CDA rerate price target $19.80, page-106

There's a lot to be said about a quality business that has earned a prime position in a portfolio. If it has got there on merit and if the business outlook remains favourable, then selling it is akin to a teacher reprimanding their star pupil for making the rest of the class appear dumb.

There are times when we all confuse business performance with the share price and vice versa, but the better we become at separating the two, the better our investment returns become.

Many underestimate the risk of selling a winner and using the proceeds to invest in other compan(ies) that subsequently underperform. Most fund managers fall into this trap. It's not that they are unaware of the risk, but rather that they are too afraid to underperform the benchmarks. They get judged on a quarterly basis (or monthly in some cases), so tend to be afraid of holding large positions (20%+) in a star stock that could underperform the market for large periods of the year. Fortunately, the private investor does not have to appease a myriad of stakeholders and their conflicting demands.

I try to operate my portfolios on meritocracy principles - every purchase is on the basis that the company exhibits the potential to reach the highest level and generate outsized returns. Most don't live up to their promise and my expectations (I'm predominantly on the hunt for multibaggers), so they get cut along the way. Those that do, typically exceed my expectations and account for 95% of the above-average returns.

Not too long now before the company reports. They'll either confirm that the business remains healthy and the growth strategy is on-track, or that things are less positive. Codan has already proven to be a quality growth company, in my opinion, so the odds are stacked in our favour that it will continue to be a star.

There's no certainties in this game, but a star business is the closest thing that I've found that can provide market-beating returns (15% CAGR) over the longterm (10+ years).