Every once in a while luck turns out to be better than wisdom in investing. My most recent example of dumb luck in investing was Canadian Pacific Railway, an stock position It took back in June 2011. My decision to buy the stock primarily based on the thesis that oil prices would be ramping up as the Chinese and other emerging markets started demanding more oil. The assumption was that as energy prices go up, more goods would be shipped by train than by truck.
My thesis turned out to be wrong, there was no oil shock, and the discovery of additional oil fields and fracking let to an increase in domestic oil production. As luck would have it, the domestic oil production increase was in North Dakota – in Canadian Pacific’s backyard, leading to a large increase in oil by rail for Canadian Pacific. The other piece of luck was an activist investor group tried to grab control of the company, leading to a big proxy fight and led to a runup in the stock (Interestingly, that also led to the only time I have ever been called at home asking for my vote in a proxy vote for a stock – I don’t even know how they got my phone number).
To be fair to myself, the other reason I bought Canadian Pacific was the yield was over 2% at the time, and the dividend appeared safe, so it was a conservative bet.
Last month I sold out of my position because I didn’t really know why I still owned it, except for the reason was it keeps going up. The valuation wasn’t great, and the dividend yield is now down under 1%. So I decided it was time to get out. I could be wrong, but I can’t depend only on luck when investing in the stock market.