Ann: Change in substantial holding, page-22

The scenario that you wish to happen, i.e. some of the escrow stocks being sold down when they have served the full escrow period, in my opinion, is unlikely to happen.


Maybe you're right. I do notice that some small cap stocks have been sold off in recent weeks. Even some of the darlings of the sector.

Besides, normally I don't care much for finessing these sorts of things or for trying to second-guess share price movements, so I'm not sure why I was bothering this time.

It's just that I like to think I've figured out how these hedge fund guys think, and I know that whenever they see an escrow event, their ears prick up. Especially when the starting point is a relatively unknown stock valued on lofty P/E multiples in the mid- to high- 20 times. I strongly suspect they figure, "How bad can I get burnt being short this stock?"

And the stock is surprisingly liquid considering its relatively small market cap and concentrated register, so I suspect their is stock available for borrow.

Anyway, it is all quite academic because I actually started buying RWC shares yesterday.

I suspect in coming months, as we approach the end of the financial year, the market will roll forward its valuation multiple from FY2017 figures to FY2018's.

And on that basis RWC is, based on my crude modelling, trading on valuation multiples of a far more palatable 12x EV/EBITDA and 21x P/E. Which I don't think is unreasonable for 30% ROE business growing organically at a rate in the high teen percentages.

And, of course, the passage of time will chew down that multiple even further.


Like you, I am not a fan of holding cash; Intuitively, I see it as an opportunity cost and it means that I am effectively trying to time the market. So I, too, always try to be fully invested at all times.

But, as I think I've said to you before, I can't recall ever finding it so difficult to find anything that is a half-decent business, to buy at a price that isn't at unprecedentedly eye-popping elevations, as is the case today.


No good will come of this extended period of over-valuation of stocks, but what's an investor to do?

(A.) Stash one's cash under the mattress and wait for the day sanity prevails once again?

Or

(B.) continue to buy shares in premium grade companies in the knowledge that their financial performance will be largely immune to whatever the inevitable market fallout looks like?


My observation is that (A) is the preferred choice of people who I would not describe as overly competent investors, while I note that have conviction their investing abilities tend to be quite comfortable with the course of action of (B).