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Re: Re: Re: [sharechat] LEARNING TO INVEST>>>Disciplined Investm

From: "" <>
Date: Thu, 28 Jun 2001 13:59:27 +0000

> Peter
> Thanks for the great article. Like many I too need stronger
> guidelines as to when to sell.
> Leading on from your article, can you (or other share
> chatters) suggest strategies to deal with those 'longterm' shares
> where we didn't sell in time and the share price has plummeted. 

I'm not Peter, but since no-one else has tackled this I'll throw in 
my thoughts on the subject.

Rather than attempt to speak generally, because a plummet in the 
value of a long term share can be caused by multiple things, I'll 
talk around the issue based on a specific example, in my case Air New 

The first question to address is your initial objective.   Why did 
you have the share in your portfolio to start with?

For me, AirNZ was part of the income side of my portfolio, with 
perhaps the B shares having more capital gain potential than the A 
shares.  It was also the idea of having some stake in our growing 
tourism sector that caused me to invest.

The second question to ask is "What is the outlook now based on your 
initial objective."

The answer: On the income side, very poor!   I can't see much, if 
any, income coming my way for a couple of years at least.   On the 
capital gain side I do see a long term future for AirNZ as, at 
least on the New Zealand side, it does appear operationally well run 
and it would be unthinkable not to have our own international airline 
in some form given our heavy dependence on the tourism industry.

> Do you start a stop loss from where the share price has settled?

I would say no.   My experience says that bad news is factored in 
quickly and given that the plummet has already happened, the share 
will probably be in some sort of consolidation phase, in a trendless 
trading range.   You should have sufficient information now to 
decide whether you should sell or not.  So if I did decide to exit, I 
would exit towards the top end of the current short term trading 
range, if I had a choice.   

> Do you ditch the share and start again?

A tough question for AirNZ, if like me, you had a split objective 
(mainly income, but looking for some capital gain).   So my decision 
was to do both!  Ditch AIRVA, and start again with AIRVB!

I think that once the restructuring, in whatever form it takes, goes 
through then a properly capitalized AirNZ will have a good future.   
However, I can't see much income potential from the A shares, and 
given the overhang of shares in the market with Brierley Investments 
apparently stuck there on the register, I can't see much capital 
appreciation either. So I sold out of AirVA at around current market 
prices a couple of weeks back.  With AirVB now in the world MSCI 
index I can see long term buying support there for it.

> Do you evaluate the company's fundamentals again and make an
> assessment of future value from that?

Yes, you do.  I am happy to be part of a restructured AIR now.  I'm 
going to sit back and wait now until the cash issue comes up (for I 
am convinced capital raising is certain in some form) and take up my 
rights and possibly buy a few more rights on the cheap.   Of course, 
you might note that if I was certain a cash issue coming up (and cash 
issues always depress share prices), why wouldn't I just sell out 
totally now?  

It is because there are alternatives.  A placement of new shares to 
Singapore Airlines (which would normally depress the share price too, 
but given SIA are the cornerstone future shareholder, I feel this 
will be viewed positively by the market).   Alternatively there will 
be a capital notes issue that will be paying a very good interest 
rate, which from an 'income' point of view I would see as a good 

> A guess all the above might have some merit, but comments from those
> who have 'been there, done that' would be much appreciated.

Probably, less of a general answer than you wanted, but maybe you 
can ask some of the same kind of questions in your own case?   I am 
sure you would have rather have made money from your gains, but you 
can probably *learn* more from your losses.   And if you decide to 
stick with your investment, you will certainly have a much better 
understanding of the pitfalls of that business.  This in turn 
should make you a better long term investor.

In the case of Air NZ, if the A and B share structure is 
abolished I will have done exactly the wrong thing and missed out on 
the windfall gain on my former 'A' shares when they are re-rated.   
But I don't think it will happen as it doesn't solve the problem of 
how to raise capital from the New Zealand owned 51% of the business.

In such situations, all you can do, is to do as much research as you 
can, and back your best judgement as to what the outcome will be.  
Nevertheless I have a carton of eggs in my cupboard ready to break 
all over my face should I be wrong.  HTH.


Message sent by Snoopy 
on Pegasus Mail version 2.55
"You can tell me I'm wrong twice, 
but that still only makes me wrong once."

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