Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.

Unconventional wisdom: Should I sell this underperforming ASX share?

“Beauty in things exists merely in the mind which contemplates them.”

- David Hume

Two years ago I bought a new share for my portfolio. Not exactly a momentous occasion. But I also wrote an article about my purchase which I titled My latest investment checks all my boxes.

The share I purchased was CSL (ASX: CSL). In a cringe worthy attempt at adding some literary flourish I described the company as a cross between a vampire and an alchemist. Over the last two years not much gold has been garnered from CSL’s blood banks.

The shares have returned 0.10% since the 1st of August 2025. For reference the Vanguard Australian Shares ETF (ASX: VAS) has a return of 18.64% over the same period. Given this disappointing run I thought it was worth revisiting my thesis to see if the shares still deserve a place in my portfolio.

The CSL story

CSL was established by the Australian government in World War I to make vaccines to assist with the war effort. It wasn’t until the 1990s that the company went public. Shareholders who got in early have done very well. CSL is up 5,391% since 1999.

Things haven’t been so great this decade. The shares peaked in January 2020 at ~$312. They have bounced around since but as of 7 August they are 16% below the peak.

Too many investors make decisions based on price movements. But price movements are meaningless without context. To add some some perspective I am first going to explore the drivers of returns for CSL during this challenging period.

Between fiscal 2020 and fiscal 2024 earnings grew 24.85% in total. Given continued earnings growth the decline can therefore be attributed to investors paying less for those earnings. The average annual price to earnings ratio in fiscal 2020 was 40.8. In fiscal 2024 it was 32.5.

Sometimes valuation levels get lower across the board. But that is not the case here. The overall market is up and valuation levels in Australia have climbed during this period. It is not a market problem. It is a CSL problem.

When valuation levels come down it means investors are less confident about the future. And there has been a laundry list of headwinds that CSL has faced.

During the pandemic CSL struggled to collect plasma which lowered profit margins. Then there was the acquisition of Vifor Pharma in 2022 which almost immediately ran into trouble. Hanging over all of this are persistent worries that the new weight loss drugs will impact demand for CSL’s chronic disease treatments.

Given this context the performance of the shares is more understandable. For a large company like CSL to trade at more than 40 times earnings investors need to be very optimistic about the future. Less optimism means a lower valuation.

It is always valuable to spend some time understanding the context of how a share performed in the past. But what really matters is what happens in the future.

Beauty is in the eye of the beholder

People like to talk in absolutes. In this world view there are good shares to own and there are bad shares to own. This is nonsense. The attractiveness of any investment opportunity is based on how it fits into your investment strategy. Your strategy is your plan to achieve your unique set of goals.

Not having a strategy means you are aimlessly flailing about as you chase the hot investment of the day. Most investors end up being late to the party for each of these ‘can’t miss’ investments. The cherry on top is that investors end up paying more taxes and transaction costs as they trade away their future.

My goal is to generate passive income and grow that income at a rate that meaningfully exceeds inflation. To do that I’m looking to buy non-cyclical companies with moats that have lower levels of business risk. That is a fancy way of saying that I’m looking for boring businesses. These are all the boxes that CSL checked when I originally bought the shares.

I thought two years ago was a compelling time to buy CSL. The shares had fallen from their peak in 2020 and while the dividend yield wasn’t high I thought it was at a level that made sense for me when factoring in the growth potential. On that front CSL has performed well. The dividend at purchase was $3.38 and today it is more than 25% higher at $4.25.

If that dividend growth keeps up CSL will be a great pick for me. That all depends on how the business performs in the future.

Growth opportunities for CSL

CSL has three primary business lines. There is CSL Behring which uses plasma to create treatments for conditions like haemophilia and immune deficiencies. There is CSL Seqirus which makes vaccines and CSL Vifor which creates treatments for conditions like iron deficiency.

CSL Behring is the business line that matters most as it generates about 70% of overall sales. It was margin contraction in CSL Behring during the pandemic that initially derailed the share price. Given the difficulty and increased expense of collecting plasma during lock-downs this was understandable.

However, the margin recovery has not been as rapid as some investors have hoped. In fiscal year 2024 the gross margin was still under 50% at CSL Behring. This compares to 57% pre-pandemic.

This is one area where our analyst Shane Ponraj sees continued improvement as he expects CSL Behring margins to improve and the overall operating margin at CSL to increase from 28% in fiscal 2024 to 32% in 2029.

The other area of growth Shane sees is in the immunoglobulin market. An immunoglobulin is a fancy way of saying antibodies. These treatments are key for CSL. Shane believes that CSL will benefit from both the overall growth of the market and increased market share.

The growth potential in CSL’s other business units don’t look so great. But overall Shane is forecasting revenue to grow at 8% annually for the next five years. Adding in the kicker of higher margins he forecasts 12% annual earnings growth.

If the dividend growth keeps up with the projected earnings growth I will achieve my goal of growing my passive income at a rate that meaningfully exceeds inflation. If the valuation levels stay steady that will mean the share price will do great.

Is CSL a riskier business than when I bought the shares?

This seems like a no-brainer to keep holding these shares and buy some more. The one problem is that the future is unpredictable. I mentioned earlier that I like shares with low levels of business risk. That means there are fewer factors that influence how a company will do in the future.

This means that most of the time the upside and the downside are capped. I’m fine with this trade-off because of my goal of generating a growing stream of income. This makes predictability a good thing. An investor trying to shoot the lights out probably wouldn’t want this trade-off. In that case the goal would be to find companies that might surprise to the upside. Just another example of how and why goals matter.

I previously mentioned some of the risks that have caused investors to bring down the valuation levels for CSL. The primary one for the future is other treatments being more effective than those offered by CSL. Is this a risk? Of course. All businesses have risks and face competition and CSL is no different.

To be successful in the future CSL will have to continue to excel at research and development. CSL has a long track record of success but there is always a risk this won’t continue. If I’m not willing to take on this risk I shouldn’t be investing.

A new risk is Trump and his tariffs. Pharmaceuticals are still exempt from US tariffs but Trump has threatened to apply a 200% tariff from 2027. It is hard to predict what Trump is going to do. CSL would be impacted by this threatened tariff but they do have manufacturing in the US and likely would be able to shift their supply change. This isn’t ideal but I don’t think this fundamentally changes the risk profile of the company.

Final thoughts

In an ideal world every share I buy will immediately skyrocket. Especially those I write about. That just isn’t realistic. But after two years I’ve broken even on the shares and gotten a 25% increase in the dividend. Things could be worse.

I consider two years to be a short holding period. If I was to respond to price movements over the short-term I would fall into the speculator camp. To be an investor requires patience. The point of this exercise was to go beyond price movements to evaluate an investment.

CSL still checks all the same boxes as when I bought it. The company hasn’t had a great run but nothing has fundamentally changed with my original thesis. I still think CSL has a good runway for growth. I think that will translate into high dividend growth. I think eventually the share price will respond.

Shane believes that CSL is undervalued and it is trading at an 18% discount to his fair value. I think it is a compelling time to buy the shares based on my goals and investment strategy and I added to my position a few months ago.

That doesn’t mean CSL is right for you. Use your goals to design an investment strategy to achieve them. Assess investment opportunities against your strategy. Throw in some patience and you’ve set yourself up for success.

Comments? Email me at mark.lamonica1@morningstar.com

I have a favour to ask

The book Shani and I wrote is currently in presale which is an important time to show our publisher and book retailers there is interest. If anyone would like to support this project you can buy the book now. Thanks in advance!

Our book Invest Your Way will be released by Wiley on October 9th in Australia.

Invest Your Way is a personal finance book that combines foundational investing theory, real-world application and our own experiences. It is designed to help readers create a financial plan and investing strategy that is tailored to their unique goals and circumstances.

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What i’ve been eating

I am a BBQ snob. And I’m going to say some snobby things about BBQ. I was recently in California. California is not North Carolina, South Carolina, Kansas City, Tennessee or Texas. Those are acceptable places to get BBQ. But I live in Australia. And while I love almost everything about Australia one of the shortcomings of this amazing country is BBQ. So when I found myself in Sonoma I went to get BBQ at Butcherman and ordered a brisket sandwich and some mac & cheese. It wasn’t half bad. Although you may notice in the photo the brisket was artfully arranged in the sandwich. BBQ should not be artfully arranged - even in California. Another cross to bear.

BBQ