Investment decisions don't always lead to success, but what can be especially painful are situations where a name begins to drop almost immediately after taking a position. That's when it is time to take a deep breath. Investors often expect immediate gratification, especially in rising market environments. When that does not happen, and a new purchase begins to head south, there may be a deep sense of regret, and perhaps even the impulse to make an early exit.
Sometimes an early exit may be warranted. Not all ideas work out, and those taken in haste, without real conviction, or knowledge of the situation perhaps should never have been entered into in the first place. But where there is conviction, a potential catalyst, and or other seemingly sound reasons, there's reason to stand your ground.
As a value disciple, I am inherently patient as an investor, and don't expect instant gratification. That does not mean that I don't make mistakes, because I've made plenty. I just expect to have to wait for my investment theses to play out, and sometimes that takes years. I've been spoiled a bit over the past year, especially in specialty retail where distressed names such as Fossil (FOSL) , Hibbett Sports (HIBB) , and Cato Corp (CATO) have delivered superior returns, rebounding somewhat quickly after the markets all but announced the premature death of the industry. But that's not the norm in my world. I've had positions in names for many years where I am still waiting for my investment thesis to play out.
In August, I began building a position in NL Industries (NL) , a potential sum of the parts story. The name can be volatile, and is heavily influenced by the stock price movements in Kronos (KRO) , Valhi (VHI) , and CompX International (CIX) , in which the company has ownership stakes. Rather than take a full position all at once, I decided to wade into the name, opportunistically building a stake. I am about half way into a full position, but NL has fallen 22% since my initial purchase in mid-August, and 12% since my second, for a total 17% drubbing. NL, which was trading in the $7.66 range in mid-August, is now a $6 stock. It's main holding, Kronos, which now yields 4.1% and trades at less than 7x next year's consensus earnings estimates (with just three analysts covering the name, however, and a wide range between the high and low estimate) is down about 37% year to date.
I still like the story however (those with weak stomachs should avoid), and plan to continue building the stake. It may take years to play out, and I certainly don't expect a Fossil-like run (shares ran from $8 to $31 between January and June).
