Enjoy the Journey

Enjoy the Journey

To be a successful investor over the long term, you have to enjoy the journey. Be willing to take up the mantle and enjoy the challenge of investing. If you’re the type that’s going to lose sleep after the first market dip (or worse yet, if you’re going to panic out of your well-thought-out investment positions just because the market falls), then maybe a more passive approach would be better suited for you. In fact, if you’re not going to enjoy the “game,” you probably shouldn’t be investing for yourself at all.

With that being said, there are definite benefits by successfully managing your own investments. While everybody knows what money can’t buy, there are obviously things that money can buy: a sense of security, a comfortable retirement, an ability to provide for your family. And for myself, a sense of empowerment along with the satisfaction of employing a skill that over time will enable me to enjoy the sweetness of beating the odds and the belief that “it can’t be done.”

Some people – including the renowned eighteenth-century economist Adam Smith, believed that when you pursue your own self-interest, the whole of society benefits. In the stock market, the buying and selling of stocks creates a market for corporate equity and ultimately provides a vehicle for productive businesses to raise capital and expand. While true, this kind of thinking can only go so far. In other words enjoying the game has to be more than just making money because in the end making the money is just another way of keeping score.

While to many, “time is money,” it’s probably more universal to say that “money is time.” After all, time is the currency of everyone’s life. When it’s spent the game is over. One of the great benefits of having money is the ability to pursue those great accomplishments that require the gifts of time and being. So, while money can’t buy you happiness or even satisfaction, it might buy you something else. If viewed in the proper light, it can buy you time – the freedom to pursue the things that you enjoy and that give meaning to life.

Resources

You Can be a Stock Market Genius

Joel Greenblatt

Stock Idea…Medicure Inc

Stock Idea…Medicure Inc

Symbol : MPH

Exchange: TSXV

Market Cap : 112 Million

Revenue : 38 Million
Three Year Revenue Growth : 110.7 %
Investment Type : Micro Cap Value/Growth

Price/Earnings : 4.7

Forward P/E : 8.6

Price/Book : 5.4

Price/Sales : 3.5

Price/Cash Flow : 4.4

Price : 7.16
Investment Stem : Cheap Small Caps Screen
                                Pender Small Cap Opportunities Fund

Medicure Inc is in the business of research, clinical development and commercialization of human therapeutics for United States hospital market. It has Marketing and distribution of Aggrastat and Manufacturing and distribution of API segments.

Medicure Inc. (Medicure) is a pharmaceutical company engaged in the research, clinical development and commercialization of human therapeutics. The Company operates in the biopharmaceutical industry segment. The Company's primary operating focus is on the sale and marketing of its acute care cardiovascular drug, AGGRASTAT (tirofiban hydrochloride) owned by its subsidiary, Medicure International, Inc. and distributed in the United States and its territories through the Company's United States subsidiary, Medicure Pharma, Inc. AGGRASTAT, a glycoprotein IIb/IIIa inhibitor (GPI), is used for the treatment of acute coronary syndrome (ACS). The Company is also engaged in the development of TARDOXAL for neurological disorders, such as Tardive Dyskinesia (TD). The Company has completed Phase IIa stage of development for TARDOXAL. The Company is also developing Transdermal AGGRASTAT, a cure for acute cardiology. Transdermal AGGRASTAT is in preclinical-stage of development.

The dreaded metrics from Morningstar…

http://quote.morningstar.ca/Quicktakes/stock/keyratios.aspx?t=MPH&region=CAN&culture=en-CA&ops=clear

The company’s website…

http://www.medicure.com/

Medicure is a pharmaceutical company focused on the development and commercialization of cardiovascular therapeutics for the U.S. market

Medicure’s vision is to become a leading cardiovascular pharmaceutical company within the U.S, offering a growing product portfolio of cardiovascular products that improve patients’ lives. We have an unwavering focus on delivering safe, efficacious and cost-effective medicines that benefit patients, healthcare providers and shareholders. Our commitment to service, partnership and integrity is what sets us apart.

Medicure was established in 1997, and spent its first decade focused on research and development. In 2008, the company began a transition to focus on its commercial pharmaceutical business. This new direction has provided significant shareholder value with the growth of AGGRASTAT sales, achieving profitability, and the pursuit of development and acquisition opportunities.

Medicure’s board and management is committed to building value for its existing shareholder base and is patiently pursuing a long-term view to establishing the Company as a leading, international pharmaceutical company - one that is distinguished by its unique fit within the contemporary market.

Medicure Inc. is based in Winnipeg, Canada and publicly traded on the Toronto Stock Exchange Venture under the symbol MPH. Its subsidiaries include Medicure International, Inc. (Barbados), which owns the U.S. rights to AGGRASTAT, as well as two U.S. corporations, Medicure USA, Inc. and Medicure Pharma, Inc., which distributes the Company’s products in the United States.

Corporate change in the Small Cap World

Corporate change in the Small Cap World

The Securities and Exchange Commission (SEC) down in the states requires that all publicly traded companies under its supervision make certain periodic and special filings. One such form is called a ‘Form 8K’, this form is filed after a material event occurs such as an acquisition, an asset sale, a bankruptcy, or a change in control of the company. As far as I know there is no corresponding form issued up here in Canada, so to find out about these types of corporate events, an investor will have to logon to www.sedar.ca  and peruse the company’s public disclosures. Maybe this is a good thing as the information is more hidden and thus has more ‘wager value’.  Narrowing this approach down to the small cap universe only adds to the value of the information as there is less competition paying attention to this sector of the market place.

These types of corporate events or ‘special situations’ can drastically alter the course of the future of a small cap company and can often serve as a catalyst launching the company in a new direction with increased profitability. One way to hunt these situations down is to follow small cap managers who follow and invest in these types of corporate events. Typically they will be small operators with a limited amount of assets under management making the information all the more valuable. The keyword in all of this is ‘change’…What has changed in the company and how will this affect the share price in the future? Management teams who are good capital allocators will often make an asset sale or a purchase that is likely to enhance shareholder value down the road. There are many different themes that can play out in this area.

This strikes at the very heart of wager value…focusing on little known or under-used information. While the majority of the investing public (your competitors) focus their attention on the mass media and the news of the day you can be doing valuable detective work under the secluded rocks of the small cap universe.

If you like to work with stock screens, this can be a valuable adjunct to researching the stocks that catch your eye from the screens you run on the market.

A Review of Stock Ideas from 2017

A Review of Stock Ideas from 2017

Last year I covered twelve stock ideas. Two of the ideas I stole from money managers I follow in the states (GIMO and DHR, both on the NYSE, although GIMO has been since bought out). Another one (GUY on the TSX) was an idea I came up with, while trying to find an investment idea in the under-valued junior gold market in Canada. The remaining nine ideas I got from a stock screen I use on the Canadian market. I want to focus on this screen for the moment and discuss my reasons for deploying it.

Cheap Canadian Small Caps Screen

Market Cap……………………49.2 million to 5.48 billion

Price / Cash Flow Ratio……….under 15.2

Return on Capital (TTM)……..over 10 percent

By screening for stocks in the smaller cap sector of the market I’m hoping to exploit market inefficiencies where the market has trouble properly valuing these companies. (wager value)

The price to cash flow ratio is a far better metric to use to value companies than the heavily followed and sometimes manipulated price to earnings ratio. (margin of safety)

Lastly, return on capital assures me that I will only be considering companies that are actually adding value to their businesses over time. (quality and value creation)

To avoid value traps I like to see revenue growth over the last few years and a strong balance sheet to help assure me that the company will be able to navigate periods where credit may be hard to obtain. I also like to see some free cash flow (I use the cash return metric to track this) and finally a strong motivated management team that holds a significant stock ownership in the company. A proven track record of capital allocation is also preferred...In addition, I also check out the price to sales ratio of the likely candidates, if it is below say 1.5 times, it is a confirming indicator of value (margin of safety) and thus makes the qualifying stocks all the more valuable.

The object of a stock screen is to give the investor ideas to conduct some research on, not to pick stocks from outright. By focusing on a pre-selected menu of stocks, the investor will be able to cut through the noise and clutter of the market and hone in on good potential investment ideas. He can also tailor the stock screen to reflect his investment approach or philosophy. 

Below is the list of the nine stocks I cherry picked from this screen last year with the dates selected and the initial return so far. Of course its still too early to make any judgements so far but its always fun to see how they are doing in the interm.

Stock	2017	Price						% return/loss
GEO	Jul-31	1.98		Jan-23	2.10		0.12	6.06
MAL	Aug-01	19.91		Jan-23	20.86		0.95	4.77
HWO	Aug-02	3.71		Jan-23	4.16		0.45	12.13
RME	Aug-07	10.41		Jan-23	12.92		2.51	24.11
TCS	Aug-24	13.15		Jan-23	18.44		5.29	40.23
SXP	Sep-23	4.46		Jan-23	4.65		0.19	4.26
MTO	Oct-01	0.77		Jan-23	0.77		0	0.00
TPK	Oct-05	6.18		Jan-23	6.72		0.54	8.74
CAL	Oct-06	7.3		Jan-23	9.4		2.1	28.77
Total								14.34

In addition, this particular stock screen could give insights into how expensive the overall market is. Back in the summer this screen yielded me 30 entries in total. This past weekend it threw off only 18 stocks and was as low as 16 just a few weeks ago. This indicates to me that this is an expensive market.

Rough Patch

Rough Patch

While the major market indexes have been surging ahead, my own investment portfolio has been lagging. I run an unbalanced portfolio with most of my money in the Brookfield limited partnerships (BIP.UN, BEP.UN, BPY.UN and BBU.UN). Other major holdings are Open Text and Stantec (OTEX, STN). I also have a significant holding (within the realm of my own portfolio) in RWM (a US ETF that shorts the Russell 2000). I put on that short last April to hedge the long positions in my portfolio. So far it has proven to be an expensive form of insurance as I’m currently down 23.40 percent on that holding.

An important point here is that sometimes the market will move against your particular approach or rotate into sectors where you are light or have no exposure. This is part of investing and I feel it’s important to realize that it will not always be clear sailing in the markets. You will have periods of under performance.

When this happens you will often find yourself being enticed by investment ideas that you might think will help bolster your returns in the short run. The market can seem to have an insidious influence on your thinking, coaxing you to buy into investments that have not been well thought out. Actually the problem doesn’t lie in the market but within your own mind. In investing, you can be your own worst enemy. That’s why I think it’s important to have an investment philosophy that will help anchor you in times of uncertainty and stress.

When investing in the stock market its important to remember that we all face an unknowable future where anything can happen. It’s human nature to pursue the safety of certainty but when investing in the markets we have to face and deal with uncertainty. The best way to deal with that is to manage your risk and think in probabilities and not to allow yourself to get bent out of shape when things don’t go your way. It’s all part of the investing experience.

The Illusion of Market Indexes

The Illusion of Market Indexes

I ran across this on Keith Richard’s blog on technical analysis, Smartbounce…

“More than 20% of the S&P500 is comprised of 5 stocks: AAPL, MSFT, FB, AMZN, GOOGL. The NASDAQ’s top 5 stocks, making up some 40% of the index, are also AAPL, MSFT, FB, AMZN, GOOGL”.

This is why I largely ignore the market indexes when evaluating the current state of the market. These stocks have become so large they have become in effect commodities. All of the institutional money in the markets pour into them lemming like and it isn’t always for fundamental reasons. To keep your job on wall street, its important to do what everybody else is doing and in so doing you keep your job. Institutionalized thinking invests in institutions. When the markets turn as they eventually will, all of these guys will try to leave out the same door…all at once. Markets can go down harder and faster than they go up. Just a word to the wise. 

Rather than focus on the market indexes, try paying attention to your own stock portfolio. How is it behaving? Has it been eroding away while the SP500 continues to churn up? Getting a bead on what is happening to your own investments can be a good way of getting information on what is happening in the markets as a whole. In my own portfolio, Open Text (OTEX) has been consolidating for a year now, it just put in a lower top in late October. Descartes Systems Group (DSG) has dropped dramatically last week. These are both tech stocks. Is the underlying market weakening here? I wonder...Is there any market rotation going on? As the indexes continue to surge up, fed on their own mathematics and momentum, money is often siphoned out some of the overbought sectors. Is that money being allocated to more attractive opportunities elsewhere? Maybe to market sectors which  present a more value added proposition?

It's important to be an individual in a crowd and think for yourself.  Especially when investing in the stock market. Consider contrarian possibilities. Tune out the media. They have no clue and even if they did I doubt they would inform you. Try to emulate a Howard Marks, and manage your risk appropriately. Investing in the stock market is an art form, not a science.

Two things that seem to hurt me

Two things that seem to hurt me

Two things that seem to hurt me in my investing are impatience and getting so wrapped up in a certain investing idea that I fail to consider other alternative courses of action. I recently ran across a good definition of patience…

‘Patience is a highly sought virtue. To be patient is to wait, to be able to mentally insert a wedge between a linked stimulus and response and so place a stop on repetitive, habitual, often destructive behaviour. Patience gives you a moment to access, step back from the brink, and bring yourself back into balance.

The idea is that we restrain our will to stop an impulsive or destructive action (often based on short term relief from tension or instant gratification) and in doing so, turn our energy in a constructive or creative direction – to use our will in a directly beneficial way. Patience, then, is the mental reflection of the restraint of will.’

Dr. Gerald Epstein

That one line... ‘The idea is that we restrain our will to stop an impulsive or destructive action (often based on short term relief from tension or instant gratification)’, really resonates with my own experience of investing and probably my life as well.