Woolworths Shares – How a “safe” portfolio stock cost investors almost a 40% loss on their investments and they probably don’t even know

Woolworths Shares - How a “safe” portfolio stock cost investors almost a 40% loss on their investments and they probably don’t even know

Trading Woolworths on the ASX

Imagine if you blindly held Woolworths shares…

Woolworths Shares – How a “safe” portfolio stock cost investors almost a 40% loss on their investments and they probably don’t even know: Health and wealth can sometimes be closely linked. In fact, there are many parallels between the two things most people wish for.

To be on the front foot, health wise, as we get older. Regular check ups ensure if there is a problem, it is found early and is able to be treated effectively. Burry your head in the sand, and think “it will go away” is proven to be a quicker way to the cemetery than you would probably want!

The same can be said of your investments…

Often, when working with clients that own shares. They have typically held them for many years. And intend to continue doing the same. Words like “Long Term Holding”, “Quality Stock”, “Blue Chip”, “Great Dividends” and “Safe Haven” tend to send a shiver down my spine, particularly in today’s ever changing market place.

If there is something sick in your portfolio, wouldn’t you want to know about it right now?

If you find out something is not right, you can fix it. Investing wise, that may mean reducing the holding or closing out. Protecting the position by buying Put Options, or generating cashflow or “repairing” the position by using calls. The point is, better to do something than nothing, right?

Woolworths – the investment catastrophe…

One stock held by many investors, is Woolworths. Historically, this has been a steady performer, pretty low risk and paying a nice healthy dividend to investors. What’s more the dividend is fully franking, providing great tax benefits for those holding the stock within their self managed super.

However, things change. Traditionally Woolworths has been a defensive investment. After all, it sells groceries, alcohol, tobacco and fuel, some of which, we buy week in and week out, irrespective of how the economy is going.

Woolworths is not that safe haven business any more…

Back in 2011, when the company opened its first Masters DIY mega-shop, it has set the course of the business into a far more aggressive space, outside its core. On the surface, there would seem to be space for another DIY player to compete with Wesfarmers owned Bunnings (note that Wesfarmers also owns Coles).

However, Bunnings as a business is very tough to rival and has years of head start. Just think of the marketing slogans for the respective businesses.

“Bunnings… Lowest Prices are Just the Beginning!” or in the case of Masters, “Masters Home Improvement”. I’m not sure what your marketing background is, but I am sure you can see the difference there!

While Masters have paid a premium to chase sites closer in town, most people that go to a DIY shop drive, so they can take home the large volume of purchases that seems happen pretty much every time you visit a Bunnings store! Net outcome, these sites are expensive and really offer no major benefit to a market that is already conditioned to drive to the store, and probably grab a sausage sizzle while there!

Bunnings is exceptionally well positioned. Simple, basic stores, low quality printed marketing, prices rounded to unusual numbers – $6.48 or $9.15 rather than the traditional $8.99, which psychologically resonates with its customers -it has driven prices down to the lowest or best value. Compare that the new, shiny Masters and the difference, real or perceived, is a stark contrast.

And the news just gets worse…

Many analysts are predicting it may take til 2019 before Masters turns in a profit for Woolworths. The question is will the Board, or what is left of it, be prepared to wait things out, or will the pain be too great and the decision to go down this path be reversed.

A question for you, if you own the stock, is are you prepared to wait to 2019, to possibly see a return on your investment?

History of poor decision making by the Board…

This is not the first time the Woolworths Board have got things very wrong, in recent years. The ill fated Dick Smith decisions – firstly to run down and then sell, reflects a systemic problem for Woolworths management, outside of its core business.

In 1982 Woolworths bought Dick Smith. They struggled with the business to find its niche, at least profitably, before selling out to private equity firm Anchorage, for just $20m in 2012. Anchorage turned the business around to make its maiden profit of $42.1m a year later, before selling out in a $344m IPO. Perhaps it was a good business and just needed to be better managed?

So if you are holding the stock…

Firstly, the performance of the shares has been miserable. Over the past 12 months, the share price has plunged from a high of $38.92 18 months ago to a current price of just $23.83, representing a 38.7% loss – far from ideal.

For those holding for dividend, this means that the return, on a percentage basis may remain the same, but in dollar terms, that could well translate into a 38% plus pay cut. Is that something that you really want, particularly in an environment where the cost of living continues to rise?

What about a better go forward plan?

Avoiding these kinds of “financial death sentence” is just as important as finding winning opportunities. We place just as much, if not more emphasis on risk management, as we do finding new investments.

What’s more, to help our clients navigate safely through these kinds of potential problems, we offer a Portfolio Overview Service. Getting an extra set of highly experienced eyes and ears to check out your portfolio is never a bad thing, particularly if it helps you avoid dusting 38% of your investment, as has been the case for Woolworths share holders.

For a limited time, we will be offering a complimentary Portfolio Overview Service with one of our licensed, professional advisors.


Recent Post

Trader of the Year 2023

Retiring without enough income is a terrifying prospect for most people. But would you be worried about retiring if your investment income was $518k for

Read More »

Ruchira Gulati

I am enjoying my learning journey with Andrew. He explaines each and every thing in detail in tutorials. Team at AIE is always very helpful

Read More »

Ben Hathaway

The best in the business! The education and ongoing support is second to none. Highly recommend AIE if you are an experienced trader or want

Read More »

Christine Hermans

Unlike other programs that leave you high and dry Australian Investment Education are open and approachable at all levels of management. Their service is second

Read More »