While I was fond of the business, I was not convinced that it would succeed and beat the market for my portfolio.
Specifically, I felt that increases in the price of pulp (tissue raw material) or costs relating to a weaker Australian dollar (pulp is priced in US dollars on global markets) would increase the cost of operating the business.
I also didn’t think that Asaleo Care would be able to pass on those costs to their customers given the retail wars between Coles (which is owned by Wesfarmers Ltd (ASX: WES)) and Woolworths Group Ltd (ASX: WOW) who have significant bargaining power.
So how has that decision worked?
Since then, shares in Asaleo Care are down 53%. I certainly did not think the shares would drop that much, but with the benefit of hindsight, it’s not all too surprising given the headwinds the business has faced.
Meanwhile, the prices of the other shares I considered as better alternatives at the time are up an average of 18%:
- ResMed Inc. (CHESS) (ASX: RMD) – up 31%
- Magellan Global Trust (ASX: MGG) – up 6%
- Reece Ltd (ASX: REH) – up 18%
Not flashy returns but still better than seeing your investment cut in half and I’ll happily take an average performance of 18% every year.
So what are the lessons? For me there are a couple:
- Buy and hold remains my preferred strategy but if the investment thesis has clearly deteriorated then I should be prepared to sell
- Before getting into the numerical details of PE ratios and share prices, it’s important to understand the business, its industry and how it will deliver shareholder value
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