Forum Archive Index - March 2003

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

Hi John,


Was interested in your post as to some extent I have the same 
'problem' with SKC.  Although it must be said that if all problems 
were as pleasurable as this I wouldn't complain :-).
>
> 
>My issue is that for various reasons I have ended up very very
>overweight in SKC. Originally it was one of four equal portions I
>invested, but since then it has risen hugely, and when I have needed
>to withdraw money I have sold other less well performing stocks and
>so forth.
> 
>Now... should I sell it down to a more reasonable level within my
>investment mix? 
>
>

I would say you should develop an exit strategy, 'if certain 
events occur', based on some kind of value assessment of SKC.  
However, this does not mean you should implement the strategy 
immediately.  You should just have it ready.

>
>
>why would I sell when it is in an uptrend? 
>
>

Because uptrends can end suddenly and brutally.  There is no 
guarantee that will be able to get out anywhere near the top of an 
uptrend, even with a 'stop loss' in place.   Of course that doesn't 
necessarily mean I would suggest selling in an uptrend in this case.

>
>
>If I need more money out shortly should I sell some of 
>my best share (SKC) or continue with my current policy of selling 
>the ones I see the least future for. 
>
>

If you need a substantial whack of your capital 'shortly' then that 
capital should not be in the sharemarket IMHO.  If you need a lot of 
capital out, I really think you need a two to three year planning 
horizon to achieve this efficiently. 

You should also be very careful when selling out af apparently 
unattractive sectors or specific shares.  There are plenty of 
people who will think the same as you, and, that thought has 
probably already been reflected in the share price.  You should sell 
out of something that you believe will do very well if the market 
believes that it will do overexceptionally well.   You should buy 
something that you think will not do so well if the market thinks it 
will do exceptionally badly. 

>
>
>If I think SKC is so good why shouldn't I put more into it?
> 
>

Because even the best shares can throw up bad news surprises.  I'm 
not saying you shouldn't put more in, but it is all about managing 
your risks.  Seeing if you can handle the "What if" factor.

SKC is at an interesting stage because, up until this year, the 
spectacular casino complex in Auckland as been masking some less 
stellar performances in the other arms of the SKC business.  SKC 
has reached the stage where those other business arms must start to 
perform if it is to continue to grow like it has.  If SKC can grow 
its other arms them IMO it is cheap even at near its all time share 
price high.  If not, then SKC is getting a little pricy.

IMO the performance of the Adelaide Casino, SKCs largest other 
site, is the key driver of what happens to the SKC share price this 
year.   Looking at charts or even extrapolating the performance of 
the business based on ROE Buffett style calculations will not help 
you much IMHO.   Since SKC has owned Adelaide Casino it has been 
barely profitable in the past so we are in new territory here, and 
past SKC results and share prices are of little predictive use.  
Personally I think things look encouraging and I'm prepared to sit 
with SKC in the full knowledge that if things go wrong a couple of 
bucks may be lopped off the SKC share price.

If your can't handle that prospect then you should sell a large chunk 
of your SKC soon.   Remember, no-one ever went broke by taking a good 
profit.  Otherwise sit there and enjoy the ride.  You do have a 
safety net with SKC.  The high SKC dividend yield will protect you 
from the kind of dramatic collapse in share price that we have seen 
over the last year from the likes of Baycorp.  The other reason to 
sell would be if you spotted something that was obviously 
significantly better value to invest in.  At the moment I'm satisfied 
with my own 'overweight' position in SKC.  But then, I own 
significantly more than just three or four shares.

SNOOPY


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