I bought a few more this afternoon, no doubt in an attempt to prove the saying "the market can stay irrational longer than you can stay solvent" to be correct!
In these quality company / falling knife type scenarios, I like to initially invest about half what I am comfortable eventually holding, and then sitting back and waiting. If the price drops another 7 or so percent, I put another 10% in. I do this over a couple of months to hopefully dollar-cost-average and pick up cheaper prices; and avoid being anchored to a higher price. Hindsight always says I should have waited, but you have to buy at some stage otherwise you'd never purchase anything. And in 12-24 months' time, whether one pays $24 or $23 or $22 in September 2023 is probably going to be irrelevant.
I noticed on Commsec this afternoon the number of Commsec clients buying vs. selling is 85% / 15%. It seems buying RMD is a popular contrarian trade. Perhaps Australian investors are taking advantage of what is happening in the US with our price there. Maybe Australians like to gamble more. I don't know. I would be interested in knowing who is selling.
I bought RMD in 2021 for $25 and sold at $40. Genius! Put the money into Ansell in the low $30s. It seemed inexpensive and safer in an increasingly turbulent market whereas RMD looked fully valued. Today, Ansell is in the low $20s and I'm down about the same amount on ANN as I made on RMD. Idiot!
No point selling though. Ride it out. It will sort itself out. You don't lose money permanently on out-of-favour, boring, predictable companies with solid balance sheets, doing buy backs, and real cashflow.
The way I see it, there are certain stocks I would love to hold. They are always over-priced but keep meeting expectations, the PE ratio is always stretched, and they keep going up. I have a watchlist of them on my trading account. REA is one. I should have bought when it dipped under $100 but it seemed scary to do so. It fell to around $90. It's now $160 again. CBA was at $65-70 coming out of Covid. The only way one gets to buy stocks which are leaders in their field, with incredible returns on equity and capital, increasing SAAS sales, low debt, organic growth, pricing power, sticky recurring revenue, EPS growth, etc. is during times of short-term fear and irrationality. A bad quarter which is largely outside the company's control. Short term thinking. Perhaps an inaccurate short-seller report. A narrative that the market gets carried away with. Medibank Private after the data breach scandal. Something that causes the professionals to dump the stock and retail investors follow them out the door. It doesn't happen often but I suspect that is what is going on here. Again, I'm wrong as often as I am right! It's funny how it would have been comfortable buying Resmed at $35, but now it's at $22, pressing that *buy* button feels harder and scarier whereas it is probably safer at these lower prices.
I've been a holder of Aristocrat Leisure since 2020. Shares were going for ~$30 at the start of the year. I have no idea why they were sold off so heavily and kept buying at around $31. I put RMD in the same category as ALL with the attributes I listed in the previous paragraph. The growth profile in key metrics over the past decade is very similar.
Unfortunately, stocks on the US market are more volatile than on the ASX. We are beholden to the whims of folk on the NASDAQ and stocks can move quickly in either direction. That said, I believe the scare is completely out of proportion with reality. I might be wrong and end up with another Ansell-type mess on my hands! My portfolio has too many turn-around plays which were supposed to be shrewd contrarian purchases! However RMD is no Ansell. This is a high quality stock with vastly superior metrics. You could almost say ANN is a price-taker whereas RMD has pricing power. As with the oil and gas stocks in 2020, if you weren't prepared to buy Woodside Petroleum in mid-2020 you were probably never going to buy it. If you aren't attracted to buying RMD now, in September 2023 @ $22.88 -- March 2020 prices, I doubt you would ever buy it.
As I've written here before, even in a worst-case scenario with a resurgent Philips and wonder drugs that melt away fat, at this price (my ANN-type scenario) , we could afford to have margins slip further and still grow at a reasonable pace to justify a PE ratio in the mid-20s, into the low-20s by 2025. Not much would need to go right in order for a re-rating of the stock.
Another point that I haven't seen brought up anywhere is that most people who are heavily obese are on a number of drugs -- statins, blood thinners, pain medication, diabetes medicine, etc. I wonder how these new drugs interact with them? We assume the people taking them are not on any other medication but that is totally unrealistic. Also, the drugs do not melt away fat, from what I have read. No. They seem to cause the patient to be repulsed by food. Like a keto diet or all-protein diet, it is very effective in short term weight loss, but it's unsustainable. You can't live like that forever. And as soon as you stop taking the drugs or go off the diet, the weight returns (and then some). Plus, a lot of our patients and potential patients are not overweight at all. I can totally imagine a doctor prescribing these drugs *and* recommending a Resmed product.
With the share price down 33% in about six weeks, the risk / reward equation, for me, is very much in favour of continuing to buy and letting Mick and the management group do what they do best. Please do not take any of my long-winded stock chat posts as advice. It's just what I am doing. Decide for yourself what you think Resmed's future might be. Good luck to all holders.
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