In his book, Investing for Growth, Terry Smith discusses his decision to sell Dominos, before the stock price increased by over 45% in 2016, underscoring the fallibility in such judgment calls. This experience illustrates his hesitation to heed advice suggesting that one should sell off a portfolio of great companies in favor of investing in lower-quality stocks with the hope of profiting from market fluctuations. Here’s an excerpt from the book:
As a cautionary tale about the merits of doing nothing, you may recall that in 2015 we sold our holding in Domino’s Pizza since it had reached a valuation which we felt was only justifiable if its rapid rate of growth was sustainable, which we doubted was likely.
In my annual letter last year I said that I ‘sold it with some regret and trepidation.
Regret since it is undoubtedly a fine business and had been our best-performing share since the inception of our fund. Trepidation since selling shares in good companies is something we are justifiably reluctant to do.’
Domino’s managed to prove these fears right in the most painful way, as the share price rose by +45%+ in 2016. Apart from demonstrating that I am… could we agree on “fallible” as a descriptor? …
I hope this illustrates why I am reluctant to agree with the commentators who suggest that you or I should sell our portfolio of great companies and invest in a portfolio of assorted junk in the hope that it will go up, the great companies’ share prices will go down and we can then profitably reverse the trade.
You can find a copy of the book here:
Terry Smith – Investing for Growth
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