During his recent interview with Value Investor Insight, Matthew Fine of Third Avenue explained why it’s important to be able to change your mind after you’ve purchased a stock. Here’s an excerpt from the interview:
Fine: Investing is a difficult, messy business, so you’re inevitably going to make mistakes. I certainly haven’t been immune to that. We talk a lot about the balance sheet and the importance of a company having the financial wherewithal to ride out a bad period. That’s particularly important given how difficult it is to predict the timing of a recovery.
We learned that lesson again in the early oil-services-company investments we made. Unlike the more successful ones we made later in companies like Tidewater [TDW] and Valaris [VAL] – which had already been restructured through Chapter 11 – those earlier investments did very poorly because the downturn lasted much longer than we expected and there turned out to be too much financial leverage.
Another lesson we’ve learned is the risk of having too much patience. As I’ve gotten older and more experienced I’m putting more emphasis on defining and tracking tangible signposts of progress.
Along with that I think we’ve gotten much better at changing our minds as situations evolve. You can’t be embarrassed if you buy something and conclude later it was a mistake. For example, we bought a New York Class-A office property owner in the middle of Covid thinking we were stealing it at the valuation at which it was trading relative to historical norms.
After two or three months of living with it and reevaluating the landscape, we concluded the historical norms no longer applied and we got out. Trying to convince ourselves we were still right to have bought it and to not move on would have been a very bad decision.
You can read the entire interview here:
Matthew Fine – Third Avenue Management – Value Investor Insight
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