Let's talk about pain - the kind of agony you don't get over: the pain of getting things wrong in the stock market. Yesterday I bumped into a subscriber, they asked me about the stock of Disney (DIS). This one hit me hard, the stock has plummetted from where we initially bought it, and from where we told subscribers to keep buying too. The WIC portfolio is a "bagholder" in Disney, down ~8% in this position, but it pains me to see that subscribers are also "holding the bag" too. Disney had a great 2020, when the stock was rewarded with a multiple expansion on the back of their strong Disney+ subscription profile; however, Disney+ subscription is what is holding Disney back this year, down 14% ytd, but worse, down 22% from the 52-week high in March 2021.

So what do I do in this situation? A part of me wants to tell the subscriber "it'll be fine, stay the course." Part of me wants to scream "it's so unfair, Disney is more than just Disney+, when will the market start to price in the pandemic recovery across the world?" Another part of me wants to say "enough is enough, let me out of this house of pain."

Just when the thoughts crossed my mind, I recall that earlier in the morning, I had seen the stock price of Applied Materials (AMAT), being near $160/share. What does Applied Materials have to do with Disney? We used to own AMAT at $126/share not too long ago, but we had sold it too early (at ~135$). The stock is now up another 15% from where we bailed on it. We didn't even make it to our price target of $160/share, which turned out to be correct, because we were not patient enough to wait for what we believed to be true to play out. We never made it to profit-land because we didn't want to handle the pain. 

So what I told the subscriber is that "Sometimes you just have to take the pain. You would never get to profit-land if you don't experience the current pain of Disney-land. If you sell Disney here, you will be kicking yourself in the future. When? I don't know when. I can't tell. I couldn't tell when the WIC portfolio foolishly sold AMAT because what we believed in hadn't happened quick enough."

So why have such strong conviction on Disney? 

Disney is way overly-hated right now. When there is an iconic franchise like Disney, and the stock is 50 points (~25%) below where it has been, this is definitely not the time to sell, but we'd even endorse some buying here (we bought in the $145, so we're going to sit on our hands at the moment).

On the streaming front, Loop Capital in late November reduced their price target to $190 (from $205) citing a greater than expected planned increase in content spend to support the buildout of Disney+, which then hurts segment profitability. However, there is a dilemma here. Disney is being dinged for having slowed growth in Disney+. Now the company says they want to invest a lot of money to seek growth in this segment. What should investors do? I think we're in the situation where the slow growth has been priced in, so a lot of upside can be had here if management can turn this around. Ultimately, we think it is the right move to support long-term growth and as a long-term investors believe that near-term weakness resulting from growth-oriented investments represent buying opportunities.

On the experiential side, we believe much of the reopening worries have been priced in at current levels. One of our investing pillars for 2021-2022 is to target companies that have pricing power and proven to be in high demand as capacity restrictions are reduced, two factors we believe Disney have.

The bottom line, we believe in our investment thesis in Disney. Once we start out with such strong basis, the price falling from our purchase either represents a buying opportunity, or is simply a test of how strong a conviction do you have for your stocks. You have to take the pain when you know you have a strong thesis!