New homes are constructed in Ottawa in August, 2023.Sean Kilpatrick/The Canadian Press
Have you ever sold a winner too soon? If so, you are not alone. Selling winners too soon is a common investment sin. I have been guilty of this and it has cost me. Leaving a few percentage points on the table is forgivable, but selling and then watching a former holding double or more is not. In response to this issue, we have attempted to adjust our approach.
Contra the Heard’s methodology historically stated we would sell half a position when it reached our initial sell target. When setting an initial sell target, we try to estimate what the stock will trade at, assuming it has a successful turnaround. Sometimes, however, a company recovers and transforms into a growth stock.
When this happens, selling less than half of the original position, upping the target on the remainder, and selling in multiple tranches makes sense. By making these adjustments, we are acknowledging that an enterprise has graduated to a new level. In addition to adjusting sell targets based on positive fundamental changes, it is important to let momentum run and re-evaluate if insiders start buying.
Our experience with Mississauga-based Bird Construction Inc. BDT-T exemplifies our potential fixes to the problem of selling winners too soon; plus, various missteps we have made along the way.
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True to our contrary philosophy, we bought Bird at $4.70 in March, 2020, during the height of the COVID-19 market meltdown. The investment thesis was straightforward and it looked strong enough to endure a recession. The security was beaten up, but the balance sheet was strong, dilution was not an issue, valuations were low, and the dividend appeared sustainable. Insiders were buying and owned nearly 5 per cent. The relatively new leadership team had a clear turnaround strategy, and their game plan appeared to be working: Margins were increasing, and poorly priced legacy projects were winding down.
In the years that followed, business prospects improved as infrastructure spending boomed, margins grew, and they started buying peers. Since 2020, Bird has purchased Stuart Olson for roughly $96.5-million, Dagmar Construction for $32-million, utility company Trinity for $7-million, NorCan Electric for $11-million, Jacob Bros Construction for $135-million, and Fraser River Pile & Dredge for $82-million.
This is a staggering amount of M&A, and it should be cause for concern given mergers often destroy value, cause dilution, and increase debt. Even if a deal is executed at a cheap price and does not damage the balance sheet, integrating a new work force and new customers can be difficult.
Bird has found a winning formula, however. Bird’s aggressive M&A strategy has expanded its backlog, sales, and margins, all while maintaining a strong balance sheet characterized by high working capital, minimal goodwill, and low debt. In other words, Bird was able to buy peers on the cheap and integrate them successfully.
When Bird was first purchased, the sell target was between $12 and $14. By 2024, it was clear the business was doing well, so our first sale, for roughly 49 per cent of the position, occurred above this level at $14.24 in January, 2024. This looked like a smart move, but it was not, and we were victims of anchoring bias – a cognitive bias where an individual relies too much on an initial piece of information (the “anchor”) when making decisions. The sale, which netted a 203-per-cent gain, felt like a triumph, but we were anchoring to our entry price rather than weighting the improved corporate fundamentals. This meant we reduced our exposure as the company was entering its growth phase.
After this initial sale, we sold in three more tranches during 2024 and ratcheted up the sell target. In February, another 21 per cent was sold at $17.14, then 15 per cent was jettisoned at $26.11 in June, and 7.5 per cent was unloaded at $31.63 in October. This left 7.5 per cent of the original position remaining as we exited 2024.
Then, in 2025, we made another mistake. After U.S. President Donald Trump announced his “Liberation Day” tariffs, markets sold off and Bird’s stock briefly fell below $20. As this occurred, insiders were buying. We should have bought back in, but it was hard to justify doing so having already sold twice at lower levels. Sometimes your greatest adversary is not the market – it is your memory.
Suffice to say, we just held our remaining 7.5-per-cent stake through 2025. Then, in March of this year, the stock climbed towards $40. We considered selling the remainder as our revised sell target was between $31 and $38. We did not pull the trigger for a few key reasons though.
First, the latest earnings were decent and the forecast was exceptional. Though the top and bottom lines were down, the 2026 outlook was excellent. The company has a record backlog of approximately $5.1-billion, compared with $3.7-billion last year. The margin profile is forecast to improve too.
Second, insiders started buying in March between $33 and $39.50. Sometimes the signals associated with insider buying are weak. If, for example, they are confined to one individual, they pertain to new insiders who own very little in the first place, they only involve stock-based compensation, or if the purchases are accompanied by insider selling.
In this case, most of the transactions represent stock-based compensation. Aside from this caveat, none of the other issues are present. According to INK Research, the insider transactions included the CEO, CFO, and a director. These individuals have been with Bird for a decade or more, and they already owned reasonable amounts of stock. From this angle, it looked like a bullish signal and we remembered the old saying: Do not sell to insiders.
Given these developments, the sell target has been adjusted to between $46 and $50. While the arguments for making this adjustment appear solid, the valuations look expensive, which means future success will depend on fulfilling the prospects touted by the executive team. There is also a risk that management grows overconfident, loosens their M&A criteria, and bites off more than they can chew.
As this article was going to print, the federal government announced the launch of Canada’s first Sovereign Wealth Fund. This fund will be focused on infrastructure, has an initial endowment of $25-billion seeded over three years, and will help the government with its nation-building projects. While this should boost companies like Bird and may justify yet another price-target increase, many details need to be worked out; it is early days, and sometimes these sorts of announcements can be classified as a “buy on the rumor, sell on the news” type situation.
So, there you have it, a work-in-progress example of how not to sell a winner too soon and heed the signals associated with positive fundamental changes, momentum, and insider buying. Though there is a significant amount of improvement to make from here, the experience with Bird – thus far – is a move in the right direction.
Philip MacKellar is a writer for Contra the Heard Investment Newsletter.