I bought Altria last summer, wanting to take advantage of a price drop following some bad news. I told myself at the time that it must be a good opportunity... after all, it's not just anything, it's Philip Morris! In doing so, I forgot to do my homework, I didn't analyze the company in detail, I took a ladleful without thinking too much. And the stock, after a brief rise at the end of 2017, went back to the basement.
Unbelievably, with almost twenty years of experience, I still manage to get trapped like I did when I started, and for the same reasons:
- putting too much trust in prestige values
- trying to catch a falling knife
I made these two mistakes many times in my early days, especially with Swissair and General Electric.
How could I forget that one should never blindly trust a company, no matter how beautiful it may be?
If I had taken even a few minutes to analyze Altria, I would have noticed that many of the warnings were bright red:
- attractive price relative to earnings, but not at all relative to book value, FCF and sales
- correct payout ratio relative to earnings, but dangerous relative to FCF
- miserable liquidity
So, yes, it's a franchise, margins and profitability are excellent, overheads and capital expenditures are minimal. Goodwill is increasing and debt is decreasing. Yes, this company is not going to go bankrupt tomorrow. In the long run, it's certainly a good investment, even if anti-smoking regulations become increasingly strict.
Still. I bought too expensive compared to what it was worth. I didn't analyze the stock enough and I didn't take a safety margin. I rushed like a kid on a stock that was going down. All because I listened to my heart, rather than my reason.
I am obviously disappointed by this mistake, which could have been avoided by just taking a step back. On the other hand, I also tell myself that it is perhaps necessary from time to time to receive little reminders of this type to get back on the right path. The important thing, of course, is that it does not happen too often...
In short, I just parted with it, at a loss. I fear that the crossing of the desert will still be quite long for Altria.
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I also have 20 years of experience in the stock market and it still happens to me from time to time to get a good shake-up… It’s part of the game and you have to accept the rules. No level of knowledge allows you to be safe from the ups and downs of the stock market, because it obeys the rules of psychology more than the exact sciences.
In the specific case of Altria, however, I would not have sold now. The company remains a great franchise and you can count on its growing dividend. And Altria (respectively Philip Morris) has emerged even stronger from all the trials it has been through in recent decades. At the current price, the bad news is already priced in and I see an attractive entry level for a long-term investment.
I knew you were going to answer that.
But since I'm more stingy than you on the price to pay for a stock, despite the drop, I still find the stock too expensive. And that makes my purchase decision from last year even more absurd!
I don't mind getting into trouble if I've been true to my principles. As you say, the stock market is not an exact science, and that's a good thing. On the other hand, it's doubly painful when you've been had because you've left the path you should be following...
Batting average is what matters! Don't keep yourself awake over it!
It's not likely