An Australian fund which I invest in recently published their quarterly review. http://www.opis.com.au/downloads/quarterly_reviews/2008q1QIR.pdf

I found the following lessons learned by Dean Fergie, the fund manager, of interest. (highlighting added)

“The simple answer is that we will be far more proactive in selling investments over which there are question marks. Company contact and building a strong relationship with the management of companies in which we invest will remain a core investment tenet at OPIS. We believe that it is necessary to properly understand the functions of a business and its key drivers going forward. No doubt we will be misled in the future; this happens to all investors at some point or another. However we will not be willing to simply reduce our exposure and give management the “benefit of the doubt” when confronted with potential issues. Instead we will exit our positions fully and reinvest back into these stocks only when we are confident that the purported issue is a “non issue” or once it has been fully resolved.”

This statement reminds me of the Lynch adage that it is only what we own that can hurt us.

I prefer to exit a position if there is an unresolved issue with either the company or my evaluation. Money can always find a home somewhere else. I am sure this is not a new concept to many readers, but in these troubled times I was glad to have a mental refresher on this concept.

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