When Selling Decisions Teach Us Valuable Lessons
Constantly striving to optimize our quality growth portfolio
Welcome to another weekly digest to stay informed about everything that matters most to quality growth investors!
The goal of these digests:
to elaborate on premium members’ questions (you’ve provided some great inspiration for future posts and deep dives, thanks for that!);
to have a high-level discussion on some macro events;
to elaborate on some fundamental topics;
to talk about portfolio strategy;
to highlight a research piece that may be of interest to our members;
In case you’ve missed our previous articles/webinars/earnings recaps/deep dives, we did share a couple of blogs on our favorite stocks for 2025 and beyond, and our Q4 and FY24 Letter.
Our favorite valuation metric to value quality growth companies: NOPAT (Net Operating Profit After Taxes).
Selling Decisions
In this blog, we wanted to touch on the concept of “selling decisions” - when and why do we look to sell a stock? Two relatively straightforward instances:
Valuation has become excessive, and we see a clearly better multi-year risk/reward profile in another stock (preferably, a name we already own/cover), considering all tax consequences. Excessive means that the real return outlook is expected to become very volatile and below our target. Fortunately, for valuations to get really excessive, a lot of bullishness must be priced in, and generally speaking, we’ll hold onto fairly to slightly overvalued compounders for as long as possible.
Or we’ve simply lost conviction, and find it difficult to model the growth path forward.
The biggest advantage we offer to our premium members: everything we do and write down is registered on this Substack. That makes it darn difficult to lie to you and ourselves. You could call it our personal investment diary; complete transparency.
If the portfolio thrives, it’s gonna be reflected in our return, and if we make a mistake, we’ll share our thoughts. It’s easy to let losers sit in our portfolio, focus on the entire portfolio return, and say: nothing to see here, just forget about it.
Let’s take a closer look at our most recent sale, which we executed for the second reason: we’ve lost conviction. We’ll share three lessons we’ve just printed out and put on our office’s walls.