I bought them because at the time they were trading at about 10 times earnings and had a dividend yield of over 4%. I paid $48 and change a share and then turned around, it would appear, and sold to them to greatest value investor of my generation, Eddie Lampert, in December for $54 a share and a 12.5% gain in roughly three months. So why am I upset?
I am upset because I seem to have had this almost pathological inability to listen to myself prior to this blog. Had I not sold, my gain on the stock currently would have been 14.5%, plus the 2% in dividend checks I would have received for a total return of 16.5%. The pain here is felt even more when you consider after taxes my original gain is reduced to 8.25%!!
So why did I sell them? I like businesses I can easily understand whether it be selling paint, cigarettes, insulation, clothes etc. Citi is massive and about as complex an international operation as there is out there. While it was (and apparently still is) "cheap," "cheap and "value" are not the same thing. There are plenty of "cheap" stocks out there that are so because the underlying business just sucks, period.
Here is where I went wrong. Citi has a great underlying business, it is just poorly run. That makes its cheap price a value once CEO Prince either gets his act together or is shown the door. Citi also would have paid me over 4% a year in a dividend to wait for either of these eventualities. Not a bad deal in retrospect. Fundamentally, I saw this which is why I bought shares to begin with. I just was not convinced so I took the quick money.
Don't get me wrong, 8% after taxes in three months is nice, but making small mistakes can eventually lead to larger ones. In an interview I gave with Geoff Gannon, I said my biggest mistake as an investor has not been picking losers, but not being confident enough in my reasoning and leaving too much money on the table. Read it here. In other words, making very good, instead of great, returns.
Blogging seems to have cured that as my format and interaction with readers does force me to constantly evaluate and explain my reasoning and methodology. It has lead to a more intimate understanding of my picks and pans and has to date cured the "doubting Todd" side of me.
I know what you are saying: "Citi only trades at $55 a share now, the difference is only $1 from your sales price." True, but my total return is 1/2 of what it could have been. Funny how things like that work, huh?
So, what to do now? Lick my wounds and go back at it. What else is there? Life is about living and learning, and if you stop doing either you can't do the other. There was a great quote I heard once and if anyone knows who said it, let me know so I can credit them: "there is no shame in making mistakes, just not learning from them."
P.S. Eddie, can I have my shares back?
C 1-yr chart: