Erika Mesmer, Client Relationship Manager
Investing is all about taking decisions, some are good, some are less so. When reflecting about successful decisions or fails, timing is often the central point of discussion: Was the security bought at the right time, i.e. when it was cheap? And sold at a higher price, if lucky even when it reached its peak? Getting the timing right, is nevertheless almost impossible…
When considering poor investment decisions, the most obvious which comes to mind is the investment in a stock which after the purchase loses value. Another situation people often think about is the missed opportunity to buy a quality stock, which then performed well.
But how often do you reflect on the future performance of stocks you have sold in the past?
Once a security has performed well and its valuation is high, the temptation is strong to sell the position and realise the gains. However, if we are holding a quality security, the potential for additional gains in the long term is important.
To avoid the mistake of selling, it is important to understand that the decision not to buy a security because it currently expensive is not necessary a signal to sell. If you are fortunate to hold a quality company, with a strong management and a good visibility on future revenues, keep it, as you will be able to enjoy it for a long time.
In Swiss equities an obvious example are the shares of Lindt&Sprüngli. The company has an excellent management and a solid business generating a regular income stream. Valuation today is very high, so it can be considered too expensive to buy. Fortunate shareholders should however still keep on to it.
Market turbulences can offer the opportunity to buy. Richemont for example, a more cyclical company active in the luxury industry has suffered a lot since the beginning of the year, losing about 25% of its value. If we look at a longer time horizon of a bit more than 10 years since the end of 2007, just before the financial crisis, we see that the company returns an annual compounded return of over 6%, despite the very difficult period of 2008. Given its quality management and excellent products, future prospects continue to look positive. The recent drop in share price can therefore offer a buying opportunity for investors who do not yet hold the company. And for existing holders, patience and discipline will in the long run be rewarded with strong returns.
The whole IAM Team wishes you a festive holiday season and a happy new year 2019.