Patience, but still no payoff

ON April 3, you checked your portfolio as the market opened and observed that one of your stocks had risen significantly. But was this cause for celebration or commiseration?

It may appear to be a strange question, but say you had adopted a buy-and-hold strategy for your portfolio, and you bought Santos around four years ago at about $10 a share, you wouldn’t be jumping for joy at news that a US company made a $6.13 bid for your shares, plus a $0.13 dividend.

For you, the consequence of a takeover, if successful, is that you’ll have to realise a significant loss and there is little you can do except to vote against the takeover and hope it gets knocked back.

You’ve hung on patiently as the shares fell to a low at $2.46 in January 2016 and then up to between $4.70 and $5.67 prior to the takeover. You now wonder why you chose a buy-and-hold strategy at all, as you don’t have the stomach for that level of volatility. But you thought that over time they’d recover, at least back to the price you paid.

Forget the opportunity cost, you’ve learnt the hard way that shares don’t always come back — and if the takeover is successful your plan has been thwarted and you’ll have to realise a loss anyway.

From a technical perspective, you’re right not to be happy as my analysis indicates, with high probability, that in a few years Santos may be trading closer to $8.50.

While I cannot tell you what will drive it there, I’ve been analysing stock prices for decades and this is what is likely to occur, simply because the charts don’t lie.