Who? Norman Levine, managing director Portfolio Management Corp.
My Best Investment: My best professional investment was a case of not losing money, rather than making it.
It was actually a sale. It's a lot harder to sell than to buy. So when you make a really good sale, it's something you remember. The stock was Philip Morris, which is now Altria Group. And this was done in April, 1993. This was in a previous life when I was a partner in a company called Barclays McConnell.
We had just purchased shares in Phillip Morris for our clients. We bought it because tobacco companies are good, stable businesses with huge cash flows – and their customers are addicted to their products. There is no better business than tobacco. In general, sin stocks are great long-term investments.
The Return We bought the stock in late March of 1993 at about $61 (U.S.). And on March 31, Roy Burry, who was the tobacco analyst at a now-defunct brokerage called Kidder Peabody, came into our office.
He told us not to be so excited about tobacco right then, even though in the long run, things were good. Philip Morris had been losing market share in its main brands – such as Marlboro, which was its biggest brand and still is – to generic competition.
He thought they were going to do something drastic to regain their market share and knock those generics down. And he said we should sell the stock.
We said, “But we just bought it last week.”
He said, “Doesn't matter.”
And so, on the next day, April 1, we sold our Philip Morris stock . Less than a week after we bought it, we sold it. And we sold it around $64 dollars – we made a couple dollars a share.
The next day is a famous day called Marlboro Friday. On Marlboro Friday, which was Friday, April 2, Philip Morris announced they were cutting the price of Marlboro cigarettes 20 per cent or about 40 cents a pack to fight back against generic competitors. This was going to be a $2.3-billion hit to earnings.
The stock closed that day at $49.38. The stock was down about 26 per cent on the day, and took down all kinds of other consumer product stocks with it – but I didn't care about those.
That was probably the best sale of a stock I've ever done.
It takes guts to sell something you've just bought, and you're convinced it's a long-term story, and it's going to be great. But the analyst had a compelling story; it was believable – he didn't have inside information, he was just looking at industry trends, and talking to people – and we went out and sold the stock. And it was a great sale.
The Takeaway: The bottom line is: Don't be afraid to admit you're wrong – especially just after you've bought something.
Sometimes you buy things and you're dead wrong buying them, and you have to admit quickly that you're wrong. And it's a very difficult thing to do. But if you don't admit you're wrong, what you end up doing is holding on to a loser – and that's a mistake.
A good – a very good – professional investor is right 60 per cent of the time. Which means a very good investor is wrong 40 per cent of the time.
You have to live up to and admit your mistakes. People tend to sell their winners too quickly, and hold their losers forever, because they don't want to admit they're wrong. But they're only fooling themselves.
Nobody knows except them, maybe their broker, and their accountant. Nobody knows. So there's nothing to be ashamed of if you're wrong.