Keep­ing up with shares

When long-term in­vestors find a great stock, they tend to stick to it and add more of it to their port­fo­lios. How do you know that you are still buy­ing the shares at a good price?

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­week.co.za *The writer owns shares in San­tova and Metro­file.

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you’re never go­ing to only buy a share once, un­less it’s a dud. It hap­pens, but duds tend to be the ex­cep­tion, rather than a com­mon oc­cur­rence. So as a long-term in­vestor, you’re likely to find a great stock at a great price; you’ll con­tinue buy­ing it over the years as the port­fo­lio grows not only from growth in the stocks, but also from in­flows of div­i­dends, sales of some stocks and cash you add.

The prob­lem is that in­vestors are of­ten fix­ated on the orig­i­nal price they paid for a stock and the re­turn it pro­vided. Let’s take San­tova* as an ex­am­ple. My first pur­chase was at around 200c and then more at 268c, while the stock has moved to around 400c re­cently. After re­cent re­sults I wanted more; sure, that would push my av­er­age pur­chase price higher, but that’s not a prob­lem if it’s an awe­some stock.

There are two prob­lems if I don’t buy more: Firstly, the per­cent­age of the stock in my port­fo­lio will re­duce over time as the other stocks grow. Se­condly, if I don’t buy more of what I al­ready have, what do I buy? I al­ready own a se­lec­tion of awe­some stocks and can’t al­ways be find­ing new stocks and ex­pand­ing the over­all num­ber of shares I hold. The trick is not to chase a stock. Metro­file* is a stock I started buy­ing ear­lier this year at 400c and lower; there wasn’t a lot of vol­ume and I had bids in the mar­ket that sat pa­tiently wait­ing for the sell­ers to come down to my level. That worked per­fectly well, but then sud­denly the stock rushed higher and I still had bids at un­der 400c while the stock was trad­ing at some 475c. In this case I had man­aged to get some 75% of what I wanted, so it wasn’t the end of the world. I watched the stock for a few weeks, and even­tu­ally it set­tled at around 475c. I no­ticed that, if any­thing, the sell­ers had a slight up­per hand in that there al­ways seemed to be more sell­ers with higher vol­umes. This sug­gested that the stock might be mov­ing lower. So far this is work­ing, slowly. But the is­sue is that I like the stock at around 400c; at around 475c it’s al­most 20% higher and I sim­ply don’t like it as much at those lev­els. So I’m watch­ing and wait­ing…in time I may end up pay­ing the higher price as new earn­ings push val­u­a­tions higher. I am a big fan of leav­ing bids in the mar­ket and of­ten it pays off. In the case of San­tova, I’ve had a bid at 400c for a while and last week (in an open auc­tion) I sud­denly got filled at 400c when a large seller ex­ited in a hurry. San­tova was only trad­ing at around 415c – less than 5% higher – and I would have been happy to pay that price. But again, I watched the bids and of­fers, de­cided that there was most cer­tainly more sell­ing pres­sure, so a lower bid had a de­cent chance of suc­cess. This is not a per­fect sci­ence and some­times a stock gets away from you, but chas­ing a fly­ing stock sel­dom re­sults in buy­ing at a good price. As a longterm in­vestor, you should use that time to your ad­van­tage. If you miss a buy­ing op­por­tu­nity, another will come along in time.

This is not a per­fect sci­ence and some­times a stock gets away from you, but chas­ing a fly­ing stock sel­dom re­sults in buy­ing at a good price.

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