DLX (ASX) Result was less than expectation

Originally posted by Captgogo ↑

Hi Madamswer
Thanks for providing such a comprehensive answer and understand your logic, but as you know past performance does not guarantee future performance, so though I do look as the past and that helps determine the quality of the company, I also try and do my best to consider what the market conditions of the future look like relative to the past. Though I do not expect the DLX to loose market share or even see there margins squeezed, I do however see a slow down in demand for some of there core profitable products and the current leading market share does in fact limit there chance of further growth unless they do decide to lower the margins to gain further share, I do not expect this from Dulux. So my model provide a average intrinsic value growth of the next two year of about 1% and avg EPS growth of about 2%.
Which are both below my 3 yr target for average growth and though I agree it is hard to find high quality companies out there for fair value with a greater that 6-8% average growth per year, I think for me NCK, once it price settles back to about $5.00 would be a good replacement if I can sell DLX for about $7.00.
In relation to your comment re Captial Gaims Tax, unless in five years your tax bracket will be much lower not sure why that would be a so important in term of your timing.
Before I build my model to trigger when to sell, I used to hold on to stocks and never no when to sell them and many times I would find I left a lot of money on the table so to speak, so I know try and take profit when the model suggest growth has slowed down significantly and there is a strong Captial Gain which could have downside risk over a three year horizon. Just my approuch at the moment.
By the way I do own FLT, I have not been happy with its SP performance relative to WEB and happy to compare some notes on this it is a difficult one for me, I will be under water if I sell now, so I hold for now but this is an example of quality company in which the market conditions that made it successful in the past may not be the same going forward and there ability to react quickly enough and with the right strategy is a major concern for me.
Thanks once again for your time.

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"...but as you know past performance does not guarantee future performance"

@Captgogo,

I don't quite agree with that statement; it has always struck me as a bit of a low-conviction construct of the financial services industry which is served up as a way of hedging bets.

I actually think that past financial performance is highly correlated with subsequent financial performance. And it stands to reason that this should be the case. I can given you a list of businesses whose financial performance has been excellent for an extended period of time... decades, even. And similarly, I can give you list of businesses (a far longer one) whose financial performance is perpetually dismal.

"I also try and do my best to consider what the market conditions of the future look like relative to the past."

I guess that's where we differ in approach. I make no attempt to consider what future market conditions are might look like.

And the reason for this is that I don't believe it is possible to forecast something like this.

And the reason I say this is because I observe highly educated economists with vast experience who have access to significant resources and large economic databases, and even these people are unable to accurately forecast macroeconomic variables on a sustainable basis, so what hope do I have of getting it right?

As for my comment re: capital gains tax, I don't think you quite understood what I was saying. If I sell shares in which I am sitting on significant capital gains, after having paid the tax bill, I am left with a materially lower amount of capital with which to make another investment. And this means that the returns from the subsequent investment need to be materially higher than would normally have been the case for me to get back to my starting point. So its got nothing at all to do with my tax bracket moving more favourably; rather, it has to do with stemming unnecessary leakage of my investment capital.

Of course, if the world was awash with investment alternatives that did offer me the sorts of super-normal returns I'd require to make me whole for the capital gains tax penalty, then that would be a different situation and one in which I would sell my DLX.

But besides, its not as if DLX's valuation is at stratospheric levels from which there is likely to be risk of permanent damage to the value of my capital; it is merely modestly over-priced, I believe.

In terms of FLT, you say you are not happy with the SP performance, but what about the underlying performance of the business? Are you happy with that? For if you are, why do you care that the share price does not perform the way you'd like over short time frames? As long as the company performs and the intrinsic value of the business is preserved or increased, the share price will ultimately follow.

I think that's one thing that many small investors do wrong; they spend too much time analysing share prices and trying to second-guess why they do whatever they do over any given time period, and they don't spend enough time analysing business themselves.

One of the most successful investors I know looks at share prices only once a month (on the first weekend of each month, when he reads about them in his copy of the Weekend AFR!).
He argues that even that sort of frequency is excessive because, if he owned a whole lot of private businesses instead of publicly listed ones, he sure wouldn't ask for an independent valuation of those businesses every day (or every month, for that matter).

Also, that you continue to hold FLT because if you sell now you will be under water is a bit of flaky logic (no offence intended). That should really not enter into your investment thinking. Because you might have simply paid too much for it, and it might still be fundamentally overvalued today. Which means that continuing to hold because you are waiting to recover your losses might be just doubling down on your error.

The sole determinant of your decision to hold or sell a share for which your purchase price is higher than he current market price should be how the share price stacks up against the intrinsic value of the stock. What you paid for the stock should be totally immaterial.

Result was less than expectation, page-18