by Travis Johnson, Stock Gumshoe | January 5, 2024 5:02 pm
This is premium content. To view this article (and to have full access to the rest of our articles), sign up. Already a member? Log in.
Source URL: https://www.stockgumshoe.com/2024/01/friday-file-fill-up-your-snifter/
Copyright ©2024 Stock Gumshoe unless otherwise noted.
Hi thanks for the article.
Worth mentioning is the french withholding tax on dividends is higher than the uk withholding tax.
Can it impact your decision in choosing Pernod Ricard over Diageo ?
It could, depending on your situation. I keep most of these foreign positions that have dividend withholding in taxable accounts, so it evens out eventually when I file (foreign tax credit), but the two are similar enough that relatively small differences could matter.
It is worth noting that the difference becomes larger in a tax-deferred account — for US investors, only Canada cooperates in recognizing tax-deferred accounts. Otherwise, you want to hold foreign stocks which have dividend withholding tax (most of Europe, Australia, China, a few other places) in a taxable account, so you can take the foreign tax credit to avoid double taxation and give it a chance to even out.
For those who are grumpy about fairness, just note that the US also incurs a dividend withholding tax for foreign investors, and I think it’s 30% these days… so it’s higher than France’s 25%.
But good point in bringing that up, one of the may things to think through when deciding which stocks to own in your IRA or 401(k) and which to hold in a taxable account. My shorthand, though it is not at all proscriptive and every situation is different: High growth and non-qualified US dividends (REITs, etc.) and bonds = IRA or Roth IRA; foreign dividends, qualified dividends or long term tax-efficient companies that are effectively tax deferred already (like Berkshire Hathaway, for example) = taxable account.
Hi Travis, long time Irregular. I have not bought many stocks outside of NYSE or NASDAQ. Do you have any advice on what ticker to use? Pros and cons of using RI.PA, PDRDF, PRNDY. Apologies for the ignorance on this as all my investments have always been US through major exchanges.
It’s almost always best to buy on the home exchange if you can (RI in Paris in this case), but this is a very large and liquid (ha!) company, and the US OTC shares are usually perfectly reasonable. The sponsored ADR (PRNDY) is 1/5th of a Paris share, held in trust by a bank, and the foreign ordinary OTC ticker PDRDF is effectively one share in Paris bought for you by your broker or their market maker.
If you dont have access to the Paris exchange (I use Interactive Brokers), then the choice between PRNDY and PDRDF is mostly based on commissions and pricing. Both are usually at a price that matches Paris during the first hour of NY trading (when Paris is still open), but it’s important to check and use limit orders (don’t forget to convert the Paris price from Euros to US$)… so for most people it comes down to ADR fees or commissions. The ADR fee is quite low, 2.5 cents per share per quarter, taken out of the dividend before they pass it along to you, so if your broker charges a large fee for the foreign ordinaries (Fidelity charges a flat $50 commission, I believe), but no commission on the ADR, then you’d have to buy a ton of shares ($50-100K wortth) or hold for a very long time for the ADR fees to be as high as the commission. But some brokers have different commissions, so that might change the calculus.
In terms of ownership and risk I’d be happy with any of the tickers, but if you want to trade frequently, or be able to sell in a hurry, it’s always best to be on the home exchange.
Hi Travis , super helpful. Was looking for a long term buy and hold in IRA since I have no liquor companies at present so OTC might work if my online investment vendor does not have Paris Exchange access.
Wow – thanks for this tidbit (foreign positions that have dividend withholding in taxable accounts). There’s always something new i didn’t understand yet!
Dear Travis, I laughed when I read your comment about nobody who didn’t grow up with moutai seems to like.it. Having worked and lived in China and also in Taiwan , I can attest to the presence of moutai at celebrations, especially lunar new year (this time around in February). I don’t like moutai and it doesn’t go well.with food, and colleagues whom I have asked aver that they don’t like moutai. But the drink is so tied up with Chinese culture and it is inexpensive that moutai (whatever the brand) is the tipple of forced choice at celebratory occasions. At least until pre-Covid years, western liquor was the preferred choice at private occasions. Another factor to consider is that ostentatious spending, especially on western luxuries, such as cognac, was actively discouraged in periods where political corruption was publicly fought against by the central government, which led to a major decrease in end-of-year celebrations. This time the issue in China is the general economic malaise, which will significantly curtail luxury spending. On a tangential anecdote, when I was in Dubai at the duty free store, I was next to a group of Indian businessmen. It may have been due to an attractive shop assistant who offered ‘impartial’ advice on what liquor to buy, but the group of about five Indian businessmen left the duty free shop each with Johnnie Walker bottles.
Interesting times, for sure.
I knew about baiju, and owned Moutai shares many years ago, but I didn’t realize before doing this research in recent weeks just how dominant whisky is in the India market. And how impressive the newer Indian whisky products are (some owned by the big guys, others truly domestic).
For what it’s worth, Johnnie Walker is my personal default, too. Though I’d pick Martell over Hennessy or Remy in the cognac aisle. Tastes certainly differ widely.
And I will try that crazy peanut butter whiskey (from San Diego, of all places), but with great trepidation. I thought Fireball was ridiculous, too, and the folks behind that are going to have to take special classes to learn how to spend their money even half as fast as it’s rolling in.
Skrewball
I love whisky. I love peanut butter. I have tried Skrewball so you don’t have to. A very bad idea, in my opinion. However, tastes vary, so…
I have not tried Fireball, but judging by the hundreds of nips bottles that appear along my country road every week, it’s very successful.
Ha! Thanks for the insider info.
I enjoy the Skrewball very much. It does not have much of a bite, or strong flavor, so it goes down easy. Be careful.
Sounds like trouble!
I was not going to try the Skrewball, and i’m generally a mind expanded kind of guy.
Doncook may have convinced me to try it anyway!
What are people’s thoughts on David webbs new book, “the great taking?”
First I’ve heard of it.
I admit that I was reading the conversation a bit confused thinking , hasn’t Fireball been a drink made with Canadian whiskey for a long time. So I of course googled it and yes I was correct, and hadn’t just lost my mind from drinking one too many in my Uni years up hear in Canada Land. I see know that some smart cookies took it on to Dragons Den as a drink to sell at 33 and 46 proof malt called Cinnamon Malt ( so non whiskey, wine and alcohol coolers) along with the traditional Fireball Whiskey that they brand named…and that way they could market not just to liquor stores here in Canada, but to Grocery and corner stores etc , and expand to U.S…which they have done apparently very successfully.
Hopefully I got the majority of that story correct, guessing the majority of you knew it already anyway. I guess I just never payed attention because the name was already familiar!!
So do each of these companies for Screwball, and Fireball have stock tickers, we should follow? Any interest in one of them being acquired by a larger corporation do you think?
Hey ww, always my question too. I won’t/don’t drink the stuff, but if enough people do . . .
Fireball is owned by Sazerac, which started life as a French cognac company, leading to the Sazerac cocktail that became famous in New Oleans, but is now maybe the most ambitious bourbon/rye producer in Louisville. They also make Canadian whisky, in Montreal I think, and I think Fireball was originally developed using Canadian whiskey but is made in a lot of different distilleries now. They’re privately held, and the Sazerac company owns a bunch of other liquor brands, too.
Re you comment by Buffett “You can’t make a good deal with a bad person ” – Amen, words to live by. I have noted in a number of places that you can NOT afford to own stocks if you don’t trust management. Owning a stock IS entrusting management to act in your behalf. . . . . One of the basic question I ask myself on any/every stock own.
Travis, totally agree with your assessment of R-P. Incredible luxury business, family long termed focus. And there ultra high products have natural moats because they must be produced in Scotland or France and they have limited supply due to raw materials.
Two other incredible luxury brands are LVMH which, like PR is trading at lows relative to their normal evaluations and RACE (Ferrari). I chose to start a position in LVMH vs. RP over the past week.
There is a great review of both RP and RACE on Business Breakdowns. RACE may be unlike any company on earth in their exclusivity. Growth will be modest, but consistent due to its self imposed scarcity.
I think these companies fit into Mr. Munger’s buy great companies. That mantra is directing my investments more and more and I see more clearly how owning them is stepping over a 6” curb instead of jumping over a 5 foot fence.
Happy New Year too.
Two other excellent companies, for sure — I own RACE through Exor, and have long admired what Arnault built at LVMH but have never been able to convince myself to buy it, probably just because it always looks objectively expensive and because I’ve been chary of of the huge impact China’s nouveau riche has on luxury fashion brands. 25% off its highs now, though, and valued at only a little over 20X earnings while they’ve spent many years grow revenue at well over 10%/year and earnings by more than 18%, so I should probably be paying attention to LVMH, thanks for the reminder.
Regarding trusting management, here is a an example of one to not trust.
In early 2020 the company I’ll call” Rex” hired a new CEO who previously served on their board of directors while CEO of another company. He immediately went to work to improve profitability of the company via higher margins via higher pricing. Within a year or so he increase EDITDA from 0.8B- 1.4B to 1.5- 2.5B depending on the business cycle. How did he do it (with BOD consent)?
He immediately bagan to renege on contract obligations, refusing to ship product unless customer paid more that stipulated in the contracts. He intentionally shutter production then claimed force majeure conditions to justify shortages and higher prices. He had the company buy up leases on the special equipment needed to ship the product so that competitors could not supply customer as well. This indeed resulted in higher prices and the aforementioned increase EBITDA.
Once these changes were operational he cut the maintenance budgets of the manufacturing plants which further reduced operational reliability and causing more shortages. He used the money slated to maintain plants to begin buying back stock. As share holders we like stock buy backs, but using true free cash flow, not cash needed to maintain operations.
Fast forward to mid 2022. 18 customers filed lawsuits claiming Rex violated contracts placing causing hardship and duress. One company filed a lawsuit against Rex and the CEO, not for breach of contract, but for violating the Sherman Antitrust act which protects customers against anti-competitive practices. After reading lawsuit, which is over 200 pages long with numerous public quotations from he CEO, another company who previously filed a breach contract suite filed their own anti-trust lawsuit.
In rare decision, a judge ordered Rex to resume supplying product to one customer, presumably because it was needed to maintain public safety. Normally judges do not like to enforce performance because of all the subtle nuanced, instead they assess financial penalties. But the judge told Rex to ship product per the contract which they did by shorting another very well known, high visible company, who used the product to sell directly to consumer. Their name is a household word and represents trust, reliability, integrity. Thus they suffered damage to their brand.
Remember the increased EDITDA. Well according to one insider REX will need to spend $6b in maintenance to reestablish operational reliability and efficiency lost since 2020. So that 1-1.5b extra EDITDA was smoke and mirrors. And they will need to borrow that money at higher interest rates.
If the USGOV decides to enter the game because anti-trust is their playground, and it is. Rex. If found guilty will likely face a consent decree which will severely hamper its ability to conduct business as normal for possibly 10 years. And people can go to prison. And the employees are left with broken company
All this because an unscrupulous CEO was allowed by a accommodating board of directors to break the rules.
Lastly, what is the biggest threat to capitalism? It isn’t socialism. It’s bad capitalist.
Well put. Don’t know offhand what company you’re talking about, but that’s certainly the kind of thing that happens over and over (maybe to a lesser degree) when the wrong incentives are in place for management or the Board doesn’t do its job.
Hello Travis,
I was fortunate enough to purchase PRNDY at about $31 on your recommendation for RI.PA earlier this month. I’m sorry if I missed it, but do you have a “buy under” price limit for the near-term. I’d like to scale into the position without getting giddy with the effervescence.
Johnny
The price I’ve started with as a “max buy” is $195, so for the 1:5 share ADRs (PRNDY) that would be $39. For positions I own, my latest “max buy” and “preferred buy” prices are almost always listed on the Real Money Portfolio page.
Thank you for taking the time to respond–I forgot about the portfolio spreadsheet.
Cheers and enjoy your weekend!
Hello, Travis!
I’ve been building a position (based on your and others’ suggestions) in PRNDY and have a cost basis about 4% above the current price.
RI just reported their quarter and I read the conference call transcript. I got the sense that the analysts were somewhat skeptical about the report. Do you have any general thoughts about their their numbers and guidance?
Best Spring wishes to you and yours! I’m off to France soon (thanks, in part, to the money you made for me in Coresite) and will definitely have a sip of Martell and a toast to you.
Haven’t dug into that quarter yet, thanks for the reminder. Enjoy the cognac!