Whenever one of your shareholdings does this…
Source: Yahoo! Finance
…questions start popping into your head.
Why did I buy?
Why am I still holding?
Or perhaps, should I buy more?
Woolworths Limited (ASX: WOW) shareholders are likely asking themselves the same questions.
After all, it's not like Woolworths is a small-cap stock making up less than 5% of portfolios. It's likely a significant holding in many investors' portfolios.
And with shares of Australia's largest supermarket operator down around 30% in just one year, many are likely questioning why they're still invested.
I feel your pain.
I recently invested a meaningful amount of my family's portfolio in Woolworths. Perhaps I was a little hasty with my decision – I'm currently nursing a modest 14% paper loss, less dividends.
But it's not the rise of Aldi, resurgence of Coles or the unprofitable Masters business that has me questioning myself.
If anything has made me question my investment, it's that I broke one of my sacred 12 stock-picking rules.
As an aspiring value investor, I always aim to purchase shares at a steep (30% minimum) discount to my intrinsic value estimate. I didn't do that with Woolworths.
Indeed, I saw relative weakness in its price – especially versus key rival Wesfarmers Ltd (ASX: WES) – and a big dividend yield. In the process, I ignored one of my key stock-picking criteria.
What's Woolies worth?
Prior to their 2015 financial results, my fair value estimate of Woolworths' shares was around $28.65. A 30% discount to that price would've been around $22 – well below the price I actually paid.
Was my analysis wrong? Maybe.
Was my execution wrong? Very.
Is Woolworths a sell?
However, I'm not rushing out to sell my Woolworths shares just yet.
Yes, it's facing pressure from Coles and Aldi, but it's still Australia's largest and most profitable supermarket.
Profit margins might narrow, sure, but the 30% fall in Woolies over the past year has arguably already priced in much of the profit squeeze.
The appointment of – or lack thereof – a new CEO is, however, one important question that remains unanswered for shareholders. But only time will tell if the investors currently eyeing off Woolworths' shares got it wrong.
Therefore, I'm not prepared to sell my Woolworths shares just yet.
