As a value investor, you’re probably more likely to ditch your winners in favour of your losers due to valuation reasons. While there’s no shame in taking a bit of profit off the table, I believe it’s a mistake to trim your winners if the rate of change in progress going on behind the scenes is proportional to the magnitude of recent gains that a company’s stock may have experienced. Warren Buffett isn’t a fan of trimming holdings just because a stock has won too much, resulting in an imbalance that goes against some arbitrary portfolio allocation model. If you…
To keep reading, enter your email address or login below.
As a value investor, you’re probably more likely to ditch your winners in favour of your losers due to valuation reasons. While there’s no shame in taking a bit of profit off the table, I believe it’s a mistake to trim your winners if the rate of change in progress going on behind the scenes is proportional to the magnitude of recent gains that a company’s stock may have experienced.
Warren Buffett isn’t a fan of trimming holdings just because a stock has won too much, resulting in an imbalance that goes against some arbitrary portfolio allocation model. If you keep trimming your winners to the same level, you’ll have plenty of profit to show for it, but over the long term, you may find that you would have been much better off letting your winners fly, because often winners keep finding ways to fly higher and higher.
This piece will look into four companies that are top performers that continue to grow at the expense of peers in their respective industries. Such names should be allowed to run, unless investors need to raise capital for personal reasons.
Boyd Group Income Fund (TSX:BYD.UN)
The auto repair company has been on an M&A tear, scooping up smaller auto repair shops at reasonably low prices and unlocking hidden value in the form of synergies, only made possible through Boyd’s seasoned team of experts who know how to scale up efficiently like no other mom-and-pop shop ever could on its own.
As long as accidents happen, Boyd will continue to take it to the bank, as they consolidate the North American auto repair shop market one deal at a time.
Boyd may be an income fund, but it trades more like a stock as exhibited by the massive 273% in capital gains clocked in over the past five years.
Canadian National Railway (TSX:CNR)(NYSE:CNI)
CN Rail has been through it all! Upturns, downturns, sideways markets, and all the sort. Every time, the company has risen from the darkness a stronger company with more efficient operations, eventually allowing it to command the title of “North America’s most efficient railroad.”
Warren Buffett once said that investors should seek businesses “that an idiot could run” and CN Rail, I believe, is one of those businesses. While operating a railroad is no easy task, as rails are the backbone of the economy, CN Rail has such a wide moat with its rail network such that no other competitor will be able to kick it off the throne, even if it were operating at half its potential.
There are few firms with moats as wide as CN Rail. Given the technological innovations going on behind the scenes, I’d say CN Rail actually stands to widen its moat further. The company in experimenting with new means of heavy crude transportation, and as IoT and AI continue to take off, one has to think that CN Rail will have fully autonomous trains, trucks, and enough tech in place to make derailments a thing of the past.
Indeed, the future is bright for CN Rail, and as one of the top performers in the North American rail scene, I’d say the stock is a must-buy on any form of weakness.
Boyd and CN Rail keep winning, and over the next decade, I believe they’ll continue on their upward trajectories with minor bumps in the road relative to other securities.
Stay hungry. Stay Foolish.
Renowned Japanese Billionaire is sounding the alarm on what could be a trillion-dollar technology. In fact, he's now preparing a $100B "war chest" to invest entirely in this "terrifying" new technology, which could spell huge profits for investors.
And if he's right, early investors in this super-trend could become rich. Because this potentially $19 TRILLION market....is still being ignored by most ordinary investors.
Fool contributor Joey Frenette owns shares of Canadian National Railway. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.