jeudi 18 janvier 2018

A return on Carmax (KMX)

My three main influences as investors own shares of Carmax. I'm talking about Chuck Akre (again), Sequoia Fund and Giverny Capital. An important stake of each portfolio is occupied by that stock (5% or more).

I've written a few times about that stock in the past, saying I wasn't particularly fond of it. I never hated KMX, but I thought that many better stocks were avalaible.

Given the fact that my three idols have a lot of money in that stock and given the fact that KMX is considered a "compounding machine" by Chuck Akre, I can't maintain my position. That stock is surely at least good... and perhaps more.

I've learned not to follow blindly any investor. So, I went to Value Line to take a look at KMX.

For the earnings predictability, KMX has a score of 95%, which is almost perfect. And it's an indicator that seems very important for Sequoia, Akre and Rochon (Giverny). In fact, most of the best companies have a high score for earnings predictability.

The ROE of KMX has been around 20% for the last 3 years, which is very good.

And, finally, in an expensive market, KMX has rarely been this cheap (about 16 times forward earnings). Just take a look at the PE for the last years and you'll see that this stock is usually selling for something like 20 times earnings and even more.

The last results for KMX have been disapointing but if someone is looking for a good company and a fair price, he should be looking there. I don't think that there's a lot of momentum with KMX but there's an occasion to share ownership with three of the best investors in the world. I trust them when they're alone. When they're together, I trust them like a kind of holy trinity.

mercredi 17 janvier 2018

Between Buffett and Akre

It's very hard to invest these days.

Some say: "You can't predict where the market is going. You should always be fully invested".

Some others say: "The market is expensive. Better wait for a better entry point".

Others say: "Bitcoin is down 15% today. That's an occasion".

I often think about Chuck Akre when I'm alone and naked. And I say to myself: "Akre is invested with very expensive but great businesses (like Mastercard, Visa and Moody's). He's probably not the kind of guy that's gonna sell even if the market is expensive. Actually, today, I read a transcript of Akre in 2011 saying that he doesn't sell exceptional businesses because they're too hard to replace.

On the other hand, there's Warren Buffett (which I like too, but not as much as Akre) who's got more than 100 billion dollars of cash waiting to be deployed. If he thought that there were great occasions, he would probably have bought something long ago.

 I'm somewhere in between these two titans. I feel honored to be there. I know there's some occasions out there, but I wouldn't use the term "screaming buy". I don't see that much headwinds but I don't see backwinds either.

What the fuck should I feel?

mardi 9 janvier 2018

How to build a position

It took me a lot of time to understand the very simple way of building a position with a new stock. I'm ashamed to be almost 40 years old and to write something about that so late in my investing life.

  1. Find a great stock;
  2. Wait for a moment where the stock is not in favor of the market. These great stocks are rarely sold for 15-20 times earnings. If you can find an interesting gap between historical PE and current PE, you probably should buy that stock, except if some very bad thing is going on. I can't detail what could be a very bad thing. Unfortunately, only your judgment will make a difference here. That's the only point of this list where a robot couldn't do the job; 
  3. Buy a small position at first. Something like 1 or 2% of your portfolio. Then, wait for the next earnings to be released;
  4. Usually, great stocks don't go badly for too long. If the next earnings are worse than the last and the situation seems to get worse, you could sell your small position with a loss. It won't hurt because it was a small position. If the earnings went well, add to your position, even if the stock price goes up something like 5-10%. Your small position at a bargain price will compensate for the rise;
  5. You now have a 3 to 5% position with a great stock and it was gradual and safe. Or you have a 0% position with a stocks that seemed good but wasn't that good. And you lost only a few hundred bucks. The performance of your portfolio won't be affected this year.
  6. Don't thank me. I live to give.

samedi 6 janvier 2018

Jason Donville VS Chuck Akre

Poor Jason Donville. The returns for his fund have been very bad for the last 3 years. On Donville Kent's website, the performance of december 2017 isn't written yet, but for the first 11 months of the year, the performance has been about 8,4%. Let's say that the performance of december has been pretty good and the performance for 2017 has been about 10-12%. It's OK but not that good.

The last 3 years for Donville Kent would look like that: 

2017: 10-12%
2016: -1,66%
2015: 4%

Some devouted fans may say that it's only a bad period and Jason will come back stronger than ever. Perhaps. But three bad years in a row is probably way beyond what a client of a fund may be able to swallow. It looks like small caps with high ROE didn't do what they should do.

Now, let's take a look at Chuck Akre.

According to this website (perhaps there's some mistake, I haven't trianguled my sources of information), the average return annualized over the last 3 years is 28,63%.

Isn't that bloody incredible? At this moment, you should stop reading this post, sell everything you own and build an exact copy of Akre's portfolio. Don't tell me that's luck, don't tell me that's conjoncture. Nobody without an incredible talent could get a 28,63% annualized return.

Just take a look at Akre's biggest positions over the last year:

American Tower (13,5% of the portfolio): UP 34%
Moody's (11,5% of the portfolio): UP 55%
Mastercard (11% of the portfolio)): UP 44%
Markel (8% of the portfolio): UP 25%
Visa (7,5% of the portfolio): UP 43%
Dollar Tree (6,1% of the portfolio): UP 39%
O'Reilly (6% of the portfolio): DOWN 14%
Carmax: (5,7% of the portfolio): DOWN 1%

What more do you want? Akre invests in large or giga caps and he's still able to get such returns. That guy deserves a blow job from all of us!

jeudi 4 janvier 2018

Stocks for less than 20 times next year's earnings

A few years ago, you could build a great portfolio, selecting stocks with a current PE ratio of 15 or less.

That time is over. Now, if you manage to find a great stock with a forward PE ratio of 20, first, you'll have to work hard, then, you have to buy it. Because the market is more expensive than that.

You don't have a lot of choices. At this moment, there's a handful of great stocks that are selling for less than 20 times forward earnings. If they're selling for that relatively low price, that's because the sky isn't that clear for them. But it's probably just a momentary problem.

Here's a short list of good stocks which are selling for less than 20 times next year's earnings:

CAN: Canadian National, Canadian Pacific, Linamar, Magna, Alimentation Couche-Tard, CGI, Hardwood Distribution, CCL Industries, Metro.

US: Disney, Mohawk, LKQ, O'Reilly, Omnicom, Credit Acceptance Corp., Discover.

I know, these days, everybody is crazy for those fucking weed stocks. Canopy Growth goes up something like 10% on a given day for no reason. Then, the next day, it goes up 15% and still, nothing happened. And the next day, it goes up 30%. And you say to yourself: "Fuck". And, after a month, the stock is up 100% while your miserable fucking portfolio has done 2%.

I have a friend whom I initiated to the stock market with stocks like Apple, Biogen and Tucows. He still owns some of these stocks but he now gambles with weed stocks. I feel like Obi-Wan Kenobi facing my padawan chosing the dark side.

But it's maybe the inevitable path for growing up. Like we all tasted our pooh when we were babies (some of us still do it). It may be funny for a moment, but you can't live like that forever.

vendredi 29 décembre 2017

My returns for 2017

My picks for 2017 have been the following :
  1. Constellation Software (up 26%);
  2. CGI Group (up 5%)
  3. Alimentation Couche-Tard (up 8%);
  4. Linamar (up 26%);
  5. Knight Therapeutics (down 24%);
  6. Tucows (up 79%);
  7. United Therapeutics (up 4%);
  8. Mohawk (up 37%);
  9. Disney (up 2%);
  10. LKQ (up 33%);
Average return : 19,6%
The returns above are the returns of each stock, without the exchange rate between US dollar and CAN dollar. Given the fact that the canadian dollar rose in 2017 (from 76 cents to 79 cents), the return of each american pick has actually been a bit lower than what’s written up there.
The global return of my portfolio has been similar to these 10 picks (18%). 
The return of the S&P 500 has been : 19% and the return TSX/S&P 500 has been about 5%. The Russel 2000 did about 13%. And the Dow Jones did 25%. There’s probably another index which could be appropriate but I’m a little lost among all these indexes. In my opinion, my portfolio should be compared with the TSX/S&P 500 (because my portfolio is 50% CAN and 50% US) so I’ve beaten the benchmark by about 13% which is very good. Feel free to kneel in front of me. And kiss my feet while you’re there.
Give me one year of good results and here I go: claiming blowjobs and not giving any insights about my Valeant years.  
The stars of my portfolio have been Tucows, Mohawk, LKQ, Constellation Software and Linamar… But let’s not forget Credit Acceptance Corp (up 51%), Novo Nordisk (up 50%) Dollar Tree (up 40%) and Ross Stores (up 23%) since the beginning of the year.
My only bad pick was Knight Therapeutics with a return of -24%. Which reminds me that we should never bet on a speculative stock and if we ever own any of these, it should be a small chunk of our portfolio. I still own Knight Therapeutics but I may very well switch for a business that really makes money in 2018. 
 That's probably the last post of 2017. Happy new year to everyone. For 2018, I wich you a transforming experience like swimming in the Ganges or some crazy thing like that. That's what money is for. 

mercredi 27 décembre 2017

10 lessons learned in 2017

  1. Never buy a stock on the speculation that something could happen (merger, acquisition or whatever);
  2. Best performing stocks are stocks that are making money and which are growing their earnings year after year… but, the most important point is that the free cash flows are growing year after year;
  3. Chuck Akre deserves your admiration;
  4. Sequoia Fund and Giverny Capital are very good too, but a little less than Akre. Forget the rest;
  5. A high PE ratio relative to the market may not be a high PE ratio when you compare it to histoical levels for a high-quality business;
  6. You should buy these “always high PE ratio stocks” when they’re selling for a lower price;
  7. A very large cap may offer great returns and grow much more than 95% of the other stocks (for instance: Google, Facebook)
  8. A nano or micro cap is almost ALWAYS a bad investment. They suck and the people who are talking about them suck too;
  9. Many stocks don’t retain their value. Healthcare stocks are often at risk of losing their value;
  10. When you select your stocks with a lot of caution, among not too expensive (on an historical basis) growing free cash flow stocks, you can do well with at about 80% of your picks. Which is better than almost every investor.