Back tracking and trading Promises for Profit

Those of you who still read this blog, given it has been over 6 months since my last post, may be wondering if the very poor market in South Africa has resulted in me hanging up my boots and giving up. Well, not yet. I am though continually repeating to myself Warren Buffett’s mantra to ‘Be greedy when others are fearful, and fearful when others are greedy’. Being an investor in South Africa in 2019 squarely places me in the ‘Be greedy when others are fearful’ camp. It is not easy though.

You may also be wondering about my last post “My ‘Worst Trade Ever’” where I wrote about my investment in the South African company which holds the Burger King franchise, Grand Parade Investments. I wrote about why I was sticking to my guns and holding out, not selling while the share traded well under Net Asset Value. I wrote that selling may turn out to be ‘The worst trade ever’. To cut a long story short, I have sold out.

Somebody (I am not sure who) said something along the lines of ‘when the circumstances change, I change my mind’. ┬áSo why the change of heart?

Shareholder activism was initiated during the course of 2018, resulting in a series of special general meetings to try and change the board of directors. This met with resistance from the company who tried to prevent a new board of directors being installed. As one of the larger non-institutional shareholders I was contacted by the company asking me for my vote. I decided I would listen to both sides of the story and on the back of this request I was granted a one on one meeting with the CEO of the company.

I was given certain assurances of actions that would be taken in the short term, none of which actually occurred. The company has also not paid the annual dividend they normally pay, and in the last set of results they made an overall loss on the back of heavy losses on all the food businesses, including Burger King.

So in essence my lack of faith in management, loss making operations, and the abundance of other cheap (and profitable) companies, resulted in me selling out completely. Fortunately, due to the shareholder activism, the share price had increased from around R2 to R3.50, so at least I did not lose money on my investment.

Sure, it is still trading under Net Asset Value, and the shareholder activists will no doubt still manage to get more value out, but nothing is a sure thing. I now need sure things, or as close as I can get to sure things. I have traded Promises for Profits. I must also trust management.

I am sad to say goodbye to this investment as I have put a lot of time and thought into it over an 8 year period, but I have no regrets. The proceeds were invested in some profitable, growing businesses where I trust the management.

I may still though pop into Burger King occasionally, the Fierce Whopper is killer.