The timing of your post is prescient, whichmirrors a conversation I had with my partner this morning. To paraphrase sheprompted the conversation by asking: “When are you going to sell Afterpay? My friendhas sent me a few texts recently about how happy you must be with your Afterpayholding. I take it that they are flying again?”.
We then had a discussion about why I haveno immediate plans to sell, despite the considerable returns achieved since myinitial investments back in 2016 (AFY bought between $2.18 and $2.54, and TCH$1.1). As @Christos12 noted, there needs to be a superior investmentalternative.
I subscribe to a similar investmentphilosophy to @Karcus, whereby you should water your flowers and remove yourweeds. Looking back over my records for 2016, I invested in eight companies andcontinue to hold three of these (if I include TCH). The other is Appen, whichhas 10 bagged since my original purchase and I plan on making a significanttop-up later this year as it remains a high conviction hold. Of those sold, fourwere a result of broken thesis when sufficient growth failed to materialise(e.g. CL1 and CWN). Yet, the realised gains/losses from these four “weeds” werealmost incidental due to the performance of the “flowers” (i.e. APT and APX).
My key error was selling Push Pay last yearafter it had multi-bagged from my initial purchase in 2016. PPH definitely fallswithin the “flower” category, with the growth story firmly intact, therefore Ishould’ve held on. It was a clear deviation from my investment strategy, but agood lesson to learn from and I remain on the lookout for a re-entry.
There are many that claim to be longterminvestors, but it’s much harder in practice than most realise – my sale of PPHbeing a classic example of human folly. Most simply don’t have the patience tohold (especially when the action and excitement wanes). For those that manageto hold on for a few bags, many choose to lock-in profits once they are able totake advantage of CGT. Along the way, many others get shaken out by market noiseor become too fearful of potential loss. Therefore, slowly but surely, the groupof longterm holders shrinks to a size befitting a very exclusive club. This isthe club of the 100 baggers – those with the stomach to withstand excruciating portfoliovolatility, 50% drawdowns, self-doubt and so on. It is certainly an investmentapproach unsuitable for the majority and requires a high tolerance to risk. Butfor those that can master this style of investing, the returns can be trulyexceptional.
With correct position sizing, one multi-bagger(e.g. 3x or 4x), should be more than sufficient to compensate the dozen or soother investments that failed to “flower” or turned out to be annoying “weeds”.If you are fortunate enough to unearth a 10+ bagger, then what you have on yourhands is a serial compounder. Persist with these and the results can be life changing.
For anybody interested in learning moreabout finding and holding onto serial compounders, I’d suggest reading:
· 100 to 1 in the Stock Market byThomas William Phelps
· 100 Baggers by Chris Mayer
· The Coffee Can portfolio by RobertKirby – see: https://www.woodlockhousefamilycapital.com/post/the-coffee-can-portfolio-and-100-baggers
To conclude a much longer post than I hadanticipated, my conversation with my partner finished with me saying that “There appearsto be a bit of exuberance baked into the price of Afterpay and I am fullyprepared for a reasonably painful pullback at some point in the future. But Istill see Afterpay much closer to the very beginning of its growth story than towards its end. So long as itkeeps ticking boxes, I don’t see any reason to sell”.
