Wednesday, February 17, 2021

Resolute in Selling

As the market has run, I've been selling securities where I think margins of safety have gotten small. When Mr. Market throws caution to the wind is when I like to fortify my balance sheet to take advantage of any hurricanes that may eventually turn up. One of my recent sales is of Resolute Forest Products (RFP), which I discussed as an investment a couple of years ago.

I can't really predict what's going to happen in a commodity industry like this, but nor do I believe Mr. Market can either. For this reason, I like to buy at huge discounts to book, as such discounts industry-wide tend to prevent further investment, encourage closures, and generally bring pricing and thus profits back to an industry.

Though I made a small profit, it was for less than what I would consider a reasonable return. I probably didn't wait to get enough of a discount. However, this was a 10-bagger for anyone astute (i.e. not me) enough to pick it up during the market panic that took place almost a year ago. At that time, the risk of bankruptcy seemed like a real possibility, before housing sales took off and buoyed anything remotely connected to that sector.

I continue to think buying basket positions of cyclicals (as I did here) can pay off in the long-term; even though this particular investment doesn't constitute the best evidence of that, this strategy has worked well with home builders, financials and shippers, both in my portfolio and in the market's historical precedence. Of course, the bankruptcy risk is real, however, which is why the "basket" part is so important; Hornbeck is an example where my shareholdings paid the ultimate price.

Disclosure: No position

4 comments:

Amit said...

Do you check the stock price of companies after you've sold your stock in them?

Saj Karsan said...

Yes

Amit said...

Have you had occasions where the stock you buy for $1 and sell for $2 proceeds to go to $20?

How do you feel when that happens? Do you feel regret? Regardless of how you feel, does that experience influence your selling philosophy in future investments?

Thanks,
Amit

Saj Karsan said...

I try to dollar cost average "up" to take advantage of momentum when I sell; it works as both a financial and psychological hedge. But nevertheless, yes that kind of thing absolutely does happen and does cause me to feel regret. But at the same time, I see it as just another cost of doing business. I try to avoid being influenced by those emotions, but who knows if I'm successful.

The flip side is I have frequently re-purchased a company I have already sold as it does a round trip back down; you win some, you lose some!

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