When you begin as an investor, you read a lot of simple sentences that make you believe that investing is easy. You'll surely believe sooner or later that, if you're rational, you'll do well.
That's false. The most important thing is not to be rational but to know which datas are the most important. And once you've identified great businesses, you'll probably stick with them, because few businesses have such interesting characteristics.
For instance, let's take a look once again at Carmax (KMX). I've written a couple of times about that stock in the past. One of the most important advantages of that stock is it's 95% earnings predictability given to Value Line.
To understand that number, would you prefer to buy a restaurant that earn exactly what you thought it would earn this quarter or a restaurant that's full of surprises, quarter after quarter? Sometimes, the surprise is very positive, sometimes it's very negative. Would you say that it's a quality business if earnings are always a surprise?
Carmax has some weaknesses. For instance, it's a cyclical industry. So, it's not the best business in the world. But it's very well managed and there's not much fog ahead because earnings are very predictable. That's why Akre, Rochon and Sequoia have bought a lot of shares.
Here's the divulgation of one of my late mistakes:
On februrary 1st, 2018, I've bought 125 shares of Carmax at a price of a little under 71$. In the following months, I've bought more shares, as the price decreased.
On the 4th of april, 2018, after some very disapointing earnings, I've sold my 230 shares of Carmax for a price a little over 60$.
Last friday, the results of the last quarter were released. They were very good. So the stock climbed to a little over 81$.
It's not the worst mistake of my life. The lesson here is that predictable stocks should deserve more patience than other stocks. I have in mind Robert Half and Novo Nordisk, two others "high ROE, high predictability, interesting growth prospects and reasonable PE" stocks. They may not be the best choice at a specific moment, but these stocks can't be a terrible choice. Sooner or later, they'll do well and meanwhile, they'll keep most of their value.