Because it is such a big name on the global scene and so widely followed it is easy to keep track of what is going on with the company. Because it is such a low octane name I find myself not needing to keep very close tabs (this is relative) on the share price. This morning I noticed that it went above $60 for the first time yesterday making a new all time high.
YTD the stock is up 15%, ahead of the market and ahead of the sector as measured by iShares DJ Healthcare Index Fund (IYH). Admittedly some of the lift in NVS can be attributed to the dollar being down about 5% vs. the Swiss franc YTD.
In a diversified portfolio you would expect a mix of stocks that are ahead of the market and stocks that are lagging. One point of this post is that to me this type of action is exactly what investing longer term is all about. This is not a tout for Novartis, it is a tout for long term ownership for a company you believe in. It is not all roses all the time of course. During the spring correction NVS dropped 10%, much more than the market. I did not think about selling, I would say that all stocks have bumps in the road now and then.
This brings the conversation to Caterpillar (CAT). It is a name I have owned for clients for several years. I disclosed selling half the position back in the spring thinking an economic slowdown was in the offing. Reducing industrials in front of a slowdown is really a by-the-book type of trade. The mind set needs to be similar but the stock also needs to be understood. A stock like CAT is capable of going down a lot. I don't mean in one day, which is obviously the case, but over a longer period of time. If you are 100% buy and hold then you need to really grab on to the idea that industrial stocks have periods of serious volatility in both direction.
The trade to lighten up looks good but the decision to keep half looks bad. For a few months (or longer) CAT's growth rate is going to be slower than some were previously expecting. The company is still a big big fish in its pond and will likely be a big big fish when growth for the entire industry starts to accelerate again.
I called this post Mind Set because if you are investing toward some goal in the future you probably should not focus on today or next week or next month or even next quarter. Both stocks listed in the piece will have time periods in the future when they lag and lead.
One last point, this is not to say that stocks should never be monitored, reviewed and possibly sold outright but people selling CAT today are probably more driven by emotion than logic.
6 comments:
"Growing up" with a company can be an interesting lesson in patience as well as a profitable experience too. When I first started investing in the early eighties I had some rocky experiences with both the market and brokers: A very difficult market, trading was expensive and the net effect of broker advice compounded that expense considerably (hey, I was new to the game, how was I supposed to know brokers were just a sales force?!).
So I became interested in Dividend Investment Plans (DRiPs), particularly from companies that would let you start a new account from scratch; there were no services in those days that allowed you to buy a single share and transfer it easily and, perhaps in consequence, there were more companies whose investor relations departments were willing to help small investors enter their DRP program. These days it's fairly easy to buy a single share and transfer it of course.
I focused on large cap stocks and while there were no failures several did not grow well and I eventually sold them. The mind set was different than when I trade though, I just knew more about the company and how it worked so it wasn't just about price trend. Dealing directly with an investor relations department proved instructive too.
I still have DRP plans at four (4) of those companies and will probably wind up donating a significant portion to charity as the capital gains involved have become very large. I suppose none of the companies would qualify as particularly 'great' but they proved solid and although I haven't contributed any new money in at least 15 years the combination of stock splits, decent growth and compounding dividends over a quarter century put most other segments of my portfolio to shame.
I have iShares Switzerland (EWL) as a long term holding.It certainly is worth looking at, if your readers are so inclined.
Share the companies RW. I want to know what (4) largecap companies you were lucky enough to hold for 26 years.
"but people selling CAT today are probably more driven by emotion than logic"
Who are you kidding Roger? It appears that you are emotionally attached to this stock.
CAT is in a cyclical industry and the cycle is turning down.
Maybe you should not be emotionally attached to it and sell CAT before it hits the bottom.
If you love it so much you can buy it back with significant discount later.
Just a reminder: buy at low and sell at high (not buy at high and hold it until it goes higher, even if it is 10-20 years from now)
Good Luck with holding cyclical stocks!
Anonymous,
You are a genius and please give us more insight on how cyclical stocks like CAT will continue to fall.
You do not have to be a genius to understand these normal economic cycles, even a second grader can learn and understand these simple concepts.
Also, you cannot complain that you did not see this coming because CAT warned about their business slowdown during their last Q earning release back in July.
I hope, you are not one of the buy-and-hold cheerleaders like “Cramer the Clown” or Stefan Abrams and I am not wasting my time. They can never understand that you buy industrials during early economic cycle expansion and you sell them during early contraction.
Disclaimer: I have sold all of my CAT shares and took large long puts position in May of 2006.
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