Long-Term Investors Are Not Always Rewarded For Loyalty
By Dale Gillham, Chief Investment Analyst for Wealth Within.
Instead, you may be forced to sell your shares…..
This can occur if a company you have shares in is to be taken over by another company. A takeover announcement can lift a share price by around 20 percent and in some cases more. If the price offered is at a premium to what you paid per share you may be happy about handing over your shares. As an added bonus, if you sell your shares in a takeover you don’t pay brokerage. But not all investors are likely to be cheering.
Following the GFC, an investor who had read my book contacted me. He had invested in a mining-related company prior to the GFC and held the stock through rough declines of 60 to 90 per cent. Sadly, he now realises that a few simple strategies would have allowed him to exit these shares long before this rapid downturn occurred.
As further added salt to his wound, he learned that an official bid to take over the company had been submitted – not only this, the board had given their approval of the takeover. Once the company receives a majority holding under the takeover rules, all remaining shareholders would be forced to sell their shares at the offer price. This meant he would have to sell at a considerable loss.
As commodity prices started to recover, many of these unloved shares began to rise quite strongly and the charts indicated that a long-term low had occurred and therefore the stock had the potential to rise much more than the offer price. He believed the takeover was unfair and he wondered why the company’s board didn’t see the potential.
Remember that the charts tell all.