Tuesday, January 19, 2016

CDW Revisited

Almost one year ago I sold off my position in CDW for a very handsome 46% profit.

When I had bought CDW back in May of 2013 (don't think about the stock price), it was trading at a PE of 4.4 and it also had a nice 28% discount to it's NAV.

I sold CDW less than a year later because it's stock price had gone up and valuations become more expensive compared to what I thought the company was worth. PE had shot up to 9.4 and it was then at a 3% premium to it's NAV. Although I felt the company definitely could have more potential if you wanted to stay for the maximum reward, I felt that most of the gains in this stock has already been made by it's expansion in earnings multiple. I felt uneasy that the stock seemed to be skyrocketing for no reasons at all. I was actually pretty stressed about losing my unrealized gains that I had made. I decided to exit the stock and leave calling the top to other professionals.

After I sold it at $0.185, it proceeded to spite me by going to $0.20 before briefly simmering down and shooting up to $0.24 and peaking out there! From my cost price of $0.131, I would've stood to make about 80% if I had managed to stay in for the ride and release at the top. But of course, is it so easy to sell at the top? I don't think so.

Since then, the stock has been on a steady decline until where we are again today, almost 2 years later. In fact, although the share price is a fraction more than what I paid in the past, valuations are better. PE is now at 4.1 and the discount to NAV has increased to 33%.

Although that does seem quite tempting for me to dive back into the stock, I need to remind myself that if a shit storm is coming (which I strongly believe there will be one), would this stock be spared the bloodbath? I doubt so, especially since they are China-related due to their operations there.

Anyway the morale of the story is that regardless of winning or losing, you should be comfortable with your position and, of course, your sizing in the market. If you are losing sleep because of a certain position, that means your exposure is too much for your risk tolerance. The solution is simple. Increase your risk tolerance or reduce your exposure. Not only is it better for your portfolio by you constantly not tweaking it, it is also better for your quality of life.

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