Forum Archive Index - February 2002

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

Hi Phaedrus,


>TWR listed in September 1999 following an issue at $5.65, a
>price determined by a book build process. Since that time,
>holders have seen their capital investment eroded by about 10%.
>      
>In my book, this constitutes a dud. 
>
>

You are entitled to your opinion, although I would like to point out 
that you have ignored any dividends received in your assessment.

>
>
>What would it take for you to agree? A 20% loss? 50% loss? 10% loss 
>in 20 years? Or, would the fundamentals always be such that it 
>would never, could never, be a dud?
>
>

I wouldn't look for an absolute stop loss figure based on the 
TWR price.  I would look at the sector the company is in and the 
sharemarket the company is in and judge the company relative to its 
peers.   The insurance sector has had a tough time of late: HIH, 
September 11th, AMP with their GIO purchase.  Given all of this I 
would say that 'going nowhere' over the past two years is quite a 
creditable result.  If it wasn't doing well relative to its peers, 
then I would ask questions.

By this definition a company that provided a 20% capital appreciation 
over two years might be a dud, if all the others in that sector 
appreciated by 40% over the same period.

>
>
>It is unfair of you to accuse John of having "ridiculous 
>expectations". The guy merely expressed mild disappointment 
>that a stock he had bought had not moved in over a year. 
>
>


And that he was only getting a 4% dividend.  Which is actually quite 
reasonable.  Generally if you invest in the sharemarket as a 
fundamentalist investor your timeframe should be longer than a year.



>
>At no point did he even hint at a desire to "get rich quick". 
>



That depends on your definition of 'quick'.  Having the expectation 
that you will make a killing in just two years is IMHO, too quick.



>
>
>This stock, with its performance over the last two and a half years,
>is an excellent illustration of the fact that good fundamentals do
> not necessarily translate into capital gains. 
>
>



Not within a two year period.  That is true.



>
>
>Re your later post :-
>TWR is in a short-term downtrend, a medium-term uptrend, and
>longterm, as you rightly note, it is trendless. Going absolutely
>nowhere. Contrary to what you say, you can tell a lot from a
>trendless chart. It tells you that nothing is happening - why buy? 
>If it continues as it has done for years, the price will be much the
>same next day, next week, next year.
>
>


John would buy for the same reason he bought in orginially.  The fact 
that the market has not recognised the value that John saw in TWR is 
not in itself a reason to sell.  John bought on the expectation it 
would go into a long term uptrend.  Assuming he has done his homework 
correctly, there is no reason to assume this is still not the case.  
So the question is, when will it happen?   Your long term chart would 
suggest never "if it continues as it has done for years."    But the 
company is still earnings positive at some point the compounding 
effect of the retained earnings on shareholder capital will alert a 
large majority that it is a buy and the price will move up.  This is 
not an act of blind faith.  It *will* happen and whether John is 
patient enough to take advantage of it will depend how he does with 
his investment.  A trendless chart cannot predict when this upward 
breakout will occur.  But as you said your self Phaedrus, share 
prices don't remain trendless forever.

>
>
>assuming TWR fundamentals continue to stay much
>the same, how much would the price have to decline for you to
>consider it to have been a poor investment?
>
>

I can't give you a definitive answer as I haven't studied the 
insurance sector in detail.  SNOOPY


 
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