The message from Mr. St-Hilaire, received the day after the publication of my blog, began as follows:
“I think your analysis is a little too simplified. You give three examples of situations where patience was required to obtain high returns and give the impression that patience is the rule. On the contrary, I believe that it is the exception.”
He is right. My analysis was biased because it only presented examples where it was better to be patient. I may have fallen prey to some of the cognitive biases I talk about in my book “ Avantage Bourse ” : The Single Perspective Instinct? The tendency to avoid what is unpleasant to us? The tendency to be too optimistic? Hindsight wisdom? Or a little of each of these biases?
There are definitely situations where it’s better to be impatient. In fact, we will generally be too patient with the stock of a poor-quality company - stocks that we should not have bought in the first place. The problem is that it can take quite a while before you realize that a company is of poor quality.
A few examples come to mind of stocks we have held in the past that we probably waited too long to sell.
C.H. Robinson. We bought this transportation brokerage’s stock in 2014 at around $68. We sold it in early 2024 at around $73. Even considering dividends, this is not a very attractive return for an investment of time (and patience) of almost ten years! Our decision to sell the stock was based on disappointing financial performance over the past few years and our fears that the company’s business model would be disrupted by artificial intelligence. I believe it was the right decision to make, but it should have been made much earlier.
Walgreen. We sold the stock of this American pharmacy chain in 2020 at around $44. We bought it in 2012 for a little over $30. Our decision to sell it was the right one because the stock is trading today at less than $18. The fact remains that, in 2020, the company’s financial performance left something to be desired for several years already.
Bombardier. This example is many years old, but it is significant. We had been shareholders of the company since the beginning of COTE 100 in 1988. The stock provided us with exceptional returns for many years, so much so that some investors said that our returns in the 1990s were mainly based on the stock of Bombardier. However, in the late 1990s, the stock was trading at increasingly high valuation ratios, while the vast majority of its profits came from its Aerospace division, a notoriously competitive and cyclical sector. We had decided to sell the stock but postponed the ultimate decision for a few years to delay the large tax bill that would accompany it. We finally sold our shares in 2001, just before the tragic events of September 11. It was a stroke of luck because we should have sold it long before.
But I wouldn’t want to repeat the same mistake as in the past blog and only present examples that prove us right! We also sold stocks that we should have kept! I’m thinking specifically of Thomson Reuters, McDonald’s, Automatic Data Processing, Cintas, and several others that I would prefer to have forgotten!
What I learned from these mistakes is that I think you have to be impatient (i.e., sell faster) with the stocks of companies that are not delivering the goods in terms of growth and profitability. But we still need to sort things out and analyze the causes of financial underperformance – is it temporary or permanent?
On the other hand, you have to be patient with the shares of quality companies that deliver the goods and display good financial performance, even if it means accepting that their shares become temporarily too expensive.
However, I would remind you that it is illusory to believe that you can be right every time. The important thing, in my opinion, is to follow your decision-making process with discipline and based on the facts.
Also, when we accept that we will inevitably make mistakes in our choice of companies, it becomes essential to provide ourselves with a generous margin of safety when purchasing a stock to limit the damage.
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