Detta inlägg är ett utdrag ur Halvårsbrevet jag skickade till Pandiums andelsägare 5 februari 2017.
A turnaround is a company in distress or where the value of it is declining. If done correctly, investments in turnaround situations can be very profitable. It also carries significant risk since the company might not actually turn around. Another thing that often happens is that it takes much longer than anticipated which leads to high opportunity cost.
I recently spent some time reviewing my exited investments. I did not focus on my performance but on how well my initial thesis had played out and how the companies performed after my exit. What struck me was how poorly the different turnaround cases developed. Although I have not lost money in the category that seems to be more the result of luck than a good process. I have therefore decided to not do more turnarounds. I will instead wait until the company has shown solid improving results thereby decreasing the downside risk (but also the upside potential).
Another category which stood out was retail. I have always been aware of how tough it is to run a retail business and it is obvious that e-commerce is making life even tougher for the traditional retailers. It is very difficult to predict who will be able to adapt to the new world and who will go under. My life will be easier if I stop trying. Should I ever mention retail and turnaround in the same sentence again, run for the hills.
Consequently, I have exited Ralph Lauren (10% return) which are not yet at the stage where I would like to invest, given my new criteria. Ralph Lauren is my shortest investment ever – it is even questionable if you can call it an investment.