Simon Shares

Day 181 of lockdown.

• The Tongaat (JSE code: TON) deal to sell their starch unit to Barloworld for R5.35billion is happening and the Tongaat share price loved the news.
• We're seeing a strong bounce locally while the US markets are also having a better run, risk back on (for now). But what was odd was gold. It didn't run as stocks were selling off and has actually weakened. The point is that if fears were of a longer sell off gold should do better, except for two things. Firstly nothing is linear and secondly when there is real fear as we saw back in March everything is correlated at 1 and everything sells off.
• The UK back into lockdown, not the hard lockdown of March / April. But lockdown that the government is saying may last six months. This pandemic is not over.
• Property stock results are coming thick and fast and frankly, most are not as bad as I expected. Make no mistake, they're ugly. But I had expected worse and while distributions are being delayed and valuations were written down they're mostly staying within their debt covenants which is hugely important. That said it remains a long road back to the glory days.
• Value Capital Partners (VCP) has bought a 5.28% stake in Cashbuild (JSE code: CSB). VCP has a reputation of not being quiet silent shareholders, but also have an excellent record of fixing broken companies. Now Cashbuild is not broken, but worth watching.
• Under the hood of the SYG4IR ETF.

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Missing the bus

How often do we not buy a stock only to watch it move higher and regret not buying as we think we missed the bus. Then it just continues moving higher and higher?

The mistake we make is that we think there is a limit to the upside of what stocks can do. But consider for example Capitec* (JSE code: CPI), 2000c during the last crisis and it eventually it some R1,500.

There are plenty of other examples, most recently gold miners.

The problem is that while we want a ten-bagger stock we truthfully struggle with the concept of such huge gains. Further, as I have mentioned before a ten-bagger first has to be a one-bagger and as such buying when it's on the move reduces risk markedly.

So we need to double down on our work. What makes this an excellent stock, no the best stock, to own. What are the real fundamentals and growth prospects and will the rest of the market catch on?

Lastly, use a PEG ratio. Is the expected HEPS growth higher than the PE ratio?

This is far from a perfect science, but don't abandon the bus just because you missed the first one.

* I hold ungeared positions.

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