Buying More Sotheby’s

Sotheby’s (BID) stock dropped almost 12% today just on the heals of a $198 million auction for Damien Hirst’s art earlier this week. This was a record sale for an auction by a single artist according to Sotheby’s. The auction total was much higher than any of the expectations I saw published.

So what’s with the steep stock price decline today? Mr. Market is simply freaking out. Fear, panic and forced selling appears to be irrationally hammering the stock of this world class wide moat company. The bankruptcy of Lehman Brothers (LEH) and the government bailout of AIG (AIG) this week have caused world financial markets to go into panic mode.

Back in May, I first added Sotheby’s to the Fat Pitch Financials Portfolio at $24.55. Back then I wrote, “If I’m a bit too early, I still have sufficient cash reserves to buy additional shares at an even lower price.” Today I decided to take advantage of that option by putting my cash to work. I doubled down on my position, picking up shares at just $20.75 a piece. I just can’t believe that I can pick up shares of this profitable wide moat company at a P/E of just above 8. Somebody pinch me, I must be dreaming.

Yes, there is the danger that the turmoil in the financial markets will impact the very wealth and potentially reduce demand for fine art. However, the financial market declines might also drive more art collectors and investors to sell their peices in order to raise cash. More transactions equals more commissions for Sotheby’s.

Now that fear is really starting to take hold, I’m greedily eyeballing several high quality stocks. Thankfully, the Fat Pitch Financials Port is still 21% in cash. I might add new positions soon and I will likely double down on a few more of my current favorites.

Disclosure: I own shares of Sotheby’s.

7 thoughts on “Buying More Sotheby’s

  • September 18, 2008 at 3:48 pm
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    Looks like FDO ended the day nicely up. The discount retailer is probably a good choice for this economy, but I prefer companies with sustainable competitive advantages. It doesn’t appear Family Dollar Stores has that. STT on the other hand may have a so called wide moat, but I’m not sure I could value that one.

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  • September 20, 2008 at 12:00 pm
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    George,

    The problem with picking good stocks is that the better a company fundamentals are doing, the more exposed shareholders are to stock fluctuations as more and more invetors tend to follow the stock. STT always appears overpriced for that reason ( except for the decline on thursday).

    As for FDO, I guess we have different characteristics of value. FDO’s stores are mostly situated in urban areas, and they are pretty much neighbourhood stores which are accessible to people. True there’s a WMT store in most rural areas as well, but yet people keep going to dollar stores for purchases ( even though prices in discount stores are higher than WMT). And once you have one dollar store in a neighbourhood, it will be difficult for another thrift store to open.
    Last but not least FDO has increased its dividends for over 32 years, which is something that every company should strive to do for its shareholders.

    From a value perspective, DUCK could be an interesting play, since its current cap of 57 million is less than the Current Assets – Current Liabilities. In essence you are getting the stores for free. I might need to research that company.

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