The Kennel portfolio, How bad could it get?

[Jaygo]

Revamping my RRSP with some real dogs this morning. I may be on a reach for yield but its a fun experiment so we shall see. I have effectively sold half of my position in VOO /  SCHD to  scrape a few off the sidewalk and put them in my new portfolio of dogs, the kennel.  

 

All have plumbed new lows lately and have bad stories attached. I plan to give this 24-36 months to develop and I will compare to the original holding. 50/50 VOO and SCHD

Roughly equal 7500 increments of the following

 

MMM Killing the planet one non-stick pan at a time. 

DG Rats, robberies and fire safety violations

C  Shitibank all banks are 0's anyway

MO Kills its customers and nobody smokes anymore

BTI Same problems as MO but even worse as they are British with a French CEO, yikes! already own a bunch but added here.

HD Nobody will ever reno again with rates this high, hovels are the new Mcmansion

AAP the ugly stepchild in an otherwise incredible oligopoly

DIS See the Disney thread, nothing more to add.

 

I am also considering CCI ,SWK, MHK, BUD and some others but this is where i'm starting off. I'm not sure about US reits in a Canadian registered and im already pretty heavy in reno/ home markets with GGG and SD. I would also love to get some Food in there but until someone finds a finger in their cup of coffee at starbucks ill wait and hope for the worst.

 

They were all one time market darlings but have pissed off the market gods. Maybe one day they will shine again and Ill clip some coupons while I wait or they all go out like old Yeller and I retire a year later.

 

Having fun with this one and at less than 10% of my portfolio i'm ok with some roller coasters. I really think all will prevail long term. If anyone has another pooch to send to the kennel i'm all ears.

 

Edited September 25, 2023 by Jaygo

[Dinar]

7 minutes ago, Jaygo said:

Revamping my RRSP with some real dogs this morning. I may be on a reach for yield but its a fun experiment so we shall see. I have effectively sold half of my position in VOO /  SCHD to  scrape a few off the sidewalk and put them in my new portfolio of dogs, the kennel.  

 

All have plumbed new lows lately and have bad stories attached. I plan to give this 24-36 months to develop and I will compare to the original holding. 50/50 VOO and SCHD

Roughly equal 7500 increments of the following

 

MMM Killing the planet one non-stick pan at a time. 

DG Rats, robberies and fire safety violations

C  Shitibank all banks are 0's anyway

MO Kills its customers and nobody smokes anymore

BTI Same problems as MO but even worse as they are British with a French CEO, yikes! already own a bunch but added here.

HD Nobody will ever reno again with rates this high, hovels are the new Mcmansion

AAP the ugly stepchild in an otherwise incredible oligopoly

DIS See the Disney thread, nothing more to add.

 

I am also considering CCI ,SWK, MHK, BUD and some others but this is where i'm starting off. I'm not sure about US reits in a Canadian registered and im already pretty heavy in reno/ home markets with GGG and SD. I would also love to get some Food in there but until someone finds a finger in their cup of coffee at starbucks ill wait and hope for the worst.

 

They were all one time market darlings but have pissed off the market gods. Maybe one day they will shine again and Ill clip some coupons while I wait or they all go out like old Yeller and I retire a year later.

 

Having fun with this one and at less than 10% of my portfolio i'm ok with some roller coasters. I really think all will prevail long term. If anyone has another pooch to send to the kennel i'm all ears.

 

Two quick comments:

a) BTI is better than MO since it is both cheaper (adjusting MO for the stake in BUD and BTI for the stake in ITC) and has slower volume decline thanks to its non-US business

b) BUD just had an investor day, and seems quite cheap to me, although I do not own it.  Company is essentially promising both organic volume growth and margin expansion, neither of which is priced in as far as I can see.  

[E. Nashton]

I do something similar and have some overlap with your suggestions. I'll probably add some cdn office reits for punishment and have also added ATZ. 

[MMM20]

Gas cars? Implied value of VW core biz is like -70B on SOTP basis. Similar dynamic for STLA within Exor.

 

Edited September 26, 2023 by MMM20

[brobro777]

I think this has a good chance of working out well - some of these companies are despised by basically everyone yet remain very profitable. 

 

I own some of these so I guess I'm biased haha

 

[no_free_lunch]

The only one that I would consider removing is MMM.  I don't like all the lawsuits, hard to handicap the cost.  You could consider adding some O&G or pipelines.

Edited September 26, 2023 by no_free_lunch

[Jaygo]

On MMM. This company has so many patents in so many products its crazy, literally every consumer / industrial item is filled with 3m adhesives, films, fluids and chemicals. That's the good, and that's the moat. at 1.5 times revenue it seems more than ok to me.

 

The bad of course is the what if. As far as I can tell we may be entering a phase of the political economy where we go after the makers, and distribute to the takers. Its our atlas shrugged moment i guess.

 

I think if 3m is in trouble who the hell isn't? Our family favorite Berkshire too.  So it isn't to say that the legal risks are not great for 3m but isn't the entire industrial / chemical industry also facing legal trouble. Look at utilities getting sued for fires for evidence of this, why not compass minerals for salt pollution of our lakes and rivers, chevron for everything, Pepsi for giving me a fat ass. Everybody is liable for something.

 

I am going to keep 3m in the kennel but appreciate the discussion.

 

 

 

[no_free_lunch]

1 hour ago, Jaygo said:

On MMM. This company has so many patents in so many products its crazy, literally every consumer / industrial item is filled with 3m adhesives, films, fluids and chemicals. That's the good, and that's the moat. at 1.5 times revenue it seems more than ok to me.

 

The bad of course is the what if. As far as I can tell we may be entering a phase of the political economy where we go after the makers, and distribute to the takers. Its our atlas shrugged moment i guess.

 

I think if 3m is in trouble who the hell isn't? Our family favorite Berkshire too.  So it isn't to say that the legal risks are not great for 3m but isn't the entire industrial / chemical industry also facing legal trouble. Look at utilities getting sued for fires for evidence of this, why not compass minerals for salt pollution of our lakes and rivers, chevron for everything, Pepsi for giving me a fat ass. Everybody is liable for something.

 

I am going to keep 3m in the kennel but appreciate the discussion.

 

 

 

 

The issue is these are not legal risks but actual legal settlements piling up.  They are not theoretical they are happening.   

 

If you look at this link they are estimating $10B for forever chemicals plus $6B for the ear plugs.   Then this article says there could be up to an additional $30B liability further?  It's substantial, even for a company with $5B of net income.  You also have stagnant earnings so it's not reasonable they can just somehow grow out of this.  They could be in the doghouse for 5+ years is my concern.

 

Capstone estimates 3M’s total PFAS liability risk is nearly $30 billion, beyond the existing settlements.

 

https://www.cnbc.com/2023/08/29/3m-faces-more-legal-headaches-after-earplug-settlement.html

Edited September 26, 2023 by no_free_lunch

[Jaygo]

On 9/26/2023 at 4:09 PM, no_free_lunch said:

 

The issue is these are not legal risks but actual legal settlements piling up.  They are not theoretical they are happening.   

 

If you look at this link they are estimating $10B for forever chemicals plus $6B for the ear plugs.   Then this article says there could be up to an additional $30B liability further?  It's substantial, even for a company with $5B of net income.  You also have stagnant earnings so it's not reasonable they can just somehow grow out of this.  They could be in the doghouse for 5+ years is my concern.

 

Capstone estimates 3M’s total PFAS liability risk is nearly $30 billion, beyond the existing settlements.

 

https://www.cnbc.com/2023/08/29/3m-faces-more-legal-headaches-after-earplug-settlement.html

There is no doubt that these guys are the poster child for litigation right now but is the plan to just kill the company. The PFAS is mostly due to contamination from firefighting foams as far as I know. So I guess the juridictions are not liable just the manufacture? 

 

The earplug thing is nuts too. Did the servicemen never hobby shoot without earplugs or go to a concert or used a skill saw without earplugs. Like how the hell did 6 billion worth of hearing loss happen just because of some earplugs.

 

I guess my distaste for an unfair litigation really shouldn't be my investment thesis and I'm thankful for your pushback. 

[longlake95]

Jaygo,

this dog house portfolio probably does okay to well. It usually pays to be a bad news buyer on okay to goodish companies. It will interesting to watch. I bet it beats the s&p over the next few years.

[Sweet]

Is it really a doghouse portfolio without Fannie Mae and Freddie Mac?  Or is that the dog poop you clean up and toss in the garbage and never think about again?

[Jaygo]

On 9/25/2023 at 1:15 PM, Dean said:

I do something similar and have some overlap with your suggestions. I'll probably add some cdn office reits for punishment and have also added ATZ. 

 I'm a sucker for punishment myself Dean. 

[Jaygo]

7 hours ago, longlake95 said:

Jaygo,

this dog house portfolio probably does okay to well. It usually pays to be a bad news buyer on okay to goodish companies. It will interesting to watch. I bet it beats the s&p over the next few years.

Ive just listened to John Neffs book and was kind of taken aback by his strategy.  It makes intuitive sense to buy low P/E stocks that still have a glimmer of growth in them and ive looked at my US centric RRSP portfolio and had a realization that it is of mostly of high quality but very high P/E. TJX at 25pe, GGG about 30pe, CSU around 60pe COST  around 38pe so decided to try and bottom feed a little and bring things into a slightly lower band. Some may say that is silly to sell good companies for bad but if one dollar in TJX buys me 3 cents of earnings and one dollar in home depot buys me 6 cents or BTI at close to 10 cents does that not seem like a good trade? 

 

 

 

 

[Value_Added]

10 hours ago, Jaygo said:

Ive just listened to John Neffs book and was kind of taken aback by his strategy.  It makes intuitive sense to buy low P/E stocks that still have a glimmer of growth in them and ive looked at my US centric RRSP portfolio and had a realization that it is of mostly of high quality but very high P/E. TJX at 25pe, GGG about 30pe, CSU around 60pe COST  around 38pe so decided to try and bottom feed a little and bring things into a slightly lower band. Some may say that is silly to sell good companies for bad but if one dollar in TJX buys me 3 cents of earnings and one dollar in home depot buys me 6 cents or BTI at close to 10 cents does that not seem like a good trade? 

 

 

 

 

 

Isn’t this the whole premise of “look through” earnings according to Buffett? 

[MMM20]

12 hours ago, Jaygo said:

Ive just listened to John Neffs book and was kind of taken aback by his strategy.  It makes intuitive sense to buy low P/E stocks that still have a glimmer of growth in them and ive looked at my US centric RRSP portfolio and had a realization that it is of mostly of high quality but very high P/E. TJX at 25pe, GGG about 30pe, CSU around 60pe COST  around 38pe so decided to try and bottom feed a little and bring things into a slightly lower band. Some may say that is silly to sell good companies for bad but if one dollar in TJX buys me 3 cents of earnings and one dollar in home depot buys me 6 cents or BTI at close to 10 cents does that not seem like a good trade? 

1 hour ago, Value_Added said:

 

Isn’t this the whole premise of “look through” earnings according to Buffett? 

 

 

It's really just investing through a permanent owner lens, right? Invert P/E and you get an earnings yield. Let's say 20x p/e = ~5% earnings yield. If they pay all the earnings out to you as a dividend, you're getting your 5% dividend yield. If they instead retain 100% and reinvest at ~2x over ~5 years type incremental returns and then start paying that out at year 5, well, you end up with a much bigger dividend, but starting in year 5. And then it's a question of whether there's some massive terminal value or whether it's a runoff, or somewhere along that spectrum, and how you discount all that back. It all comes down to a DCF and if you're paying 60x earnings you just have to be aware that you're betting on huge earnings growth and a massive terminal value. A BAT with a ~18% earnings yield and ~12% dividend yield or whatever it is nowadays might not have the terminal value of a COST, but you probably don't need that to do very very well as a shareholder, maybe even ~2-3x market returns, as long as management allocates capital in a shareholder-friendly way and doesn't incinerate the ~1/3rd that they're retaining and reinvesting. I think something like a BAT should be a winner with good enough capital allocation, even if that's just a stable dividend and debt paydown. I'm guessing the same is true of many other stocks like it nowadays. I'm not sure how many people really grasp that a stock could go to 0 over two decades and you could end up with a satisfactory total return. I think many may have lost sight of this basic framework for investing during the zero interest rate environment last decade. So an approach like yours makes a lot of sense to me, as long as management is sufficiently aligned and rational (or just has a huge sustainable dividend on autopilot).

 

Edited September 29, 2023 by MMM20

[Jaygo]

6 month update. This has been a pretty lucrative trade so far. Had to put one dog down (MO) Dis went to a better home and the rest have kicked the fleas and are perking up. (sorry)

 

AAP up 53%

Dis up 47%

DG is up 51%

C is up 56% plus a couple divs

HD is roughly 26%

MMM is up like %27 but with the spin i'm not sure

BTI and MO have just sucked down 2% and up 4% with some decent divs in there

 

The comp is VOO and SCHD that are up 19% and 14% since I sold a portion to fund this group of misery. The timing was lucky and even a fool would see that the best play still remains to just hold VOO and SCHD and go to work but fun is fun.

 

I sold out of MO and have moved that 7500 into Chevron. Disney since it doesn't pay a DIV is gone and pushed into Starbucks

I am also planning on selling the rest down to the original 7500 allocations and putting the proceeds into SWK (Stanley Black and decker) for 7500 and Newmont for 7500 with the last 2800 into PLOW

 

Something about getting dividends really gets my heart fluttering and these pooches pay so all is well in the old RRSP

[thowed]

Nice work, and good timing on it.

[Xerxes]

Amazing !!!