Today’s Take: “If you have a good process, the outcomes will take care of themselves.”
My victory lap ended before it even began…
It was 2006, and I was up 100% on Expeditors International.
At the time, Expeditors was a great company run by excellent management. But my research was telling me that the stock price was in line with the underlying worth of the business. In other words, it was no longer trading a bargain price.
And I needed to free up money to buy another stock that was trading at a bargain price, Johnson & Johnson.
So, on a rainy Tuesday afternoon, a few minutes before the market closed, I pulled the trigger and sold Expeditors.
I had everything to smile about. I’d just doubled my money, and I was excited to be buying Johnson & Johnson at a bargain price.
But a few minutes later, I got an alert that Expeditors reported its quarterly earnings. It had knocked it out of the park — and its stock shot up 35% in the after markets!
I had left a lot of money on the table by selling too early. Boy, was the wind taken out of my sails seeing that.
And that’s one of the biggest mistakes you can make as an investor: letting yourself become a Monday morning quarterback…
Hindsight Is 20/20
“Charles, it’s supposed to hurt. Now, get over it, and get back on your game. It’s in the past.”
That’s what one of my mentors, Don Yacktman, said to me when I told him how it hurt like hell to leave that 35% on the table.
Don was someone I looked up to and respected. At the time, he was in his 70s and had been around the block.
He went on to tell me his war stories. Like me, on more than one occasion, he had sold out of one stock to buy another.
One time, the stock he sold out of moved much higher … and the one he bought went sharply lower! This happened when he was managing $1 billion.
Many of his clients jumped ship. But Don said: “You need to stick to your process. Over the long term, if you have a good process, the outcomes will take care of themselves.”
And this mindset eventually worked out for him. Soon, Don was managing $25 billion and was named Morningstar’s Manager of the Year…
Remember, Bigger Returns Are Ahead
When it comes to investing, buying is never the hard part. There are only a few variables that you need to know.
With my approach, it’s all about identifying a business in an industry with a strong tailwind and being run by a rock-star CEO. Once it’s trading at a bargain price, we buy. It’s that simple.
It’s pretty straightforward. The business either checks those boxes, or it doesn’t. If it does, we buy. If not, we move on.
The hard part is selling — knowing when to sell, and then not letting your emotions get in the way.
Nobody ever wants to look stupid by selling out of a stock, only to see it rise another 10%, 20% or even 30% or more. Especially now, as the market keeps climbing higher, it’s easy to feel like you’re missing out.
But when you sell, you’re looking to put your money to work in a stock that could hand you an even bigger return than the one you’re selling over the long term.
So, you have to remember that it doesn’t pay to be a Monday morning quarterback. Trust your process and know that the reason for selling was valid.
Then, sit back and let time do the heavy lifting for your money. The gains will take care of themselves.
Founder, Alpha Investor
P.S. Have you ever found yourself being a Monday morning quarterback with your portfolio like I have? How did it work out for you?
Be sure to let us know how you’ve managed your process and emotions by writing in at AmericanInvestor@BanyanHill.com.