Hang on to Your Fork

reminiscences of a stock operator pdf

By Christine Song of http://csongbird.com/

It’s earnings season once again which means public companies are reporting their financials for the quarter ending Dec. 31st. And in my small cap corner of the investing world, one thing I’m seeing a lot of is companies that are either on a spending spree buying other companies or they’re selling off their non core businesses – really, two sides of the same coin. Now if you’re fortunate to own a company doing one or the other, and the market likes the move, then you’ve been rewarded with a nice pop in the stock price. So you’re probably wondering, is it time to sell?

knowing when to sell is the other side of the knowing when to buy coin. Your job is to make sense of all the information out there to figure out which side of the coin you should be on. And here’s the secret – if you did your homework figuring out whether to buy, just repeat these steps to figure out if it’s time to sell.

Is the price right? what’s the valuation looking like relative to itself, its peers, the market. Is it still a high quality company? are the fundamentals like earnings power and quality, cash flow, competitive position, debt levels, ROE, etc., still intact (if not getting better). what’s the quality of management? Is it the same CEO running the show or have there been major changes in management. Remember – being a successful investor is either buying an undiscovered gem or buying when the stock price is temporarily mispriced for identifiable reasons.

During earnings season, you get to hear from the people running the business talking about the business – scripted and unscripted. I live for the unscripted moments because they provide insight that financial numbers can’t convey. For all the public to hear, company management will often tell you where the business is heading. of course you need to trust then verify with your own analysis. I try to look for disconfirming evidence but it’s a delicate balance – if you’re always listening for lies, you may miss the truth when it’s talking straight at you.

On a recent earnings call, i heard the company CEO say something that was music to my investor ears (the stock went up almost 20% that day) – he told us to ”hang on to our forks.” Commenting on the future of the company, the CEO said as a kid growing up, after dinner whenever his mom would say “hang on to your fork”, he knew something good was around the corner. So folks, if you found a high quality company to invest in with still upside to your price target, there may be a short term lull between dinner and dessert – but hang on to your fork.

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