Kogan selloff and blackout period begins

Although Kogan showed another outstanding result this year, growing revenue 40% and EBITDA 90%, the market does not support the current valuation and has punished the share price soundly.  The day the results were announced, I sold my entire holding for a 230% gain on my average buy.  A great result, but it’s hard to escape the fact that I could have sold at closer to 400% returns.  The reason I’m taking a break is that things like this get way too far inside your head, which stops you from making rational decisions.

Knowing when to sell is hard, so for the time being I’ve decided to take all my cash off the table and get my mindset back in order.  I am also in the process of selling down ST1, as I believe we are around fair value and the company isn’t growing as rapidly as I would have expected.

This means I will be down to 4 stocks and holding 50% cash, primed for future opportunities.  I look forward to giving my brain a break so I can make better decisions when I emerge from the self-imposed blackout period.

I’ll be back in September with a better mindset, and hopefully, wiser.

FY18 results and taking a break

My 4th quarter showed a return of -5.52% vs a benchmark return of +8.27%.  This was primarily due to a large decline in Kogan after the directors sold 6m shares at $7, having earlier invited offers around the $10 mark.  Nonetheless, I am pleased with my overall results for the year, showing a total return of 67.3% against the benchmark of 12%.

Stripping Kogan from the results I am still up 27.1% for the year which I’m pleased with.  The recent decline of Kogan has highlighted a gap in my own thinking (as well as some greed) in not trimming back my position as the share price rose.

In hindsight, would I still allocate 45% of my portfolio to Kogan at $9.80?  No I wouldn’t!  So why did I continue to hold?  I can partly claim a desire to err on the side of doing nothing, but I was greedy, and justified my lack of action under the guise of letting winners ride and the difficulty to calculate their full potential, and ignored increased market activity from eBay and Amazon.  Right now I’m waiting for full year results and expecting them to be excellent.

Recent events have caused me to notice that the quality of my thinking has degraded, and I don’t trust myself to make rational decisions.

The time has come to take a break.

In some ways, deciding to buy is easier than deciding to sell, and as I start considering turning over my portfolio I need to make lots more decisions.  When a stock is undervalued by a decent margin of safety, the only decision is how much of your portfolio to allocate to it. But when selling there are many considerations.  Is it at or above fair value? Should I sell all or part of it? What are my tax considerations? Do I hold cash for now or do I have better ideas to move my money into right away?

One thing that’s clouded my thinking is checking my portfolio several times a day.  I’m lucky if any stock posts news in a single week, let alone by the hour. It’s become a distracting habit that is a net negative on my ability to make decisions on a time horizon which tends to be 1 year plus.

So, I plan to go the full month of August without looking at public markets – no checking my portfolio, no HotCopper, no Financial Review.  The companies are unlikely to undergo dramatic change in 31 days.  I will use July to adjust my portfolio based on FY18 results, with a view to increasing my cash reserves.

August will be spent reflecting on what has been an excellent year, and building up my background knowledge with plenty of reading (and re-reading of books that got me where I am today) and watching old Berkshire Hathaway AGMs. I will be going on holiday at that time, and look forward to getting back into public markets refreshed and with the right mindset.

I should be in no rush to deploy excess cash and will be comfortable holding around 50% cash for 3-6 months as I search for better investment opportunities.  The recent difficulties have forced me to grow as an investor and for that I am grateful.