The Amateur Investor Ep.15: Righting the Ship

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I’d like to jump out front now and apologize for the delay in posting this issue. I had a university project that I was working on and couldn’t hold both an essay on Australia’s bicameralism and stock investing in my head. So I prioritized, which seems to have paid off since I finished off that course with an overall 75% mark (woohoo!). And now without further ado…

There are times when you’ll find yourself panicking. Sweat prickles the scalp, you start to sweat a touch and, the action bias kicks in and you start doing. Just to be doing something. This was the position I found myself in last week during a review of my portfolio positions. I’d gone a little deep and was looking at losses in a few places, which whilst not huge in the eyes of my erudite fellow Mockers, felt quite bad to me. 

Of course, I say this from the position of an amateur investor and as such am not as calloused to losses as more seasoned investors. Something I’ve noticed in many of our meetings that I’ve mentioned before is that no one talks about the full value of their portfolio, much less the capital that they’re playing with. 

We’re classy like that. 

Instead, these things are shrouded in jargon and percentages, but nevertheless I’ve managed to glean one crucial bit of information; in terms of capital, I’m a small fish in a gigantic aquarium filled with unimaginably vast creatures. So needless to say, the margins for error are quite a bit smaller.

This morning, I managed to set aside some time to go through the considerable stack of papers I’d received when I started getting into the market. Most of it was just notifications from market services of dividends being disbursed or bank details being changed, normal stuff. But filed away near the bottom, I found a few share entitlement offers.

I’m sure I’ve covered this before, but for the sake of newcomers, I’ll go over it really quickly. When companies are looking to expand their business by adding new equipment, opening a new branch, or anything of the like, they may decide to dilute the share pool, offering the new shares at a discount to current shareholders in an effort to raise funds for whatever new thing they’re trying to do. Generally, they will tell you what they intend to do with the money and how this will benefit you in the future. Such is the nature of the shareholder-to-company relationship, for the most part. 

In one of our last meetings, it was mentioned that some investors will buy the minimum share in a company in the hopes that a share entitlement will be issued, resulting in what Bill has described as a “stag profit”. Within my portfolio, two companies have done exactly this, IEL and WEB, both of which I accepted, buying a portion of discounted shares for both offerings, as part of a long play for when this whole COVID-19 situation started to ease up. 

I took a moment to recalculate what these new revelations meant for my overall portfolio, using Sharesight to keep track of all my transactions, and found that in reality, my holdings in both these companies were running at a substantial overall profit.

Of course, the initial shares I’d bought tin both IEL and WEB were running a loss, but they only made up a fraction of my total position with either company. 

By this time, I’d managed to adjust my exposure somewhat, selling portions of my various holdings to even out the books as much as I could. But with this new revelation of a stag profit, I’m faced with an interesting new quandary; do I sell off the original shares I bought and absorb the losses in favour of holding only discounted shares? Or do I abide by the age-old virtue of patience and wait for the market to rebound? 

I’m not quite sure yet, though this new development does give me some cautious optimism. I’ll have to consult the saged fellow Mockers for advice on my next course of action.

For now, as always

Go slow, play small and learn the process

P.S. If you’re an amateur like myself and are having difficulties with keeping track of your portfolio, something that can be very tricky with things like share entitlements being issued left and right by businesses reacting to COVID-19, Sharesight is a pretty decent tool to use. It’s also free at the most basic level which is limited to ten holdings. Anything above that will require a paid upgrade to their more sophisticated service plans. 

jotham