Patience vs Stubbornness: The Case of the NKE Turnaround

I was listening to the Nike (NKE) conference call about an hour ago, waiting for them to give their next quarter revenue guidance. When the CFO forecast a low to mid single digit decline and said that the revenue inflection point was taking longer than hoped for to materialize, I felt myself becoming irritable and frustrated. “Is it ever going to happen?” I wondered. “Is it time to bail?”

Those are reasonable questions with no right or wrong answer. Nobody knows with certainty what the future holds for NKE – or any other company. The important thing is your process. You want to be intentional rather than impulsive. An impulsive reaction would be to allow the irritability and frustration to cause me to sell without further consideration.

The key is mindfulness. What I’m looking to do is balance patience – because these things take time – without becoming stubborn – entrenched in my view and unreceptive to new information as the situation evolves.

One of the advantages of having done this for twenty years is the firsthand experience you can’t get any other way. You can learn a lot from books but ultimately it takes experience to learn how to apply abstract principles to concrete situations.

One experience in particular stands out for me. In 2017, Chipotle (CMG) stock was getting hammered as its business suffered due to an e coli breakout at one of its restaurants. Being a CMG fan and having the opportunity to buy the stock so cheap, this looked like the perfect turnaround situation to me. So I bought shares.

But the turnaround didn’t happen fast enough for me. I ended up selling in frustration after a quarter like the one NKE just reported. That was the bottom and after the next quarter it surged higher and never looked back. If I had been a little more patient, I might have had a ten bagger.

I suspect the same thing will happen with NKE. While it’s starting to test my patience, I’m not going to be impulsive this time. We all want our stocks to work immediately. However, sometimes the hardest but correct thing to do is nothing when the stock flounders as long as the thesis still holds.

I could be wrong about NKE. I can’t predict the future. But I’m willing to be patient for a little longer because I think the risk/reward here is quite good. Others might feel differently but that’s how it looks to me. Five years from now we’ll know if I was right or wrong. Either I’ll make money or I’ll learn more about the game.