We first bought the stock three years ago (almost to the day) at about $70 per share and it closed Friday at about $190. To clarify the client circumstance comment a little bit, we've had new clients come on board since we first bought the stock, if a client needed to take cash out of the account this was often a name we took from because it had grown much faster than the overall portfolio and there are also differences in volatility tolerances that can come into play in a situation like this. Hence the need to go one by one and sell what I thought was right given, again, the client's circumstance.
I disclosed the original purchase in a post in February 2010 titled Portfolio Tweak. I swapped out of Stryker (SYK) into NVO. So essentially this was a swap out of replacement parts into diabetes. As it turned out this was not a small tweak, it turned into a significant difference.
There are a couple of items worth mentioning with this story. The first one is understanding skill versus luck. Reasonably there was some skill here on both sides of the swap but there clearly was also luck selling something that is up 21% in three years for something that went up 180%. It is important to understand the role luck can play. It is not bad to admit to being lucky with something whereas I do believe bad things will happen (portfolio-wise) when the luck factor is ignored.
The other point comes from a couple of comments from that post three years ago. There were a couple of negative comments left about the stock. Often when I disclose a trade and the post makes its way to Seeking Alpha there will be more negative comments.
It is important to remember that there is always a bear case for any stock or fund you own. One way to think about choosing a stock or fund is that you are weighing out the bull and bear cases and making a decision. If you make a series of decisions like this over some period of time then obviously not every decision will be correct. Once you can accept that you will not be correct 100% of the time then it becomes much easier to be on the lookout for one that does turn out to be wrong and take appropriate action. We had a very recent example with Apple (AAPL) where it became clear we were wrong so we sold it.
4 comments:
Roger,
What you did is fantastic in both cases. In aapl to limit the losses shows what a great fund manager does.
You have seen the action and the verbal, and written info about HLF. How do you view such a stock. A great fund manager is selling it the other is buying. How do you look at such stock and at what point does it become value. Axkaman is saying zero, but nothing goes to zero that fast.
Jeff from NYC
So very true. For every buyer, there must be a seller and vice versa. The question then becomes who has the best information/analysis? Who is on the other side of the trade; an amatuer or a professional? You have to have special insight or else you might as well be invested in an index fund (which is what I do). Winning at stock picking over the long haul is very, very difficult business, but not impossible.
thank you Jeff.
I will not participate in HLF. That said, it seems to be that for as long as it has been around it is difficult to believe it is a pyramid in the way Ackman believes. It is a MLM which seems like a pyramid of course but that does not have to mean it's reason for being is to defraud everyone. That it is difficult to succeed as a distributor doesn't necessarily make it fraudulent. Not being fraudulent is not a thesis upon which to buy a stock. But I don't have to be right, I will never trade the name.
Anon, your choice of the word winning is interesting, I think there is a blog post from your comment, thank you.
Agreed, "winning" is rather vague. Winning at stock picking to me would be after-tax, after cost(s) excess returns compared to a relevant index and/or benchmark. Again, a very, very, very difficult proposition in publicly traded equity markets over the long haul.
Anon 7:49
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