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Stamina and Temperament

 

Donald Trump told the world that Hillary Clinton doesn’t have the stamina to be President. Hillary fired back that Trump doesn’t have the temperament to be President. Soon enough, we will get to see if Trump has enough of both to be successful.

I also believe that stamina and the right temperament are key to being a successful investor.

In April of 2015, we started buying the TMX Group for clients at approximately $55 a share. Our thesis was as follows: TMX was a monopoly business, generating significant free cash flow, which was undergoing a transformation under a new leader and, most important of all, it was trading at a reasonable valuation. Within months, the bottom fell out of the stock. As oil prices tumbled, Canada fell into a recession and the Toronto stock market buckled under the pressure. The TMX Group, which relies on a strong Toronto stock market, bared the brunt. The stock dropped to almost $30 a share by year-end.

An investor with the wrong temperament would have sold the stock as soon as it started falling. An investor without any stamina would have given in to the market’s assessment of TMX’s stock. On the contrary, we bought more shares as the TMX stock fell. We believed in our thesis. We know that recessions don’t last forever and that the TMX would do well when things turn around.

And turn they did. TMX Group’s stock is now trading at approximately $65 a share. It also recently raised its dividend. Analysts who had price targets on the stock in the $40 range are now touting the stock to go to $70 a share.

It’s an easy decision to sell a stock and cash out when the going gets rough. But the easy decision isn’t always the right one. At Baskin Wealth Management, we have the stamina and the temperament to stay the course. Generally speaking, we believe the hard decisions are the right ones.

 

Barry Schwartz

November 18, 2016

Disclosure: The author and clients of Baskin Wealth Management own shares in TMX Group Limited

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