My ‘Worst Trade Ever’

It has been a long time since my last post. Apologies for that, but the birth of my amazing daughter in January this year has meant I have had very little time for this blog. I am a first time parent at an age that is lets just say somewhat older than the average first time parent, so it does tend to take it out of you, but is worth every second.

The new year has also unfortunately also heralded a year of very poor investment returns. My stocks are mostly small cap South African stocks, which keep going from cheap, to even cheaper. This slow grind down has been rather depressing, but I am trying to stay positive as most of these stocks are not doing badly as far as their businesses go. Most will provide me with a higher dividend flow this year than last, and this is what I choose to focus on.

One stock in particular though has been a disappointment. If you have read this blog before you will know about it as it was the subject of a blog post In pursuit of my ‘The Greatest Trade Ever’ That post was rather tongue in cheek at the time as the share had already been performing poorly, and was based on a book by the same title ‘The Greatest Trade Ever’ by Gregory Zuckerman.

As the title of this post would suggest, it is more than ever looking like my ‘Worst Trade Ever’. The share is Grand Parade Investments (holds gaming and casino assets as well as food assets such as Burger King and Dunkin Donuts) and is down even more since I wrote that post.

There are a few factors contributing to this share price decline – rotating CEO’s/general economic malaise in South Africa/illiquidity of South African small caps and a general lack of buyers not wanting assets perceived to be risky in an already risky country.

Since the initial post I have however increased my holding in the company. In my view the share still holds substantially more value than the share price. The main drag on performance seems to be Burger King, which to date is not profitable. However, I am fairly confident that the June 2018 results will turn positive, and the share may well re-rate. If not then, by June 2019 I am almost 100% positive it will be profitable due to the far bigger store base and the closing of under performing branches.

Investing is about patience. As long as the intrinsic value of the share far exceeds the market value, I will remain invested. I believe I would be making a fundamental error by selling my equity in various quality assets at about a third of their Net Asset Value. I would be selling for the following reasons:

1. The share price keeps going down.
2. I am impatient.
3. I am frustrated by the lack of action by the company to unlock value.
4. Everybody seems negative about the stock.

In my view numbers 1, 2, and 4 are not good reasons to sell. Number 3 has some validity, but it is too early to call, it may be just around the corner.

It should be noted that this share is too big a part of my portfolio and that I do want to reduce it at the appropriate time, especially as I have found and researched another stock that I am itching to buy. However, I am going to be patient and disciplined, and not sell something offering tremendous value for less than a third of its intrinsic value.

I really do not want to to sell a big block of this stock now out of frustration, and look back on this episode and say “Boy, that was my Worst Trade Ever!”

Postscript: Since I started to write this post their has been an announcement of possible shareholder activism in the form of a general meeting and a proposal to remove certain directors. The share has re-rated slightly, but I would say it is still very early days.