I’ve been holding Whole Foods for close to two years now and it’s one of my bigger losers.

In fact, it’s brooding at me with its ugly blood shot eyes, flashing -32%.

Not a position I want to be in.

However, one rule of thumb I learned early was not to throw in the towel too early for good companies.

By good, I’m referring to companies that has a proven record of delivering, has strong numbers relative to industry peers with a competitive advantage.

Give it at least 3 years to see how it works out because it takes time for systems, processes and new business strategies to propagate throughout the company and make its way onto the financial statements.

But I want to revisit and explore Whole Foods Market again.

First – Does Whole Foods Fit the Selling Criteria?

To reduce eliminate overreactions or emotional decisions with losing positions, I take it through a simple selling checklist.

Here’s a very high level version of when I sell

  • made a crucial mistake when analyzing a company. e.g. didn’t notice huge off balance sheet debt, lots of insider transactions or non-accountable board of directors
  • fundamentals are damaged
  • found a better opportunity that I need to buy with conviction
  • stock price is over my intrinsic value calculation and exceeds expected growth

    • The question is, does Whole Foods fit any of these 4 points? Two years in, it’s definitely not #3 or #4, so let me focus on #1 and #2.

    Question #1. Did I Make a Crucial Mistake (regarding competition)?

    Here are my two articles that I wrote about Whole Foods.

  • Whole Foods Market is a BMW. Stop Comparing it to a Kia.
  • What Whole Foods is Worth Today and What That Means for Shareholders

    • One year after I wrote the second article, I was up 50% at that point. My main mistake was not taking some money off the table.

    I’ve always been a bad seller. I tend to get lazy and complacent. It improved a lot in 2015, but I still made mistakes here and there.

    Getting back to the question.

    Whole Foods situation 1 year ago when I was up 50% vs today, down 30%, is largely the same.

    As I said, a company of this size doesn’t change overnight and the signs of competition was always there. So it’s not something I overlooked.

    The argument could be that I discounted the competition too much. That I overestimated the value of its brand and moat.

    Until last year, same store sales were doing quite well.

    Now?

    Same store sales are down as the average price per basked dropped slightly as a result of discounting and also changing up pricing for some items.

    Recent bad press related to overcharging New York residents and backlash to selling pre-peeled oranges is not helping.

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