A Friday reminder: When you find a winning company, guard it zealously. Because good businesses tend to make good things happen.
The post Good things happen to good companies appeared first on The Motley Fool Australia. –
Those who believe in karma would say that good things tend to happen to good people.
I’m not among them.
Don’t get me wrong: I’m an eternal optimist (and my portfolio and our members have benefitted from that approach) — I just don’t believe in karma.
But there is a (non-karmic) analogy in business, though: good things tend to happen to good businesses.
Or, perhaps more accurately, good businesses tend to make good things happen.
The latest example is the relatively unknown and underfollowed retail business, Premier Investments Limited (ASX: PMV).
Never heard of it? You’re not alone.
You’ve probably heard of its retail brands, though.
Think Just Jeans. Smiggle. Peter Alexander, Jay Jays, Portmans and Jacquie E. And others.
It’s been one of the best performing businesses on the ASX over the past decade or so.
Certainly one of its best performing retailers.
And while I’m not one to brag — pride does cometh before a fall, after all — it’s important that I mention we recommended it to members of Motley Fool Share Advisor back in 2013 at $6.60. Including dividends, that recommendation is up 440% since then, compared to the ASX’s 116% gain.
(Why is it important? Because, I hope at least, the track record of a financial advisor should be important to you if you’re listening to them. There are a lot of talking heads who happily tell you what to do and what to think… but have you ever checked to see if their track record makes them worth listening to?)
Anyway, back to Premier.
This morning, it announced that:
– Sales for the first 18 weeks of its second-half are up 70% versus last year.
– They’re also up 16% on the same 18 weeks of the prior year (pre-COVID).
Not only that, but operating profit is expected to be up by more than 80% compared to last year, and more than 100% above the 2019 financial year. (This year did include one extra ‘week’ of sales because of the way retailers count their sales… but that’s less than 2% more time!)
These would be staggering gains for a tech business.
They are phenomenal for a retailer.
And that takes me back to my opening lines.
I expected Premier to continue to operate successfully and to keep growing. It’s a well-run business with strong momentum and a very good track record.
But even I didn’t expect the numbers to be this good.
I keep my expectations realistic. And am always pleased when they’re surpassed.
It’s why I’m always reluctant to sell quality businesses that are doing well.
Even when they make missteps, they’re worth giving a second (and often a third) chance.
While we owned them, Premier shares:
– Fell by one third between 2016 and mid-2017, before recovering.
– Fell by 25% between the middle of 2018 and early 2019. And went back up.
– Halved in the COVID crash. They’ve almost tripled since.
Those were painful falls.
But we kept the faith.
Our members, who followed our advice, have been well rewarded for their patience.
But no, this isn’t a victory lap.
No-one knows what comes next.
The investing ‘race’ doesn’t have a finish line.
Instead, it’s a Friday morning reminder of a few things:
First, find well-run businesses.
Second, pay decent prices.
Fourth, fifth and sixth, wait.
Sometimes, your patience won’t repay you.
Sometimes, a good business goes bad.
Sometimes, a business looks good but was bad all along.
But, sometimes, a good business, though it has its occasional winters, continues to be a good business, and rewards you richly for your patience.
And remember, if you find one business that is up 440%, you can afford to lose 100% of your investment in 4 other businesses and you’ll still have made money!
No, that’s not the aim. 5 winners would be great. But even if we have one Premier, three moderately successful companies and one dog, we’d still be a long way ahead.
It is this potential — what the boffins call ‘asymmetry’, and the rest of us describe as ‘the upside potential can be greater than the downside risk’ — that you should seek out when you invest.
And, when you find a winning company (‘company’… not ‘stock’, or ‘share price’), you should guard it zealously.
Because good businesses tend to make good things happen.
Wondering where you should invest $1,000 right now?
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.
*Returns as of May 24th 2021
Why the Premier Investments (ASX:PMV) share price just hit a record high
2 ASX 200 shares that could be reliable picks for dividends
Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.