While we highlight this situation largely for entertainment purposes, as we reflect on this funny coincidence, there are in fact some valuable investment lessons to be gleaned here.
(1) It’s okay to make a trade.
We place a lot of emphasis on long-term buy and hold investing, as we believe that should be the overwhelming emphasis for most individual investors. That being said, short-term opportunities may emerge. If you have an insight into a security that you believe is not appropriately priced in, it may make sense to act on that.
(2) If you are going to put on a trade, don’t be four months late.
When Rob bought TAP, the shares had not yet priced in the anticipated benefit of market shares gains at BUD’s expense. TAP was showing a little strength as BUD shares declined but had not even broken through its year to date highs. While it was hard at the time to quantify the potential upside that could result from market share gains, one was arguably not yet paying anything for it. The risk-reward was quite favorable.
By the time Justice Alito bought TAP, the proverbial cat was essentially out of the bag. TAP shares had already moved up significantly in anticipation of market share gains.
(3) Know when a trade is just a trade.
Some stocks you “marry,” while others you just choose to spend some time with. Not every stock is marriage material. While TAP is a decent company, the beer business is challenged by a number of factors, including declining popularity among younger demographics and rising competition from hard liquor and even cannabis.
TAP was an attractive trade in April 2023 because it stood to benefit from an underappreciated shift in consumer preferences that was not yet priced in. Once the upside became priced in, it was time to say goodbye.
(4) Don’t let political feelings or emotion dominate financial judgment.
To the extent Justice Alito was inspired to jump onto the TAP bandwagon to affirm a personal belief, it was an expensive act of self-expression. Whether investing with a short or long time horizon, one should be as dispassionate and unemotional as possible. Find outlets other than your portfolio to express your feelings.
(5) Social trends can change quickly.
In February 2024, Donald Trump came to the aid of BUD and suggested the company deserved a second chance. On April 30, TAP reported first quarter earnings and noted that April, the first anniversary of the Mulvaney effect, was shaping up to be a difficult month.
TAP had overestimated demand and had over-shipped units in the first quarter, creating an overstocking problem. Shares of TAP were down 6% following the earnings report.
As we write, TAP shares are lower than where they were when that April 12, 2023 New York Post article came out. In the end, managing the volatility in sales may have been more problematic for TAP than the uplift in sales was helpful.
