Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Elvest Co portfolio manager Adrian Ezquerro names two ASX shares that he regrets not buying a decade ago.
Looking back
The Motley Fool: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.
Adrian Ezquerro: Yeah. I mean, to be honest, I've probably had all three of those, but in terms of the absolute dollar cost, it absolutely relates to missed opportunities. Most of my investing regrets relate to not pulling the buy trigger, and that's particularly after doing a lot of legwork.
I now know that when it comes to a really high-quality business, quibbling over a few cents on entry price can ultimately cost you dollars of long-term value.
When I reflect on something like this, I think about a period of time about 10 or 11 years ago in the aftermath of the GFC. It was a period of time, as an analyst, I actually really enjoyed and I got a good opportunity to do a lot of detailed research on what I now know are a bunch of great quality stocks.
Now it's quite interesting to look back and consider and observe what these types of businesses have done since.
I'll give you two examples that come to mind. The first I think of is ResMed CDI (ASX: RMD). It's a leading medical device company, specialises in sleep apnea, branched out in recent times. At that time it would've been trading, I would say in the low $4 range. I'd done a lot of legwork, built my model and wrote the report and went and saw management and they were really gracious with their time.
It was fascinating, I really enjoyed it. But in retrospect, clearly I was conservative and set a target entry price that was just too sharp. It ran away from us and today trades in the mid $30s, so that was certainly an opportunity lost.
MF: It's one of the stocks that pretty much at every point in its history, investors would've thought "This is too expensive", right? But it just keeps going up.
AE: Yeah, that reflects consistent execution that they're growing into a large market. They've dominated that niche alongside another competitor which has recently stumbled. Notwithstanding some procurement issues, they're doing their best to take advantage of that opportunity.
Yeah, great quality business, it's perpetually been. It looks expensive and I think it's fair to say that that's exactly the same case as my other reflection in this instance — TechnologyOne Ltd (ASX: TNE), another high-quality business I did a lot of work on about a decade ago.
At that time, it was building nicely off a relatively small base. It certainly ticked a lot of the boxes. It had strong business fundamentals, founder-led, net cash balance sheet, and generating cash. And at the time, and still today, it [has] quite a positive outlook. As you say, it was something that always seemed to be expensive and certainly felt like that was the case back then.
Similar to ResMed, I was seeking a discount on my assessment value at the time, which in retrospect was too conservative and it was an opportunity missed. It has since executed really well. It's probably been a 10-bagger since that time.
Anyway, the silver lining of these types of reflections is that you take these learnings over the many years of investing and analysis — it's all cumulative. You try and bank that knowledge and experience and you keep learning, you hopefully keep improving and one would hope you are less likely to replicate the same sorts of mistakes in the years to come.
MF: And don't quibble over a few cents for the entry price if it's going to be a long-term investment. Is that right?
AE: Correct. If you see a really high-quality business and my reflection initially on ResMed, I can't remember specifics, but it was trading in low $4s and I might have wanted to buy it at $4 or below.
I was trying to be diligent in seeking that margin of safety of discounts and value. Ultimately it's a business that has compounded value over many years and it's been a great investment from that point in time.
