DKAM-final newsletter5-a

5 5 2 ROE REPORTER | DKAM compounding do its thing. However, sometimes the situation changes and just as Buffett exited his position in IBM and AT&T, we have exited our position in MTY Food Group. We first invested in MTY in 2009 at roughly $8.00. The stock now trades at $65.00. When we enter an investment, we plan on holding it forever, as long as the compounding machine (ROE) keeps working or the stock price doesn’t get ahead of the business fundamentals, becoming overly expensive (PE). In cases where one of these scenarios occurs, we will exit the position and put the money to work in an investment with better risk to reward tradeoffs. In the case of MTY, both the ROE and PE have gotten out of zones we are comfortable with. MTY is up 23% this year and we believe most of this is due to multiple expansion (getting more expensive). At the same time, it appears the company has had to lower its hurdle rates for acquisitions. In other words, it is acquiring less and less attractive businesses. Using our methodology for calculating ROE, this Delorean has run out of plutonium. The combination of a higher PE and lower ROE has led us to move on and put money to work in more attractive businesses. Top Picks The natural next question to ask is what stocks we like better than MTY. In essence, this is asking the same question as what are our top picks at the moment. We believe, if you could travel to the future, you would find out that Tucows, Constellation Software, Colliers International and Spin Master are still the companies you would want to own and we remain confident in their continued success. Final Thoughts At the time of writing, the TSX Composite Index sits at the same level as it was in June 2014. Even though the Canadian stock market hasn’t gone anywhere meaningful in over 4 years, we remain disciplined and patient, knowing that our investments continue to compound their intrinsic values. Once again, many thanks to our amazing team here at DKAM. Finally, to our investors, thank you for your support and patience. J.P. Donville & Jesse Gamble info@donvillekent.com