I just filled my boots with Kentz (LON:KENZ) two trading days before it announced two takeover approaches. Clever, eh. We’re all on here to learn so if you too want to get into a company on the eve of a takeover announcement - read on.
In the last couple of years I’ve read a lot about decision making and have become familiar with many of the concepts that hinder rational choices. One of the more obvious ones, and one very relevant to investment is “anchoring”.
Anchoring is where we latch on to a price at which we will enter or exit an investment based on some irrational attachment. It’s why we hold on to our losers, waiting for the price to return to where we came in, ignoring new information showing a deterioration in fundamentals. It occurs when we decide to buy something, but hesitate because it drops a penny, and we’ll wait until it falls another penny, instead it goes up a penny, and again, and so on, but now we’re anchored to the price we would have paid had we not hesitated.
I’m sure we can all recognise this tendency and think of painful investment experiences, particularly holding on to investments that we wouldn’t dream of buying today.
Despite my awareness of the irrationality of anchoring I again fell victim to it in the last few weeks, and I was all too aware that I was frozen like a rabbit in the headlights. And it was costing me.
Here’s the story.
Late last year I took a sizeable (for me anyway) position in Lamprell (oil support services) following a series of profit warnings. The share price had been hammered, and on valuation grounds it became very attractive. It operates in an industry that can only grow and operates out of dock facilities in the Gulf that are not easy to replicate. If it couldn’t sort out its operating problems it seemed a good candidate to be taken over. Be greedy when others are fearful etc - I managed to get in near the low at 80p.
Then this year I started looking at Kentz (oil and mining support services). I bought some. It too had a lot going for it: an excellent historic growth record, great…
Hi Shipoffrogs,
Not long ago I made close to 70% on one stock in 2 days.
It was not long after the vote for Brexit. The shares in a company called Brammer had gone down rather. I bought them because I noticed that most of their sales came from continental Europe, as did much of their procurement, so I thought they would be OK, and hence undervalued after the fall.
Almost as soon as I had bought them a take-over by an American company was announced (probably negotiated when the price was much higher) and bang, the price rocketed to the agreed buy out price within a couple of hours. Absolute fluke, but very welcome boost to my annual performance at the time.
Although pure fluke, it just goes to show that if you pick some investments based on value, there is always the chance that someone much bigger has spotted the same value opportunity and you get a great lift.
Similar thing also happened to me with Hemscott (Hemmington Scott), albeit with a much smaller position. This was many moons ago in the early internet/.com era. I held Hemscott purely because I'd used them on line for stock info and quotes, etc. and I thought they had a good user interface (as we used to call it). Not long after I bought them they were bought by a Scottish bank (cant remember which one, but I think RBS) for exactly the same reason, as they wanted them as their quick route into the online retail trading game. The price went up a lot (much more even than my Brammer experience) Now this was a pure fluke as I hadn't even researched their fundamentals. It was before I had started to read how to invest properly. One thing it did do; it probably kept me in the game after some earlier losing trades.
