But I thought you were a man that was willing to ask the hard questions?
On paper, asking the hard questions sounds like a sensible idea, however, in reality it's not always as straight forward.
Sometimes over-analysing things can cause our brain to be distracted by the trivial things that come up from the analysis. As a result, we may potentially make decisions that are less than optimal, such as selling good stocks because of short term/temporary problems or even worse imaginary problems.
Not only that, even if the selling decision is not entirely wrong, the reinvesting decision is not guaranteed to be superior, i.e. better than doing nothing with the original investment.
I am sure you know about the 80/20 rule, whereby 80% of the gain comes from 20% of the investment. Looking at my own portfolio performance, I can see this very rule in action.
Furthermore, most of my current thinking are focused on newer ideas that currently comprise a smaller portion of my portfolio. Again the 80/20 rule applies, i.e. 80% thinking effort on 20% of the investment.
REH representing a major portion of my portfolio, should be given less time, not more. I know on surface this sounds contradictory, but this approach works for me.
So will all due respect, I think you are over-analysing REH. If you were lucky enough to be REH shareholder since 1970s, such an analysis could have caused you to sell your REH back in 1987 (stock market crash), 1992 (recession that we had to have), 1999 (before GST & Y2K), 2008 (GFC).
But guess what? I only have one wife. When it comes to stocks, I'm afraid, there's no sacred cows.
For a long time, I have always believed that if everyone uses the same approach in their stock selection process as the way they choose a proper wife, then their investment result will improve greatly!
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Now to your request for some chinks in the armour, I'm afraid I can't help you there. I'm not worried about the upcoming housing downturn which no doubt will negatively affect REH as I'm confident that REH will come out of the downturn relatively stronger.
I'm more "concerned" about the arrival of non-Wilsons in the boardroom, in particular, whether they have the same plumbing nous as the retiring members.
I'm also "concerned" about the recent acquisition, whether or not this is just the beginning of a spending spree.
Other things that I'm also "worried" about is the location of this year's AGM in a 5 star hotel which I'm hoping is not a sign of REH thrifty culture being diluted by the younger generation of outsiders.
In other words, I'm more worried about the quality of REH as a company than about the market condition.
As for the explanation for REH's sales not keeping up with the building activity, you should also take into account the arrival of numerous small importers of bathroom products in the past 10 years. Most of them only have a single store/showroom. They usually import products directly from China and their products are cheaper than REH but do not have the same level of warranty.
They are usually used by volume builders or house flippers or renovators who just want to install something that looks good and not worried about whether the products last the distance or not.
REH reacted to this market development by moving up market and signing exclusive partnerships with various high-end suppliers, such as Roca, Laufen, Grohe, etc. And as expected, this also has the effect of increasing the Gross Margin.
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The recent arrival of a daily after dark pest in the REH forum makes me reluctant to talk too much about REH. That person is simply undeserving of knowing more about this hidden gem.
REH Price at posting:
$43.47 Sentiment: Buy Disclosure: Held
(20min delay)
