On 29th May 2017 we published an article (“Long 4 Life”) in which we extolled the virtues of a new listing – Long 4 Life (L4L). The important characteristic of this share was that it was started and championed by the famous entrepreneur, Brian Joffe (of Bidvest fame). Using his name, Mr Joffe raised R2,3 billion from eager investors anxious to participate in his latest venture.
Within a short time Mr. Joffe had brought Kevin Hedderwick on board as CEO. Mr Hedderwick is very well known for the fact that he built up Famous Brands to the dominant position that it now enjoys in the restaurant and fast-food business. The market loved this choice – how could Long 4 Life fail with two such talented businessmen running it?
We ourselves invested in Long 4 Life and encouraged others to do the same. Our first tranche of shares was bought at a cost of roughly 660c per share at the beginning of June 2017. Then, when the share fell back to 589c in late June we decided that, rather than execute our stop-loss we would double down – and so bought more of the shares at around 600c, bringing our average cost down to 633c per share. This, of course reduced our stop-loss level to around 580c which was part of our motivation. We were still sold on the idea that anything which Mr. Joffe turned his attention to would succeed sooner or later.
Towards the end of July, the share spiked up to 838c per share on news of the deal to acquire Holdsport. Investors (ourselves included) were delighted, but their delight was short-lived. It turned out that L4L had paid a little too much for the deal – which was most uncharacteristic for Messrs. Joffe and Hedderwick.
During August 2017, the share continued to trade between 600c and 650c – so we held our position and waited. Surely these two business geniuses would make a game-changing acquisition soon.
But then in September the share began to fall again, losing a little ground each trading day. By early October it had reached our new stop-loss level at 580c – and so we reluctantly sold out and retreated, licking our wounds. We found out a little later that Mr Hedderwick had resigned his position as CEO.
The progress of our interest in L4L since its listing is shown on the chart below:
This is a classical share market story – and if you are to be a successful private investor you need to study it carefully.
There is no doubt that L4L had all the characteristics of a total winner – and we were not alone in our optimism. But for some reason, which we still do not know, it has lost the enthusiasm of the market. Die-hard investors are hanging in there, but the share is dribbling away its value, falling further and further each day. At the time of writing it has reached a miserable 518c per share and we are very happy that we made that tough decision to sell out on our stop..
So, what happened? We don’t know and we may never know – but somebody does. Somebody out there knows something about this share which is not generally known to the investment community. They are quietly liquidating their positions and taking advantage of all those die-hards who just cannot believe what has happened and refuse to act on the reality of what they see in the price pattern.
The secret to being a successful private investor is to always listen to what the market is telling you. In this case, it was/is telling you that something is fatally wrong.
There will almost always be people in the market who know more about what is going on than you do. And you will almost never have all the facts necessary to make all your investment decisions correctly.
But those insiders cannot hide the effect of their transactions on the market. As they sell out or buy in, their trades make an unmistakable pattern in the share price. What you need to do is to recognise that when you see it.
And when you have made a mistake you must act on it. We have a saying “Your first loss is always your best loss”. In other words, IT DOES NOT GET ANY BETTER!
Put in another way, if what you expect to happen does not happen, then you are almost always better off selling sooner rather than later.
So, if you did not execute your stop-loss on L4L, you have the opportunity to learn a most valuable lesson – never ignore your stop-loss level. Acknowledge and accept your mistake by selling out and taking the hit. Happily, pay your “school fees” and move on. Whatever it costs you, this lesson about being strict with your stop-loss is probably the most important lesson you will learn about the market. It will be well worth whatever it cost you.
Being successful in the share market is not so much about making money as it is about not losing it. We generally get about 7 out of 10 of our picks right. So we know before we start that there are going to be those dogs. This does not bother us because we know that the worst that can happen is that we will lose maybe 12% including our dealing costs. But when we are right we can make 100%, 200% 300% or more.
If you do not stop-out then you will become the worst kind of “long-term” investor and…
A long-term investment is often just a short-term investment that went wrong!