It's june 21th 2017 and I'm saying to myself:
"Hey, I have a few thousand dollars left and I'm watching a few stocks that aren't that expensive at the moment. O'Reilly isn't that expensive (about 20 times current earnings but about 17 times next year's earnings) on an historical basis. Plus, a lot of analysts have said lately that we shouldn't time the market. Even if the market is pricey, there's always some occasions and we should always be invested."
I've never believed that much in that last sentence but when you hear something many times, it becomes the truth. Just like in the 40's with those great old nazis speeches.
So, I bought some shares of O'Reilly at a price of about 219 US$.
And then, two weeks later (today), the stock lost about 20% of it's price on a single day. What the fuck?
Why the fuck have I bought my shares this close to such a drop? I hate myself. I deserve a punishment. I deserve death.
Well, I don't want to pretend to be a fucking prophet, but, I thought that there were some chances that that kind of shit would happen.
Because something similar happened last year with Novo Nordisk. It's a very different stock (healthcare) but it shares a lot of similarities with ORLY: a very high ROE, a relatively high historical PE, a low beta, very steady earnings, great management, large cap, etc.
I said to myself that this kind of stock is hard to buy at a discount. But as with Novo Nordisk, I knew that the growth had been slowing for the last quarters. And the price of the shares was lower and lower each week while the market was pricey.
That's a great indicator: when the S&P/TSX is high and a stock is relatively low, you should probably (not always, buf often) wait before buying. If the price is lower and lower, month after month, it's because the market feels something. And a hit is probably incoming.
I'll keep my ORLY shares because it's a great company. But I think that 2017 won't be a good year for the stock. Usually, such a drop isn't mitigated before a while.
Do you sometimes hate yourself like I'm hating myself right now?
I know that feeling, its happened to me more than once...but the market seems toppy to me right now. I bought an ETF (RWM) that shorts the Russell 2000 back in March. I probably put it on a little too early but it was a way of managing my risk in the market place. There’s been a lot of talk in this blog lately about how valuation doesn’t matter when it comes to quality stocks (high ROE). That’s the sign of a toppy market. When the market gets over owned, deteriorating technical’s can swamp fundamentals. That can do a lot of psychological damage to the investor’s mindset. Market breadth has been weakening in the NYSE. The indexes may look like there hanging in there with their new highs but the underlying market isn’t moving up with them, just food for thought.
RépondreSupprimerBuy more?... if you liked it at $220 you love it at $177. The non cash ROE/PE is over 4... that's a pretty juicy ratio.
RépondreSupprimerThis just in: Wedbush's Seth Basham maintains a Neutral rating on O'Reilly's stock with a price target slashed from $260 to $195
RépondreSupprimerhttps://www.benzinga.com/analyst-ratings/analyst-color/17/07/9746393/oreilly-price-target-slashed-25-amid-warning-weather-jus
Morgan Stanley also released a report this afternoon:
RépondreSupprimerMorgan Stanley: 'We've Been Wrong' On DIY Auto, Downgrades O'Reilly, AutoZone
https://ca.finance.yahoo.com/news/morgan-stanley-weve-wrong-diy-162444490.html
Here's something to consider:
RépondreSupprimerElectric vehicles will become more prevalent, and they dont have a million moving engine parts or a transmission or any fluids to refill.
"If a business earns 6% on capital over forty years, you’re not going to make much different than 6% return, even if you buy it at a huge discount. Conversely, if a business earns 18% on capital, you’ll end up with one hell of a return long term, even if you pay an expensive looking price."
RépondreSupprimer-- Charlie Munger