Initial thought of CFR as compounder

I bought Compagnie Financiere Richemont SA (CFR) at CHF52.85 on 19 January 2012. On 25 October 2017, I successfully sold at CHF90. Accounting for dividend collected and sell transaction cost, our absolute return is 78.3%.

About CFR

Generally, it specializes in manufacturing and selling luxury watches under many well-known brands as well as some fashion and jewelry. The brands, that are well-known to our minds, are Cartier, Officine Panerai, IWC Schaffhausen, and Montblanc.

Rational of Investing in CFR Stock

I first know CFR during my conversation with the conversation with a European lady online. From there, I took time to study CFR quantitatively. I found that it is quantitatively and qualitatively sound in financial aspect. I always knew that well-known brands can give you satisfactory gross profit margin. Moreover, it was somewhat undervalued in 2012 on my view. Putting all these together, it seems I should buy it.

Happenings During the Holding Period

Then-CEO, Johnny Rupert announced that he would step down in 2013. Richard Lepeu and Bernard Fornas both would be co-CEOs, taking over Rupert’s role. Rupert remains the chairman of CFR as he is a major shareholder.

Xi Jinping started to crack down corruption and want to brand his government as frugal one in China. It indirectly affects CFR as rich Chinese cannot bribe openly via gift giving route and officials cannot buy luxury products openly. Although this did affect our stock price, the top management and brand stickiness prevails.

In 2014, CFR exchange its holding of online fashion retailer, Net-A-Porter, for 50% stake of Yoox who will take Net-A-Porter. This affirms CFR’s preference that it would prefer to invest in struggling lines rather than getting rid of them. The deal seems reasonable with win-win for both sides.

By 2015, CFR informed the public that it was not doing well on financial aspect, owing to difficult demand environment for luxury products. Because of that, other luxury brand companies were also affected.

In early 2016, Bernard Fornas retired. Therefore, there is only one CEO in running the company. In 2017, Richard Lepeu also step down from CEO. This means there is no CEO running the company!

CFR’s stock price recover starting from middle of 2016.

Rationale of Selling CFR

Currently CFR is not that bad stock to hold forever. The longer I held it, it seems to be more like dividend aristocrat rather than compounder in my view. Therefore, I choose to sell it so that I can raise cash for upcoming compounder purchase, if any. At the moment, capital gain has the priority over dividend collection/yield. At my age and current net worth, my preference is more towards compounder choice to dividend aristocrat choice.