3 investment lessons from my first Covid 1-bagger
Well! How fast can the pendulum swing! From Fear Of Losing at the depths of Covid to a Fear Of Missing Out that seems to be taking place in the stock market right now. I didn't realise this until last week but an investment I made in a New Zealand company called Tourism Holdings just gave me my first Covid 1-bagger (meaning it has made at least a 100% return, or doubled in price). The purchase was done on 3 Apr 2020 at $1.005 and it hit a high of $2.59 last week, returning more than 150% in 2 months!
Although I entertained the thought on an earlier post on 4 Apr that time could be compressed, I was also mindful of ongoing risks. Still the speed of the rebound has certainly exceeded my expectations. But this is not a post to do a victory lap as it was a pretty risky investment and so many other stocks have rebounded strongly as well. There was a real risk it could go bankrupt at that point in time, with international tourism all but dead.
But there were a few learning points that I thought would be worthwhile sharing:
1. Know WHAT you are buying and the PRICE you are willing to pay. THL was a company I had looked at for a long time as it had a commanding share of the motorhome rental market in Aus/NZ. It was also expanding into the USA and the growth opportunities were quite exciting. Unfortunately, I always felt it was too expensive. So it was a good company, but not available at a good price (until COVID). Lesson #1: you need to do the homework BEFOREHAND.
2. Put on a BUSINESS OWNER hat. The lowest share price it got to was actually $0.55. Meaning, when I bought it at $1.005, it had ALREADY DOUBLED in price once (Sub-point: You can't pick the absolute bottom all the time!). But I asked myself this question. If I could buy the entire business, given COVID risks etc, would I? The answer was POSSIBLY. At $1 per share, the entire company could be purchased for about $150m and they were making $30m per year during the good times. (I don't have that kind of money, but I like to think in totality). Company was guiding that they would not breach any bank covenants and were proactively repositioning the business, cutting costs etc. Risks, yes, but this was a rare opportunity to own a business that is a leader in its field. Lesson #2: Think like a Business Owner
3. The journey to doubling, tripling, quadrupling etc involves many twists and turns. It is all well and good to look back now and see it has more than doubled in price. However, after that initial purchase, the share price actually went up and declined in price TWICE. Each decline was 25-30% from its respective high. If I had gotten out at every shake of the share price, I would not be able to sit here and talk about how it became my first covid-double. This is related to the business owner hat, you do need to adopt a long term mindset. Lesson #3: Adopt a Long Term view.
This was an investment that has turned out well (so far) and quite a few other investments are now nipping closely at the heels of THL. However, there's been a few laggards as well (mainly my Hong Kong investments), but I wouldn't classify them as mistakes (yet) as sometimes value does take time to be recognised. And you need to diversify.
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PS: This is not a recommendation to buy THL shares. In fact, I have a nagging suspicion they will go to market soon to raise money by issuing shares.
PPS: Don't get carried away by the FOMO euphoria. The real economy is still hurting but we will get over it at some point. What I am watching closely though, is any changes in CONSUMER BEHAVIOUR and how that will affect CONSUMPTION PATTERNS and TRENDS and the companies exposed to those trends.
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