Food for Thought
That is, of course, if your thesis is correct. It is a thrill to go against the wisdom of the crowd, identify positive attributes that few others see, and ultimately be right. But the search for value does not always work out the way you hope it will.
There are times when you identify what you believe to be a compelling opportunity, do the research, get comfortable with the story (warts and all), take the position, wait for it to play out and ultimately throw in the towel.
Not every idea will come to fruition, and value investors tend to be very patient. Sometimes that patience pays off handsomely and sometimes it does not. Ultimately, the sell decision can be even more difficult than the buy decision. Falling in love with your stocks can certainly exacerbate the reluctance to close a position.
I recently reached the end of my rope with Wendy's(WEN) , a name that I'd owned the past three years. While this position was profitable, it was just marginally so, and I should have been out earlier.
What was a compelling story in 2009, the then-number 3 fast-food chain in the U.S. merging with Arby's, a deal led by the legendary Nelson Peltz, has not unfolded as I'd expected.
Arby's turned out to be a disaster and was badly hit during the recession. Same-store sales fell off of a cliff, and it became clear that the roast beef sandwich chain was an anchor around Wendy's neck. The company ultimately sold the chain last year for $430 million (retaining an 18.5% stake as part of the deal), and it seemed like a new beginning.
But overall performance since then has been marginal at best, and Wendy's has not been delivering the earnings numbers necessary to drive the stock higher. New lines of burgers and salads have not done the trick either; nor has the effort to reintroduce breakfast, at least at this writing.
I held on longer than I should have for a few reasons.
First, due to the leadership of the original merger architect and current chairman of the board Nelson Peltz, whose firm Trian Fund Management owns more than 21% of the company. I've owned other companies that Peltz has been associated with, and found him to be a brilliant activist investor.