Bad in­vest­ment

Finweek English Edition - - INVESTMENT -

Rrecently a SENS an­nounce­ment which re­minded me of my worst in­vest­ment came out, and I thought it was worth shar­ing the story, but also the lessons learnt. The SENS was from South­ern Elec­tri­cal Com­pany* (SEL) an­nounc­ing a delist­ing at 32c, not much else to that, as it hap­pens all the time. But this story goes back to 1998, and in­volves the dot-com bub­ble and a stock called Brainware.

Brainware was an ex­cit­ing IT com­pany headed up by Piet dem Boer that was set to take over the world, list­ing on the JSE in Jan­uary 1998 at 100c per share. I ap­plied for the ini­tial pub­lic of­fer­ing (IPO) and got my­self 20 000 shares at 100c each, and on the first day of trad­ing it closed at above 200c, dou­bling my money. This sort of list­ing exuberance was not per­fectly com­mon for IT stocks back then, in fact, th­ese sort of IPOs were mas­sively over­sub­scribed (if I re­call I had ap­plied for 50 000 shares know­ing I would only get around half or a quar­ter of that). The stock con­tin­ued f ly­ing, al­most get­ting to 600c by March of that year. But did I take the prof­its and sell? No way, this one was go­ing to the moon and I was along for the ride.

But then the wheels started fall­ing off, and by 2000 the stock was trad­ing at 22c and I still had 20 000 of them. At least I re­sisted the temp­ta­tion to dou­ble down and buy more, but my in­vest­ment was now off al­most 80% from the price I had ini­tially paid.

Fast-for­ward to April 2002, the share is now at 1c and SEL re­verse lists into Brainware and then the real pain, it does a 50-for-1 con­sol­i­da­tion (mean­ing that 50 shares equal 1 and in the­ory the price in­creases by a fac­tor of 50). This means that I now have 400 shares (at an ef­fec­tive pur­chase price of R50 each!).

Over the next decade, the SEL share price does noth­ing, get­ting above 100c briefly dur­ing the 2007 hype be­fore set­tling back down to around 30c (re­mem­ber the con­sol­i­da­tion means 30c is ef­fec­tively 0.6c on my 100c pur­chase price).

The pro­posed delist­ing means that I will re­ceive R128 for my R20 000 in­vest­ment (not tak­ing into ac­count the 15 years I have waited to exit).

So what are the lessons to be learnt? We will do stupid things in the stock­mar­ket and they will cost us money, but if we are to call them school fees, we need to ac­tu­ally learn some­thing from them.



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