There are good reasons to exit an investment position. The best reason to liquidate a position is when someone wants to buy a home, pay school fees, etc. These personal reasons to sell stocks are all reasonable and not considered here. Liquidation of an investment position, as far as I am concerned, is only motivated by a single objective – to obtain the greatest total RAND benefit from the investment capital available.

   I believe there are three reasons for the sale of a common stock. These reasons are purely financial and never personal. The first reason is obvious. This is when a mistake has been made in the original investment and it becomes increasingly clear that the factual information, i.e. simplicity of the business, durability of competitive advantage, quality of management, and good economic position, of the investment is, by a significant margin, less favorable than originally believed. Managing these situations requires self-control and the acknowledgement of your mistake.

   The second reason to sell a stock is when, over time, the underlying company changes and no longer qualifies in regards to my investment criteria set out in valuation of a common stock to about the same degree it qualified at the time of purchase. For this reason it is important for me to keep close contact, and up to date, on all the activities of all my investments all the time.

   The final reason to sell a stock seldom arises and will be acted upon only when I am very sure of my facts. I don’t time the market, I price the market. Therefore, in order to exchange one position for another the new position should present similar or better business simplicity characteristics, an equal durable competitive advantage, and similar quality of management as the existing investment. It further has to present better price to intrinsic value economics, as well as better growth prospects, than the current investment. Only if these factors are all applicable and in favour of the new investment, including the effect of capital gains tax on the investment returns, will one position be sold to enter a new position.

   Good investment opportunities are rare and there is always the risk that the new opportunity has been misjudged. Therefore, before selling a good holding in order to get a still better one, the greatest care will be taken in trying to evaluate all elements of the situation. In closing, my investment philosophy includes a simple principle. This is that once a stock has been properly selected and has proven itself, it is only occasionally that there is any reason for selling it at all.

Be extraordinary!
Myles Rennie

My investment philosophy starts with a very simple statement “I invest, I don’t speculate”. The difference can be considered subjective, but I see a clear distinction between investment and speculation. Firstly, an investment approach relies on a well understood, analytic philosophy designed to deliver superior investment returns over time. Speculation on the other hand relies on spotting trends, taking chances, and does not consider capital protection. My investment approach looks to find businesses that are easy to understand, have a durable competitive advantage, have high quality management with a lot of integrity and energy, and finally sells at a price that is below its intrinsic value. From this it is clear that my investments returns are not based on chance, it is based on a fundamental analysis of both the balance sheet and the earnings power of the underlying asset. I look toward these valuations to justify the price I pay for owning a share of the asset.

   I do not look at share prices every day or every week. I invest based on business fundamentals. The business fundamentals of a solid business do not change on a daily or weekly basis. Therefore, if I considered a company good enough to invest in yesterday, I am pretty confident that company will still be good enough today and tomorrow. Most people however look to the market to guide them when making investment decisions. When I, on the other hand, consider investments I ignore the market completely because I believe the market to be manic depressive, behave irrationally, and be driven by the human emotions of fear and greed. Therefore, I choose not to use the market to instruct or guide me, I choose to use the market to serve me. I prefer to take advantage of the ups and downs of the market, to my advantage, rather than the market taking advantage of me.

   My investment approach is a combination of value investing and focus investing.

Be extraordinary!
Myles Rennie