We executed the following transaction(s):
On December 1, 2023 we sold:
- Advance Auto Part (APP) which comprise of 3.4% of our portfolio
Our decision to accept the loss of 50% on this stock are 2 parts. First we feel that the the dramatic fall would take much longer to recover and take the loss as tax write-off. Secondly, this action allow us to have some capital to deploy if we see better opportunity.
The decision to purchased Advance Auto Part were based on underperformance compared to Auto Zone and O'Reilly with hope that reversion to the mean in stock price would occurred. Coupled that with our PMI which showed over extended indicator to the downside (beyond 2x standard deviation).
What we learned?
Screenshot shows that reversion to the mean did not happen and Advance Auto Part lost tremendous shares to their competitors. Additionally, our PMI is not foolproof and additional consideration should be taken when applying this model. One last thing, caution should be taken when EPS rose more than 50% in 2 years span as seen below from Valueline. Regardless of how well your business is run or wide your moat is, such rise in EPS is not sustainable.
