4. Novo Nordisk A/S (NYSE:NVO)
Number of Hedge Fund Holders: 43
Novo Nordisk A/S (NYSE:NVO) had 43 hedge funds long its stock in the second quarter, with a total stake value of $778.9 million.
Novo Nordisk A/S (NYSE:NVO) is a pharmaceutical company operating through its Diabetes and Obesity Care and Rare Disease segments. It produces two leading obesity treatments, Wegovy and Saxenda, which are hormonal treatments that regulate appetite.
Here’s what Rowan Street Capital said about Novo Nordisk A/S (NYSE:NVO) in its first-half 2023 investor letter:
“Our current portfolio is made up of just 10 companies — we are very focused! We described our ‘10-Player All-Star Team’ philosophy in our Q1 2018 Letter (we encourage you to review it). We have been building this portfolio since our founding in 2015. In total, over the past 8 years, we bought stock in 47 different companies (that’s ~6 per year), and obviously, for anyone who is good at arithmetic, we sold 37 of them (~4.6 per year). We are constantly trying to learn from every decision (good or bad) that we make. We went through every position that we’ve sold since 2015 and analyzed how we would have done had we held on to those positions. The top 3 performing positions would have been: Chipotle (CMG) +630%, Tractor Supply (TSCO) +315% and Novo Nordisk A/S (NYSE:NVO) +387%. Your managers are at fault here because we sold all of these (in 2017-18) for non-fundamental reasons. All of these continued to be great businesses and management has executed at very high levels. In all three cases, we made a decision to sell because we thought the stock price got way ahead of itself.
Our main take-away lesson has to be Do NOT sell your winners and avoid adding more to your losers. Or as Peter Lynch once famously put it: “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”
We were fortunate to purchase CMG, TSCO and NVO at very attractive prices when these companies hit a temporary speed bump in their business. These were businesses that were simple to understand and we knew them very well as we had a chance to study them thoroughly for some time prior to our purchase. However, when you choose to sell you get the cash proceeds. First, you have to pay the capital gains tax and then you have to make another ‘buy decision’ or, in a lot of cases, a number of them. The more decisions you make, the higher probability that you will make mistakes. More often than not, you end up buying a business that you know less well and end up partnering with the management team, whose character, management and capital allocation abilities may still be somewhat moot to you. These things take time to get comfortable with! As we have learned many times over throughout our investing careers, it is usually significantly more profitable and also more enjoyable to stay with the great business that you know very well and have a high confidence level in their management team. And this is exactly what happened with CMG, TSCO and NVO. It was a costly mistake for our investors and it’s an extremely valuable lesson that we have learned.”
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