Daring to Succeed: How Alain Bouchard Built the Couche-Tard & Circle K Convenien

[Cigarbutt]

Just finished the book.

https://www.amazon.ca/Daring-Succeed-Bouchard-Couche-Tard-Convenience/dp/198800263X

Alain Bouchard built a retail empire starting from scratch. He is a true example of an exceptional owner-operator-capital allocator (the Thorndike type).

Book well done and is a nice addition to Alimentation Couche-Tard financial reports.

Disclosure: I have followed this company for such a long time and failed to identify an entry point.

Can't turn back the years.

Hopefully this huge omission mistake will help to pull the trigger when the next opportunity comes around.

When I read about a company and feel that I would like to work for that company will constitute one of those subjective inputs that go into business analysis.

[Liberty]

Thanks. I saw that book mentioned on a French-language forum and added it to my list, but haven't read it yet. Wasn't sure if it was actually worth-reading.

[longlake95]

Bouchard is one of my heroes. Couche tard Is also my biggest investing mistake - talk about DUMB. I was literally sitting on the throne, in 2001, reading the ATD.B annual report...the quality of this company and Bouchard was obvious...but I was too dumb to acknowledge that and too cheap to pay-up, as it seemed "expensive". instead I was buying crappy companies like Brampton Brick...no moat, low margin, lousy management, and shaky assets... 16 years later ATD.b is up some 50x. Oh boy...that still hurts... :'(

 

 

 

 

 

[Jurgis]

Just to throw a rock into this self-pity fest: was it really that obvious? Or is that all hindsight bias coulda-shoulda? Isn't this a very competitive business? What was the chance that this will be the huge X-bagger vs what happened to a lot of other convenience stores (nothing? crappy results?).

 

I just read that Buffett underperformed SP500 with his Walmart purchase. And he also did self-pity fest (haha just kidding) about not buying more. Yet, it wasn't as obvious as it would have seemed...  ::)

 

Take care.  8)

[Liberty]

Just to throw a rock into this self-pity fest: was it really that obvious? Or is that all hindsight bias coulda-shoulda? Isn't this a very competitive business? What was the chance that this will be the huge X-bagger vs what happened to a lot of other convenience stores (nothing? crappy results?).

 

For someone living in Quebec where there's a Couche Tard on every other street corner, it was probably more obvious. I missed it too, but mostly because I felt it was outside of my circle of competence.

[Morgan]

Thanks for sharing the book with us - just ordered it.

[Cigarbutt]

Nobody's perfect. Linking with a related post, investing may be an interesting example of a single player game.

Learning from mistakes is key.

From Liberty’s “single player game” recent post:

On the importance of the inner score card (both in investing and in life).

And self evaluation.

“So the mind does what it always does when it is bothered; it changes reality. We invent stories that are not really true. Our mind fills in details that didn’t actually happen and creates a seamless appearance of reality from a smattering of sensory input.”

It’s important to be fair for others but it starts home as a single player.

 

In this case (ATD.B), because of investing style, I felt that the share price was in general too expensive. We all know that it is worth paying for quality but I always put more emphasis (too much?) on the margin of safety. But I had my finger on the trigger in 2008-9. I chose well overall but ATD.B remained on the selected watchlist.  Linking with longlake95, in 2009, one of the selected buys was Brampton Brick. Brampton Brick was a classic value play but remained so. I sold in 2011 resulting in a minimal loss. But the opportunity cost was huge. Since 2008-9, ATD.B got multiplied by ten and more. Alain Bouchard did buy shares in 2008-9 (huge chunk). Even if this is retrospective thinking, 2008-9 was a time for me to focus on long term compounders and I missed ATD.B. I will do more mistakes but I will keep rubbing my nose in this one.

 

When you read the book, it helps to confirm what I felt about management all along. When we analyze companies and management teams, we look at competence, integrity and passion. It's rare that you have great score on all three. All the ingredients were there in ATD.B. The business was extremely competitive but they had moat. When I read/heard about this CEO who had an extremely strong inner score card humbly describing his weaknesses and how he needed to surround himself with complimentary individuals, I missed an excellent opportunity. Lesson learned.

 

[Liberty]

Sometimes the value of the lesson learned from a mistake - over the long term - is higher than actually not making the mistake. I don't know if it's the case here, but hopefully that offers some consolation :)

[Peregrino]

I try to keep two heuristics in mind as I look at opportunities: pay attention to the skinny cow and the odd duck.  After reading this book it reminded me of the latter.

 

The skinny cow is a concept borrowed from an investing book by Gene Hoots.  The idea is that everyone at a cattle auction would pay top dollar for the fat cows, but a good farmer could buy the skinny cow at a discount and fatten him up for cheaper than it would cost to buy him already plump.  This is what I think of as the traditional value play where you're essentially betting on the power of mean reversion.  Multiples and profits normalize over time and you can make extra-normal returns by buying when those factors are depressed.

 

After reading the Couche-Tard book it reinforced my conviction in the second category, the odd duck.  I think of these as companies that manage to make solid profits in industries with terrible economics where competitors struggle.  One thing that makes this search strategy complicated is that this is what short sellers look for in companies to short.  And most of the time the short sellers are right, the industry economics prevail. 

 

But rarely, they don't.  And when they don't, they can be very profitable places to invest because it's a sign that something extraordinary is going on.  Couche-tard's ability to generate the cash flow, out-earn and ultimately buy out/consolidate competitors in the 80's and 90's was the signal that something interesting was going on.  I hadn't begun investing until the 2000s so I couldn't have seen the dynamic playing out, but reading the book reinforces what to look for today.

 

The Buffett example that falls into this category is Clayton Homes.  Other mobile home manufacturers continually went bust as credit cycles turned because they would overextend credit.  Clayton never did and grew into its competitor's markets when they would go belly up. 

 

It's the kind of industry that an investor would look at for the first time and see a graveyard, and decide to move on to greener pastures.  Or worse, where an investor would pick a company in distress, betting on mean reversion, only to see it go out of business and decide to avoid the industry in the future. 

 

In some sense its the exception to Buffett's dictum that "when a management with a reputation for brilliance tackles an industry with a reputation for bad economics, its the reputation of the industry that remains."  Or maybe it just qualifies the theory to situations where new management is brought in to turn around the company versus instances where the management has grown up in that industry.

[Liberty]

Great post, Peregrino!

[Jurgis]

I think it's harder than you suggest Peregrino. Take Tesco, for example. It was maybe similar to Couche-Tard. And then finally crappy business got to it. I wonder if this will finally happen to WMT (Buffett sold) and Costco (maybe not?).

 

Clayton is a bit different story. I think it's like railways and airlines: Buffett waits until all competition in crappy business self-destructs or consolidates into oligopoly. Then he buys. But then, of course, Clayton is different from railways, different from airlines. And airlines Buffett buy is still work in progress.

 

Anyway, I think I'll still skip investing in situations "when a management with a reputation for brilliance tackles an industry with a reputation for bad economics". (E.g. MTY.TO too). But I am aware that I may miss huge outperformance by doing so.

[Peregrino]

I think it's harder than you suggest Peregrino. Take Tesco, for example. It was maybe similar to Couche-Tard. And then finally crappy business got to it. I wonder if this will finally happen to WMT (Buffett sold) and Costco (maybe not?).

 

Clayton is a bit different story. I think it's like railways and airlines: Buffett waits until all competition in crappy business self-destructs or consolidates into oligopoly. Then he buys. But then, of course, Clayton is different from railways, different from airlines. And airlines Buffett buy is still work in progress.

 

Anyway, I think I'll still skip investing in situations "when a management with a reputation for brilliance tackles an industry with a reputation for bad economics". (E.g. MTY.TO too). But I am aware that I may miss huge outperformance by doing so.

 

Jurgis - I hope no one thought I was making it sound easy! 

 

My intent was to expand on a pattern that I've seen in a few companies now that can be an indicator that something very interesting is going on and is a call to investigate more.  It's a check on my natural instinct to say, "looks like a terrible industry, move on!"  Hopefully now I will say, looks like a terrible industry, but not for everyone, what are they doing different and is it sustainable? 

 

That check is one of the main things I took away from the book.  No one would say convenience stores are sexy, and I doubt it would top anyone's idea of a great industry like the CPG space was for many years.  Nevertheless, Alain and his team managed to do something incredible there.

 

Its a belief of mine that every great investment idea should make you really uncomfortable.  It's sort of the opposite of Mohnish Pabrai's dictum to only invest in no-brainers.

 

I think you should be scared poop-less that you missed something big and obvious for why this ball of amazing-ness has landed in your lap.  It is situations like that where you make money because they require you to use your professional judgment to say, no, this is compelling, despite what everyone else sees on the surface.

 

In that sense I think investing is about choosing the things that make you uncomfortable. 

 

Does that resonate with you at all Jurgis? 

 

If so, what's your poison?  What kind of situations make you sit up and pay attention?

[Jurgis]

I see what you mean.

 

I don't know if I agree, but I think that this is something that you don't need agreement from others. Like you say, this will make people uncomfortable. So you can't expect them to easily agree. And that's possibly a great opportunity for you. :)

 

 

 

From my side, I can't say I have a deep insight to offer to you.  :-\ I'd prefer to buy great businesses with great management at OK prices. But doesn't everyone? I currently mostly avoid areas with tough economics even if they have great management. I.e. retail, commodities. Which means I won't get 20%+ or 50%+ returns that someone might get if they pick the right company there. I might be overpaying for good businesses... which may yield subpar returns.

 

I still have some investments where I bought soso businesses because of great (?) management. Exor - great return so far. Goodwin - ~50% loss so far. Tessenderlo - OKish return so far. ODET.FR - good return so far. PDER - mostly wash. Teeny tiny bit of IDT. Not adding to any of these. Maybe should put QVCA and LGF.B in this basket too. Might be forgetting some others.

 

So, I'm just thinking on how to look at these and if to buy these and similar in the future or not. Or just buy GOOGL and MCO and BRKB.  8)

 

Thanks for discussion.