Forum Archive Index - September 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

> 
> Snoopy wrote
> 
>"Yes you can have it both ways. I bought some RBD at 80c a couple of
>years back. By your logic Mike I would be making 20% or so on those
>shares now just in dividends. I'm not though. I am making 12% like
>everyone other RBD shareholder. That is why when you look in the
>paper they are able to publish a *single* yield figure. The price
> you bought the shares at is irrelevant"
> 
>If you value your investments at cost taking no account of
>unrealised gains or losses, then you are indeed making a return of
>20% on your original investment. 
>
>
Yes, but there is no logical reason to do this.  Historical price 
is not an indicator of future returns.
>
>
> If you revalue your share to its
> current market value you are making 12% per annum (or whatever its
> current gross yield is) plus you have booked a capital gain of 40
> cents. It's all a matter of preference really. 
>
>
I disagree.  I think it is all to do with people not liking to admit 
that they didn't get their timing right.   Let's go back to the 
example of RBD shares bought at $2.20 and now trading at $1.16.  This 
is me too :-(.   

Now I didn't like the share price plunge from $2.20 to $1.16 and 
less ,one little bit!   But I always look forwards, not backwards.   
So when the opportunity to buy RBD shares at around 80c came up, I 
wasn't really concerned that by doing so  I was 'admitting' that I 
had paid too much for the shares at float time.   If I had thought 
that, I would have missed the opportunity to buy in at 80c and make 
a 50% odd capital gain in two years.

The key point I am making is that by not 'taking your losses 
(unrealised or not) on the chin', you can end up making foolish 
investment decisions.   

I realised that despite the price plunge, the business had not 
fundamentally changed, except that  the marketing hype was now taken 
out of the share price.   So all I saw was the same business now 
available much cheaper, so I dived in.   The fact that it was trading 
at record low prices was, to me, irrelevant.   Because the business 
was fundamentally sound I knew that even if the share price plunged 
to even lower levels the price would come back.    Personally I don't 
care if the share price never hits $2.20 again (it would be nice if 
it did, but having bought RBD largely as an income share, it 
isn't critcial to my overall investment strategy).   That $2.20 
figure is ancient history now.

On the other hand, some who bought into the float at $2.20 and 
haven't touched the share since, probably have put the shares in the 
bottom drawer waiting until they reach $2.20 again.  And when that 
happens, if ever, is anyones guess.  In the meantime look at the 
opportunities in buying RBD such people have missed out on, simply by 
refusing to acknowledge their loss.  More fool them. SNOOPY


---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
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"Q: If you call a dog tail a leg, how many legs does a dog have?"
"A: Four.  Calling a tail a leg doesn't make it a leg."


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