Tongaat-Hulett. A healthy dollop of the agricultural company made up the first batch of my shares. There was much to like about my new purchase. Firstly, it’s a South African company. Secondly, the shares were cheap. And thirdly, the company CEO, Gavin Hudson, sounded like he was righting the wrongs of a once-glorious company that had been pulled through hell.
As time went by, I bought and sold other shares – including Sanlam and EasyEquities. Both have had reasonable growth since adding them to my nest, but Tongaat-Hulett? Well, aside from occasionally meandering a couple of cents up or down, there wasn’t much change. I felt like a concerned paramedic watching a patient drift in and out of consciousness.
Well, imagine my delight when Tongaat-Hulett released its latest company trading statement and operational update. With the new CEO at the helm of the ship, it looks like my unconscious patient is coming to.
The share price shot up, closing at R9,02 on Wednesday, 3rd December. To say I was pleased is an understatement. I was ready to head up to Tongaat myself and help nurture those sugar cane fields. My first stock purchase was a good one – and is doing well. For me, the thrill of the increase outweighs the profit I made. No wonder people say share trading provides you with a rush.
Initially, many questioned my purchase. One friend – who was elated to hear I was dabbling in the stock market – had one question for me? Why Tongaat?
Two weeks ago, I was asking myself the same question. The stagnant share price had me wondering whether my money would be better spent in another company. How glad I am that I decided to exercise some patience. It certainly paid off. The best part wasn’t the profit or the initial excitement. It was the smug phone call I made to my friend, delivering the news that my underdog shares had finally paid off.
Last week, I asked you to send me your finance and investment queries. Here, Johan Steyn, CFA* of Stellenbosch University, shares his expert advice by providing answers to your questions.
Jan Malan asked,
When is the best time to sell your shares? When they are in the green? I have some shares that have doubled in value.
This is a good question and one that every investor struggles with, but the answer comes down to personal preference. One of Warren Buffett’s most famous quotes is: “Our favourite holding period is forever.”
But that does not mean he will hold on to a share if the prospects are bad. Just look at the recent sale of his stakes in airlines. John Maynard Keynes famously said that ‘When the facts change, I change my mind’. I think it’s important to remember that we live in a dynamic and ever changing world, so we need to update our convictions when the investment thesis changes. You refer to shares being in the green and being in the red, which is a reference of the current price relative to your historic purchase price. But let me ask you this: what is more important, the historic purchase price or the future price? I would argue your sell discipline should be routed in the future prospects of the company and not the performance of the share since you bought it.
Just because a company doubled in value does not mean it is overvalued and just because a share halved does not mean it is an opportunity to buy more. It is not easy to get the timing right and it is difficult to decide whether a share is overvalued or not. It is best to make peace with the fact that you will not get it right every time. And try to learn from the times you get it wrong. Personally, I like to sell halve my position if the share price doubles. That way I take some risk off the table while still participating in any potential upside.
Philip Morkel asked,
How safe is EasyEquities and what does it mean when I get my investment certificates? How do I recover my money if, for some reason, the site goes belly up?
EasyEquities is an online broker where the securities bought and cash not yet invested are segregated from the platform or the assets of the parent company [First World Trader (Pty) Ltd]. This means that they are protected in case of an insolvency of the business. The securities are held in safe custody by and registered in the name of a ring-fenced, private, limited liability company. For more information I would refer you to their website. The investment certificates are not official share certificates and is just a way for the platform to indicate your ownership of the shares.
- Johan Steyn, CFA is a lecturer in investment management, from the department of business management at Stellenbosch University. He holds a Masters in investment management and has a background in fund management.
Have a question about share investing? Write to me at [email protected]