I had a brief chat with @wheeliedealer the other day on Twitter. I was responding to a post of his, in which he shared a chart of one of my holdings, Advanced Medical Solutions (LSE: AMS):
— WheelieDealer (@wheeliedealer) April 12, 2018
Pete wanted to highlight the “Batman ears” formation on the chart, with the suggestion that perhaps we may see a decline in the share price soon. (As it happens, the price has fallen back a tad. Bravo, Pete). Now, as a holder you might assume I’d be disappointed to see the share price drop, however my first instinct was quite the opposite.
I commented to say two things. One, I think AMS is due a correction, and two, the price has gotten a little lofty. AMS hasn’t been cheap for a while, but at present it sits at around 38 times earnings:
So, it’s not cheap, but it is growing and deserves a decent valuation.
I bought AMS in June of 2016, for a price of £1.9345 per share, and in the 22 months since it has appreciated by approximately 62%. This has led to a current price of £3.155 a share. It’s been a very healthy run, compounding at around 30% annually since I bought. This is why I’m not too bothered if it falls back a bit. A 30% annual return is a remarkable feat, awarded to only a select few outstanding investments. Speaking of which…
Those of you who read my posts regularly may recognise the above chart (courtesy of Michael Batnick). It belongs to Netflix, which has compounded at over 35% a year since 2002. A staggering return, however the above chart shows all the drawdowns you’d have had to live through to enjoy those returns.
Is AMS destined for greatness, like Netflix? Probably not. Will it earn an adequate return over time? I certainly hope so. It’s a quality business that publishes reports that largely sail under the radar, but are consistently impressive, and more importantly, steady.
My point is, if you want to obtain big returns, you’ll likely have to have the patience and fortitude to sit through a number of corrections. Some of them could be huge. It’s important to remember during these times to focus on the business, its prospects, its opportunities, and its health. If you’re confident in these, the share price shouldn’t matter.
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AMS is a constituent of the portfolio.