This is in direct response to a comment made by one of our readers here
Thank you for your comment and I hope this does your engagement justice… right to it.
Sell enough shares to be at a level where you feel comfortable you won’t feel horrible if Viceroy is right.
Ofcourse that’s the “I feel your fear answer” and I hope many of our knowledgeable professionals will chip in and help us find true north.
There are about 5/6 questions in investing that have no defined answer and you just happened to ask one of them. And that explains why there aren’t many books on the topic, no one wants to put their neck out.
A more comprehensive answer and one that goes with our philosophy is to go back to your research.
We believe that a Share is not a red dot on a board, but rather a piece of business like any other. After you decide to buy, you are now an owner and someone must really drag you out of your business and here’s our reasons why:
1) Capitec has rewarded you in dividends and capital growth. You know its ups and downs and have seen that they deliver, if Viceroy shakes that reduce your shareholding.
2) As a shareholder you have every right to engage your top employees, the CEO and Chairman of the board. Send them an email, call their investor relations or even reception and ask to speak to your employee responsible for risk management (CEO and Chairman). Sounds gutsy but I’ve done it and it’s normal, you’re the owner. Get an explanation from them and see if it allays your fears. If needs be, go to their head office and do the same. Back to Capitec specifically I know the CEO flew in to Joburg in response to a letter he had received from one of the shareholders to discuss the issues in person.
3) Again your research, you state that you believed they’d take over the banking industry. What does that mean and has it changed? Yes the share price has dropped but that’s its price, your research has an indication of its value as a business. Has the core fundamentals in that valuation changed? Are some of the issues you were worried about now being confirmed by the market?
4) Attend the AGM and vote on issues presented. Where the market raises valid points that you agree are a threat to the business, bring them up with management, get clarity from the guys you are paying to mitigate those challenges. It looks like point 2 I made above but this is more at the AGM, which we encourage you to attend.
AGM’s give you the opportunity once a year to have a more strategic and relaxed engagement with your management team. Prepare for them by reading the annual report as we teach under Stock Research and show up and have lengthy discussions with your top employees.
5) Engage in constructive criticism. There are many people in the twitterverses and other direct contact type of media that own the same shares as you and have arguements of their own. Join these communities, follow these people and develop a core group of people who’s opinions you regard as well informed and see how they interpret the engagements you’ve had. Many people have been there and it helps to borrow a few of their years. This also starts to build in you your own decision making metrics that give you confidence and helps you gain external insights. Owning a company is the best excuse to have meaningful conversations with people many steps ahead of you. Comfort in this field may even provide the breakthrough to one of your promotions at work.
6) Ignore the price. With a pinch of salt. Truth is money is an emotional topic and even with reduced exposure to a company you still worry about “the rest of my money” still in that company in the news daily. At this point I delete all my references to a shareprice and ask myself one of Benjamin Graham’s questions, “ if I could not sell, or see the stock price of, this company for the next 10 years do I think I’d be where my research says I’ll be?” If the answer is “Yes” then I can navigate the noise, if the answer is “No” then no piecemeal selling will make me feel comfortable.
7) How you know what’s real and what’s noise is a judgement call you get from engaging with the process. Often strong contradictions will show themselves and make the decision for you. Often you’ll find that the research corroborates (or checks out) on too many factors for this one new piece of media coverage to all of a sudden undo the thesis. The difference between noise and truth is the quality of your engagement with the process. Academic integrity goes a long way.
Because selling is so easy when it comes to investing through a stock exchange it doesn’t mean you should always have an “indications to sell list”. You are still the owner as if you would be driving down to the office daily so don’t undermine the asset you’ve built up by letting noise in the streets tell you when to sell it. At Finance hut we want to reinforce the sense of ownership that has disappeared with today’s headline driven world. The noise will often rob you out of the future returns you speak of being afraid of missing out on. It’s that fear that gives us comfort that you’ve done your homework and know as well as we
do that you’d have to be dragged out of your business.
I’ll leave you with a quote from Benjamin Graham, main informant of our style of investing: “ After you have done all this work, have the courage of your convictions!”