This is a classic example of why I focus on investing for the long-term. This company released its Q2 2018 results and Mr. Market immediately lopped $4.83B from this company's market cap relative to the previous business day's market cap. By market close, this company's market value exceeded that of the prior business day.
- Skip excitement when it comes to investing. Hold shares in dependable companies with competitive advantages such as this company.
- Markets are irrational in the short-term. ~$4.83B in market value was lopped off this company’s market cap the morning of July 24th but that was fully recovered by the end of the trading day.
- Shares are currently fairly valued after having been grossly overvalued just a few months ago.
- This company is amongst our top 10 holdings from a current market value perspective.
I remember my MBA Professors telling my classmates and me (many, many years ago) that markets are inefficient over the short-term. They indicated, however, that if you closely analyze the market from a long-term perspective, it is reasonably efficient; this also applies to individual companies such as the one covered in today’s article.
I have held shares in this company for many years, have continually DRIP’d our dividends, and have periodically added shares on dips. Around late October 2017, however, I really started to scratch my head as to what would possess Mr. Market to suddenly think shares which were trading at ~$178 in early 2017 at a reasonable valuation would now be trading at lofty levels; by December 2017, this company’s shares were trading in excess of $230. Heck, this is an Industrial Goods company with a $110B+ market cap. This is not a small-cap or mid-cap high tech company!
Although I did not discontinue the DRIPing of the dividends, I certainly was not making periodic additional share purchases.
Shares continued to rise in price until late January 2018 to ~$260 and in hindsight I should have written covered calls if I felt the shares would drop in value. I didn’t. That’s life.
The company’s share price did correct subsequent to the last week of January 2018 and in my April 26th article I indicated that after a ~$61/share pullback from the 52 week high I had acquired another 200 shares at ~$199. This brought our total holdings in this company to in excess of 1100 shares spread over 3 investment accounts; it is one of our 10 largest holdings.
Now the reason for today’s article…this company recently released its Q2 results.
Well, isn’t this interesting. Results were not bad but this company’s stock price plunged to just under $191 from the previous day’s close of ~$199. As I compose this article, however, the share price has bounced back to close at just above $200. Go figure! Here’s a company where the weighted average diluted common shares outstanding for the 3 months ending June 30th was 604.2 million. An $8/share drop in market price early the morning of July 24th meant Mr. Market suddenly viewed this company as being worth ~$4.83B less than at the close of the previous business day.
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