Wesfarmers Limited

ASX:WES

Wesfarmers Limited

ASX:WES
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$70.92 (+1.8%)
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#156
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3
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Reports (4) My Report Forum Investors
Forum Topics WES WES Sit Still or Trade?

Pinned straw:
Stannis
Added 3 months ago

Over the past year, I have used Strawman to recreate my RL portfolio, to an extent. There are some companies which I have sold in RL but kept in the SM portfolio to see how they track along and if I made a bad call. One such example, unfortunately, is Wesfarmers. I am sitting on a roughly 50%pa gain for WES in SM. In real life, I sold out to take a modest gain shortly after purchasing. I believe the business is fantastic, but seems rather pricey. However, this is also what I thought long ago, and yet the share price…

This leads me to my question - what is everyone’s opinion on buying and selling businesses at arguably overpriced valuations? This question sort of applies to companies in general, so not necessarily just Wesfarmers here.

An issue that I am struggling with is trying to be a better long term thinker, whilst also having the capacity to see when a company might be overvalued, and potentially might need to be trimmed or sold out - because the offer is too good to refuse.

This debate currently takes place for me with Alcidion. A small holding - in RL I’m up about 30% because I traded in and out whereas with SM I’m down about 10% after doing nothing. I reckon Alcidion might not stick around these levels (maybe it will) but I now feel as though I should just hold it and continue along unless the thesis changes.

I suppose I am wondering what people’s thought processes are regarding their approach to holding a company and whether a particular approach should be taken depending on the fundamentals of each business or if I should generally leave things alone because I have the time factor to smooth it out.

in short, paying up for value is something I have realised is important. Sometimes, you just have to bite your tongue. But, is there a point where even cash becomes preferable if the valuation is too outstretched? What sort of leeway should be allowed between “this business will grow over the next few years” and “the growth might already be priced in here”? Overall, I know the two companies mentioned are world’s apart, but I find myself taking the same approach now - just leaving the position alone. Am I being too lazy? Should I be more vigilant and willing to take a profit if the company is smaller and less “proven”?

I reckon this is just something an investor needs to answer for themselves, but would love to hear any thoughts.

cheers
Bushmanpat
Added 3 months ago

@Stannis I'm very much a sloth when it comes to investing, but I'm slowly learning that I have to sell sometimes - RFT being the latest example. WES is a classic example of my slothfulness. I'm a share holder because my parents gifted me 500 Coles Myer shares when I turned either 18 or 21 (can't remember) I think the price was either $1 or $2 at the time. I was in the DRP so when WES bought them I had 676 CML shares and opted for the maximum scrip offer, so got 210 WES shares. I took 95 shares @$13.50 in a retail placement in 2009 and have been in the DRP since. Sitting on my hands means that I now have 624 shares in WES and 581 shares in COL from that initial gift of 500 CML and there's been a few capital returns along the way.

Another point is I often hear successful investors talk about their biggest mistake as selling too early. PME anyone? I can't remember who it was I heard muse they wished they'd kept all their trades, even the dogs, just to have captured the ones that got away! But that depends on where you get your investment cash from, other income or selling something you own.

Personally, I'm in a good job earning reasonable money that I can invest, so I can afford to sit on my hands and see what transpires. And at the back of my mind is if I sell a winner now, while I'm still working, the taxman will get a very healthy cut, which decreases any win significantly.

Anyway, Thanks for the thread and I'm interested to hear others approaches.

15
occy
Added 3 months ago

I find it hard to compare the two companies mentioned as how I would treat each of them is completely different. Wesfarmers has a market cap of $85b and Alcidion has a $110m market cap. I've owned WES for 10+ years now and while there is no arguement from me that they likely are currently overvalued, I'd never have the guts to trade in and out. They are a core holding of my portfolio and even excluding tax implications I think timing their price volatility perfectly is a fools errand. I read their updates and as long as things are continuing to trend in the same direction it is hard to see me selling as I give management plenty of rope as I trust them even if/when there are bumps in the road. I may look at historical PE's for a bluechip if I'm looking to buy but as a holder, even when on the high side for its PE like it is currently this would not be the emphasise for me to sell a compny like WES.


I've never owned Alcidion but comparatively for companies that are a small cap, it would be rare for me to hold when I think a company is getting extremely overvalued. I currently am for Polynovo but I also have a lot of faith in management and believe it will grow into its current price and beyond. I also get it wrong sometimes, in recent times I sold out of Droneshield in the low $0.80's as I was unable to justify the price and watched it shoot through $2.50 just months later and my belief that I'd be able to buy back in well under my sell price was misguided (at this stage although if it does hit those low prices again there also is a high likelihood something has gone wrong somewhere). I can stick with companies that have a bad quarter, even two but for small caps my patience is far shorter and for me not worth the risk.


I think the answer to your question is it is highly personal and is shaped by ones experience in the market. There isn't really a right or wrong answer but it's a good question and would like to reads others thoughts.

8
Stannis
Added 3 months ago

Thank you for the detailed reply. I agree completely with your final point and, as such, doubt there is really a definitive answer but appreciate the discussion nonetheless.

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