Managing your emotions is as important, if not more important, than managing your holdings. Late in the afternoon on Friday, October 31st, 2014, I sat and reconciled the year to date returns on the Pawleys Funds. I tried to work quickly so I could make it to a Halloween party on time. The Pawleys Growth Fund, through October, had posted a gross total return gain of +13.65%, versus +10.87% on the S&P 500. That made me happy to have good numbers for my investors. On the plus side, I had doubles for the year in Green Mountain Coffee Roasters and Questcor Pharmaceuticals, the latter of which had been bought out earlier in the year. On the negative side, Whole Foods Market and Mitcham Industries had lost -31% and -42% respectively – nothing to write home about.
As I scanned the range of returns for the portfolio holdings, one stood out to me: Sapient Corp, a digital marketing firm based in Boston, which sat at exactly 0% for the year. The fundamentals of the company continued to look good, but how could a nimble player in a hot space deliver a goose-egg return during a decent year in the market? Feeling impatient, I had thought for several weeks now that there might be a better opportunity to replace this stock. I turned off the computer, trundled off to my Halloween party, and tried to forget about it over the weekend. Late Sunday night, my e-mail lit up with news alerts on Sapient – there was a rumored buy-out pending. Monday morning, it was officially announced that Publicis Groupe would buy the company at $25/share, which turned my goose-egg into a +44% gain for the position overnight. For the full year of 2014, the Pawleys Growth Fund trounced the S&P by +5.65%, helped in part by the nice gain on Sapient. Thank goodness I had held the position.
In the 1990’s, I spent several years in management roles within financial services. I loved the challenge of motivating and inspiring others to do well. I remember vividly in one training class being taught that the most important aspect of managing others rested on how well you could manage yourself and your emotions. Now I see how the same holds true as a manager of assets. Self-managing my impatience around Sapient directly resulted in good gains for my investors last year.
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