I had done plenty of homework on GPG and yet made absolutely nothing when the price subsequently bombed out and became massively undervalued. Why? I watched it like the deer-in-the-headlight as the share price tanked following the announcement of potential regulatory risk, only to see the share price to race straight back up to fair value.
The purpose of this post is to conduct a postmortem.
Previous updates on GPG can be found here, here and here (please note you can also use the "Search This Blog" function on the right of the screen). The last post was 22 April. Management was buying back stock at 48c. I estimated the NTA ex Coats at 36c. The share price was then 45c. This was after the announcement of a potentially very nasty infringement by the UK Pensions Regulator. I decided to pass on the investment as I felt I didn't understand the risks enough. I'm actually pretty happy with that analysis.
Here's the subsequent share price action:
22 April was just before the general market sell-off and GPG tanking.
While not buying at 45c was a solid and well thought out decision, not buying when the price went sub 40c cost money.
Hindsight bias or just plain wrong?
I can honestly say this is not a case of hindsight bias: I firmly knew at the time I should be buying or at the least investigate the UK Pensions Regulator issue further. There was fear in the market in general and certainly lots of fear in GPG's share price. Deep-value fund manager Orbis appeared on the register 29 May. I was well aware of the pensions presentation made by GPG, which puts the pensions issue into perspective meaning it is likely it will not not be such a big issue. The issue has not been finalised, so who knows; perhaps it will be a big blow to GPG after all. But the rationale for not buying was fear and not rational thinking. And that was the mistake.
It was a good idea not to buy when there wasn't enough money on the table and a new risk wasn't fully digested by the market. It was a mistake not to be brave when fear was at it's peak and GPG was very cheap. I really need to remember and apply the Howard Marks quote from my first blog:
"If I were asked to name just one way to figure out whether something is a bargain or not, it would be through assessing how much optimism is incorporated in its price"
Here in Australia we have another textbook case of potential regulatory risk: Mcmillan Shakespeare Ltd (MMS). This case is different: there is a very real chance Labor will get in and strip away part of their business model. I may write a post on MMS if I can see an interesting angle.
Kristian
Disclosure: no position in GPG (obviously). Small position in MMS
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