In my book “Avantage Bourse“, I wrote, “In investing, it’s not the frequency of successes that counts, but the frequency combined with the magnitude of the gain you achieve with an investment.“
For example, I compare the following three scenarios. In each scenario, an equal amount would have been invested in each stock (equal-weight portfolio).
If we simply rely on Mr. Legault’s “batting average”, scenario 3 would appear to be the most successful, with a success rate of 75%. However, when considering the returns achieved by each stock, scenario 2 shows the highest return at 12.8%, compared to 6.8% for scenario 1 and -3.5% for scenario 3.
The reality is even more different when considering the size of each investment, which can vary considerably. Indeed, the batting average matters little if errors occur in the most substantial or significant investments in one’s portfolio.
Here, I allow myself a tennis analogy. Over the weekend, Félix Auger-Aliassime, Canada’s top-ranked ATP player, lost a heartbreaking match in the first round of the Japan Tennis Open, falling to Japan’s Yoshihito Nishioka 7-6, 3-6, 7-6. However, despite losing the match, Félix won 119 points to his opponent’s 117. This clearly demonstrates that not all points carry the same value: a few critical points can make the difference between victory and defeat.
According to my findings, the Quebec Government has invested nearly $2.0 billion of its own funds in the battery sector to date. This sum includes several distinct investments, most of which are relatively small – for example, around $100 million in Lion Electric or $80 million in Lithion Technologies. In contrast, the Quebec Government’s investment in Northvolt already amounts to nearly $710 million ($240 million in repayable loan for the purchase of land in Saint-Basile, $270 million in convertible debenture, and $200 million invested by the Caisse de dépôt in convertible debt). However, its total potential investment could reach $1.37 billion when considering its commitment to subsidize Northvolt’s battery production.
I hesitate to give a percentage of the battery sector that has been or potentially could be invested in Northvolt by the Quebec Government. However, I believe it is fair to say that this constitutes a substantial proportion of the “battery sector” portfolio.
When such a percentage of a portfolio is invested in a single project, it becomes crucial not to make mistakes.
Clearly, the Quebec Government has placed a very large bet on Northvolt. In such a situation, it’s not the “batting average” that matters, but rather the “magnitude of rectitude”.
Philippe Le Blanc, CFA, MBA
Chief Investment Officer at COTE 100
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