Trading a ‘perfect game’
Stock market equivalents to ace pitching
Iwill readily admit to not being much of a baseball fan. Compared with the stock market, the game just moves a little bit too slow for me. That said, I can still admire the difficulty, style, grace and pressure required for a pitcher to pitch a perfect game.
Perfect games are fairly uncommon, and for good reason: you have to flawless ly perform against highly skilled athletes, with tens of thousands of spectators watching and analyzing your every move.
This got me thinking about what would be the equivalent in the stock market?
Beating t he market? Nah, that’s too common — well, maybe not for investors, perhaps, but at least in terms of media discussions and common goals.
Instead, I propose five other goals investors should strive for. They are not impossible, but they certainly will be extremely difficult to achieve.
If you can get even one of the following, you are going to be much richer. ❚ The 100-per-cent rise
We are not referencing a 100- per- cent gain on a stock. That, thankfully, is not uncommon. Shopify Inc., for example is up 107 per cent this year alone.
The goal here is to own a stock that one day goes up by as much, or more, than what you originally paid for it.
For example, Shopify’s low since it went public is $ 26.81 per share. On Aug. 1, it rose $ 15.72 per share. A perfect game would be if you bought it at $ 30, and then one day it rises by $ 30 in a single trading session.
As a stock’s price rises, the chance of this happening can increase. For example, someone 10 years ago bought Constellation Software Inc. at $ 18.20. On Aug. 2, it rose $24.23 per share ( to $ 704). If that buyer a decade ago still owns it, he/she has a perfect game. ❚ The 100- per- cent dividend
This has some similarities to the above goal, but involves dividends rather than stock price as the metric. The perfect game here is when you own a stock and, one day, its dividend rises to more than what you originally paid for the stock.
Obviously, this one is going to take some time, likely decades. But it is possible.
Western Forest Products Inc. is close: its shares were less than 10 cents each at some point in 2009. Today, it pays an eight- cent annual dividend. A short sale that goes to zero
We have nothing against short sellers. They can root out problems at companies, make companies more accountable and can provide significant buying interest in a stock when they decide to cover their positions.
But the perfect game for a short seller is shorting a stock and then seeing it go to zero.
Some shorts use the phrase“terminal short” when describing a company they think is actually worthless. Of course, the most you can make in this scenario is 100 per cent, so we like some of the other strategies better.
But short sellers of Petrowest Corp., Paladin Energy Ltd. and Sears Canada Inc. have all seen their shares delisted, so that is about as good as it gets for a short selling strategy. ❚ The 100- per- cent takeover
Takeovers are common in t he stock market. Indeed, some market watchers have expressed concern that the number of stock listings is actually declining too fast due to takeovers and the fact that many companies are choosing to stay private.
For a perfect takeover game, it rarely gets better than a takeover at a 100-percent premium ( or more) to the current price of a stock.
The recent takeover of Pacific Insight Electronics Corp. came close, but the 79- per- cent premium does not qualify for a perfect game. The takeover of Lonestar West Inc. also came close at 84 per cent in July.
If you want a perfect game here, the place to go is health care: Tobira Therapeutics Inc. was acquired in late 2016 at — get this — a 489-per-cent final premium. On the day of the announcement, the stock went from US$ 4.74 to US$ 38.91. That’s a perfect investment game if we’ve ever seen one. ❚ The double-double
Following the takeover angle, we present the double- double: when you own shares in a company that is acquired for shares in the company making the acquisition and then that company itself gets taken over, providing you with not one, but two takeover premiums.
This is so rare that we can only recall one of significance. Glamis Gold Ltd. bought Ray rock Resources Inc. in 1998 for shares, and also did numerous other takeovers using its own stock as currency. Then, in 2006, Glamis was taken over by Goldcorp Inc.
To get this perfect game, you need to keep the stock you receive in a takeover long enough for the acquiring company to get taken over. Don’t hold your breath on this one, but it is possible.
We would love to hear your stories of investing perfect games, or some more suggestions for our list.