Are missed opportunities a curse?

Stocks that you miss can be disappointing. Sometimes patience pays but other times you should just move on to the next one.

The past two months have been a great period to be a value investor. The All Ordinaries index, which began August around 5,700, finished the month around 5,100. If you had investable cash and you weren’t buying in August and September, what were you doing?

Personally I’ve done a lot of switching. Some good performers in my portfolio were virtually unaffected by the market downdraught and were therefore looking comparatively expensive. But I’ve been a ‘net’ investor overall – I’ve put more cash into the sharemarket than I’ve taken out.

I can’t disclose the stocks here – or I’d be giving away too many Buy recommendations – but almost all of them have been Intelligent Investor recommendations. Three were upgrades to Buys over the past two months, while one was an existing Buy where the market was anticipating bad news but the company’s result proved to be just fine.

Welcome worry

The key point was that every single stock I bought fell on bad news, or the anticipation of it. Bad news often creates buying opportunities so learning to welcome worries rather than fear them can help you take advantage of them.

But what of missed opportunities?

There were plenty of those too. I can think of at least three stocks that Intelligent Investor went close to upgrading but didn’t (and another recommended stock I personally missed buying because it ran away from me).

Let’s focus on just one of these ‘missed opportunities’ – Woolworths (ASX: WOW). It’s no secret that we’d like to recommend Woolworths but we haven’t upgraded it yet.

Unfortunately the stock has bounced back over $27.00 recently. While Woolworths is a wonderful business, that price is insufficient to take account of expected margin declines over the next few years.

Am I worried about having missed it?

Not at all. I’d like to recommend Woolworths but, like potential partners when you’re newly single, there are plenty more fish in the sea (don’t you just hate it when people say that?).

Be flexible

It’s important to be flexible about the stocks you’d like to buy. The only reason for buying should be because a stock is underpriced. If it never becomes attractive enough, don’t buy it.

I’ve never owned Woolworths – a stock that has ten-bagged since listing in 1993 – and it hasn’t hurt my returns because I’ve bought plenty of other good performers (as well as my fair share of duds).

You don’t need to own any particular stock or sector. I own a well-below market weighting in banks and no resources stocks at all, for example. (Personally I think most investors should avoid resources stocks other than the super-miners, but that’s another story).

The other issue is patience. I suspect there will be multiple opportunities to buy Woolworths over the next year or two. As we said in Woolworths: Result 2015 from 28 Aug 15 (Hold – $27.40), the company’s transformation program is at a very early stage.

That implies we’re hoping for bad news – and prepared to wait. The first opportunity to buy Woolworths might come as soon as 29 October, when the company releases its first quarter sales results. With lots of negative publicity about Woolworths’ grocery prices being more expensive than Coles and Aldi, the sales numbers could be disappointing.

If they’re not, then we’ll wait for the next lot of bad news. Or the next lot after that. But if it never arrives, then the stock never became cheap enough to buy.

Buying opportunities are like your favourite relatives. You never quite know when they’re going to drop in, but you must welcome them through the door when they do.

Our door is open for Woolies. Let’s hope it drops in soon.

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