because Milestone exists since 1998, so we'll see in a couple of years if this support of Milestone by a giant (Canon) will become a real threat. I bet that a couple of years of strong growth are still ahead.
The security market should go from 12.6 billion dollars in 2012 to 23.2 billion dollars in 2016. So, there's a lot of room for growth. Security systems have their place everywhere: stadiums, hospitals, airports, banks, offices, shopping mall, casinos, school campus, transportation (subway, bus), etc.
In 2013, the revenue of Avigilon was 178 million dollars. They plan to reach 500 millions of revenue in 2016 (180% of growth). So, they think that a strong growth will continue for at least the next couple of years. A couple of sentences before, I wrote the same thing. It looks like i'm already brainwashed by the marketing of the company.
Three important managers left the company in the recent months. The last departure caused a major drop in the share price (which is still expensive by PE ratio). That drop caused a lot of insider buying around 20$ (recent price is around 22,50$). In may, at least 5 executives of the company bought AVO shares for a minimum 50 000$. Insiders usually don't lose money, so it's a good sign to buy if you ask me.
And what thinks Jason Donville of that company (once again via Stockchase)?
2014-06-19 (BUY): Dipped down pretty low 3 or 4 weeks ago, and is sorry that he didn’t pick it up at that time. Has liked this company, other than it's valuation, for some time. If it comes back 5%-7%, he will be a buyer.
2013-08-22 (DON'T BUY): Outstanding technology but he thinks on valuation that the stock is rich. He questions if they can sustain the growth rate that they have had and this is why the stock is starting to flatten out.
2013-01-08: (DON'T BUY): When a company is growing like this one, they have to finance and one of the ways is by raising more equity. Growing pains of a great growth company. However, this company does not have a lot of recurring revenue so he has taken a pass on this. Thinks it is getting expensive, but so far he has been wrong.
Some important statistics:
Highest PE ratio last 5 years: 58
Lowest PE ratio last 5 years: 32,5
Actual PE ratio: 35,6
Dividend: none
Sales growth rate last 5 years: 102%
Sales growth between most recent quarter and equivalent quarter one year ago: 74%
PE/Growth ratio: 0,48 (under 1 is considered attractive)
Average ROE last 5 years: 17,2
Actual ROE: 21,4
Donville/Greenblatt ratio (ROE/forward PE ratio): 1
Disclosure: I've bought some shares on june 27th. With the actual evaluation, I can't build a massive position. But I'd be comfortable with something like 3 or 4% of my portfolio. The recent massive insider buying gives me confidence that it's a good time to buy. Let's see if i'm just being manipulated.
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