Sherwin Williams (SHW) is the type of company I look for as an investment: strong advantages over competitors and would-be challengers, consistent growth, and a product that will likely be very similar 100 years from today. And I blew it. Perhaps my investing decision was impacted by an uncertain political environment and seemingly overvalued market prices, but I blew it. My inability to execute a rather complex investment strategy hurt our family portfolio. In an effort to reduce capital gains taxes, I liquidated our SHW position to realize a capital loss and offset a taxable capital gain; before I replaced the SHW shares I sold, the stock rallied 30% from our exit price.
The motivation behind sharing this experience is to force myself to analyze the strategy and my execution, but also help others learn from my mistake. You may read this example and decide a more passive approach is better suited to your temperament and time constraints; perhaps the potential benefits from such an approach are not worth the time and effort required to execute it. Maybe you will be able to learn from my mistake and resolve to execute this approach more efficiently – as I will.
In June 2016, I invested roughly 1.5% of our portfolio in Sherwin Williams at $290.30 per share, but, in October, after two ill-received quarterly reports the stock was trading 15% lower and I liquidated the shares for $246.97. Though my intention was to resume our exposure to Sherwin Williams in November, after waiting a month to avoid a wash sale, I have yet re-establish our position.
After Sherwin Williams’ April 20, 2017 earnings release, shares trade north of $324 per share at a new all-time high. For perspective, shares are up over 31% since October and 12% since my initial purchase in June. Instead I saved a few hundred dollars on our tax bill and invested the proceeds to increase our positions Amazon and Berkshire (both stocks are up roughly 15% since October).
Many hours of research and analysis were devoted to establishing and liquidated our Sherwin Williams stake; I could have shared that time with my family. Do I regret decisions that lost money for my family? Absolutely. Do I regret forgoing family time to manage our portfolio? No. These are among the trade-offs every investor needs to consider when developing an investment strategy.
Going forward, I will continue to liquidate positions to offset taxable gains, but this experience with SHW is a valuable lesson. My transactions need to be more systematic. Perhaps our portfolio has too many positions, and my strategy execution needs to be more systematic, but I will evolve and improve as an investor through reflection and self-awareness.
Investing in individual companies requires more time and energy than more passive strategies. If you want your portfolio on autopilot, Buffett’s 90-10, S&P 500-cash portfolio may be more appropriate for you. The key to financial independence is maintaining a sound investing strategy.
As this earnings season progresses and the companies we own report their financial results, I will update this blog to document the successes and challenges I encountered. Any questions or comments are welcome. Follow the below links to connect.