What Is the Only Thing That Really Counts in Investing?
The only people who buy at exact bottoms and sell perfectly at tops are… liars.
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What is the answer to the question in my title? How is my whole portfolio faring on a long-term basis?
We all dream about buying a stock at an all-time low and seeing it immediately turn higher. We also picture selling at outrageously high prices and watching with satisfaction as the top tick fades away and the shares go back down.
The reality is that those scenarios rarely happen.
Stocks that appear cheap sometimes get even cheaper. Shares that look pricey often get pricier before regressing to more typical valuations.
The only people who buy at exact bottoms and sell perfectly at tops are… liars.
For value-oriented buyers catching an exact low can be frustrating. You often do not get filled on the entire size of your buy order. Plus, you can not average down as you build your position to your desired final number of shares.
The same is true for selling at exact peaks. You may find that bids dry up before you can unload your entire stake. Then you need to decide if taking somewhat inferior prices is the right move rather than waiting for the next decent uptick, which might never come.
You do not need to be perfect. All you require to get rich over time is more gains than losses over time. The only way to gauge that is in total performance of your full portfolio.
Every time you exit a position you have proof if that trade was good or bad. That shows up on your brokerage statements as realized gains or losses.
My three personal accounts include a traditional IRA, a Roth IRA, and a margin account. Actual realized year-to-date net gains through May 2, 2024 are shown below.
Taxes on gains in the traditional IRA are deferred until I finally withdraw funds from it. Gains in my Roth are tax-free forever during my lifetime and for up to 10 years after inheritance by my son. Short-term and long-term status has no bearing on what will be owed on withdrawals from the traditional IRA.
In my margin account getting long-term tax treatment is still a highly favorable scenario. I am pleased to say that so far in 2024, 52.24% of my net realized gains qualify for lower capital gains tax rates.
The key takeaway from the gains shown above is that when the trades were completed, the results were highly profitable. It made absolutely no difference if the shares went lower after I first bought, or higher after I sold.
I have taken a lot of abuse lately in the comments sections of my articles about the horrible selloff in Jack in the Box JACK recently. The shares which peaked at $99.56 last July, and at $86.20 this past January carved out a new four-year low on May 2, 2024 at $53.71.
The company is doing well. Expected EPS for the fiscal year ending Sep. 29, 2024 run from $6.30 to $6.38, up from $6.03 in FY 2023. Value Line sees EPS growing to $7.00 next year while Yahoo Finance’s consensus view for FY 2024 now sits at $7.16.
I recommended JACK on April 7, 2024 when it traded for $61.25. This Thursday’s nadir was 12.7% lower. I was certainly frustrated that a stock which looked so cheap could plunge even further in just four weeks.
After checking all my math and finding there was no bad news to account for the dip, I was busy buying many more shares of JACK. It is now my second largest dollar holding and a seven-figure investment. My average cost is now right around $60.
That is the blessing of irrational share price movements. You have the chance to increase your stake at even larger mark-downs from fair value.
How crazy was the selloff? Since July 31, 2023, JACK was down by 45.1% at its May 2, 2024 closing quote.
Over exactly nine years EPS had more than doubled yet JACK was offered at a 37.4% discount to where it sat on May 2, 2015.
How many things can you name that are worth much more than nine years ago yet sell for much less than back then?
The lower price is a gift that should not be refused.
Jack has a long history of scary declines followed by even larger, and relatively quick, rebounds. Its high beta means once upward momentum is established the shares tend to surge, not crawl, higher in a hurry.
True believers in this, or any other, seriously mispriced stock should be salivating at the chance to own it at such a huge discount to its calculable real value.
At its May 2, 2024 quote of $54.65 JACK even paid a secure 3.22% yield while you wait for the public to come to their senses.
Three years ago, when JACK last earned over $7 per share the stock peaked at $124.53.
I have every expectation that a future article will detail what turns into enormous gains on my now incredibly significant, and temporarily, underwater position.
It is okay to feel disappointed with recent share price action. It is not okay to sell because of bad momentum. That is when the most upside potential and least risk is hiding is plain sight.
More From Paul Price:
At the time of publication, Price was long JACK shares, short JACK options.
By the time you read this the Kentucky Derby will have been run.
Three horses stand out as most likely to win:
#17 Fierceness and #11 Forever Young look clearly best.
#2 Sierra Leone is in with a chance.
I have fun money bet on all three as both winners and in various exacta combinations. I also have some daily doubles with them as winners with the race that follows the Derby.
