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Am a little embarrassed by how sensitive I am to momentum -
It's painful to admit. When you are a new analyst, you are told to do good work and ignore price action.
It's painful to admit. When you are a new analyst, you are told to do good work and ignore price action.
If I own a stock, and it isn't working, I am pretty quick to ask myself "Am I missing something?"
The challenge isn't when your thesis is wrong, the company misses, etc. You know what the problem is there. You screwed up. Easy.
The challenge isn't when your thesis is wrong, the company misses, etc. You know what the problem is there. You screwed up. Easy.
It's when you are right. And the stock still doesn't react.
And I don't mean "they beat consensus, but only met buyside expectations" - that's easy to understand.
And I don't mean "they beat consensus, but only met buyside expectations" - that's easy to understand.
You look for an explanation (flows, positioning, whatever). But sometimes there isn't a good one. And, personally, I find these situations to be a bit of a mindf*ck.
Earlier in my career, I would be inclined to hold - or add - to the position. Larger discount to intrinsic value, etc.
Now I am much faster to cut. I might give the name a quarter. Maybe two. Like maybe you get some upgrades, and then people pay attention.
Now I am much faster to cut. I might give the name a quarter. Maybe two. Like maybe you get some upgrades, and then people pay attention.
But if the company is doing everything right, and people still don't care - I have to ask myself, "What will make people care?" And, if I can't answer that - I need to exit.
Something just being cheap isn't a thesis.
In theory, these names should be PE acquisition targets... but waiting for a PE takeout is, again, not a thesis. People have lost a lot of money waiting for a PE bid.
In theory, these names should be PE acquisition targets... but waiting for a PE takeout is, again, not a thesis. People have lost a lot of money waiting for a PE bid.
If you are running a diversified book, you can give these positions a longer leash. A few lagging 2% positions won't kill you (although, if they're distracting you...).
But, if you're running something more concentrated, you can't have 15-20% of your portfolio doing nothing.
But, if you're running something more concentrated, you can't have 15-20% of your portfolio doing nothing.
Especially if you need to outperform every year.
Which, for most people, is the reality of the industry. (And, if you are at a platform, it's more like every month).
Dead money risk is real.
Which, for most people, is the reality of the industry. (And, if you are at a platform, it's more like every month).
Dead money risk is real.
To give an example: I was long this smid-cap business service company, Intertrust ( INTER:NA ). Came out of BX. Had been a messy IPO, but company was executing better and was extremely cheap vs private market transactions.
Results were noisy (one segment beating, another missing - that sort of thing), but in aggregate company was executing.
But the stock wasn't really working, just sort of drifting with / lagging the ACWI.
But the stock wasn't really working, just sort of drifting with / lagging the ACWI.
One of the smartest investors I know threw in the towel because "there's always a fire somewhere". Whatever the reason - the stock wasn't working.
I probably stuck around another 6 months (because I'm dumb)
I probably stuck around another 6 months (because I'm dumb)
It was an expensive position in terms of forgone performance. And the company is still sitting there, cheap as ever.
And, even if somebody acquired it tomorrow, the CAGR on position would be horrible (had I held it).
And, even if somebody acquired it tomorrow, the CAGR on position would be horrible (had I held it).
It's not the only such situation I've been involved in.
Large cap. Small cap. US. International. Growth. Value. Can happen with any category of company.
But I've gotten a little faster at recognizing it.
Large cap. Small cap. US. International. Growth. Value. Can happen with any category of company.
But I've gotten a little faster at recognizing it.
As a caveat: I don't mean to imply that I expect every stock to work every day. If I'm long a travel stock and a negative vaccine datapoint hits, well - probably not going to outperform that day. Totally fine. Might be an opportunity to add, if that's an exposure you want to wear
Same if I'm long a rate sensitive name... Rate expectations go down, position lags... It's working as intended. I'd be more disturbed if it outperformed.
