GoSeigen wrote:JohnEdwards wrote:JohnEdwards wrote:
I suppose the biggest question mark would be whether there would be sufficient availability, once the tendered shares have disappeared from the market; however, it appears that many institutional holders have decided to remain and I expect most retail holders will do so too - but almost by definition, none of them will be short-term sellers, especially at a lower price!
I'd love to hear others' views on this possibility.
So guys - any thoughts on this?
Okay I'll bite on the paragraph quoted.
I think you need to carefully work through the logic of this again. In my experience many people (perhaps even the majority) are quite willing to sell at lower prices and reluctant to sell at higher prices -- this is "dumb money" behaviour (by definition).
If your strong logical conviction is that this tender price is some sort of high point for LLPC/D/E and that prices will be substantially lower at some point hereafter and in the meantime you have other good ways to invest your assets, then it makes perfect sense to be selling. If you are proved correct, (i.e. prices fall substantially) then what does that say about those who refused to sell? Well clearly many of them had taken the wrong side of that trade: they made a call, perhaps hoping for further rises and were wrong. What makes you think that these people are going to be wiser when the price has fallen? Their typical psychology is to laugh at small falls and convince themselves they are part of the ups and downs. When the fall becomes painful (and often they are over-exposed) they begin to doubt themselves. Then a final washout happens at prices where either they have to sell having delayed the decision too long, or lose hope of the price rising again, or fear some other catastrophe. So those people it turns out are very willing to sell at lower prices.
In my experience it's easy to buy shares when prices are significantly depressed. One needs to be able to do so confidently and patiently, which you cannot do if you hold too many of them already.
Obviously in the above discussion the crucial question is whether your own call is correct. Make sure you're confident of your logic, then make the decision. I did with NWBD; in fact I sold in the market before the tender close date and had the wonderful opportunity to buy another share very cheap just as good news hit the company. So was that blind luck? Or was it a natural result of prudent asset allocation??
Good luck with your choice.
GS
Thank you for such a thought-provoking response GS.
The psychology of the market (or rather, the sum of its participants) is an endlessly fascinating subject and alternative views on such matters (and many others) create the opportunity for buyers and sellers to meet at a price.
I do (painfully!) recognise your description of sellers' behaviour in a falling market and you are quite correct about buying low being far easier than selling high. I think your discipline in investment matters is far more rigorous than mine. My thought-problem is that I DON'T have an opportunity waiting for investment - in fact, out of an abundance of caution, I have too much cash in my SIPP (and have for years!). I am definitely over-exposed to bank prefs etc because I place great weight on the 'guaranteed' income; I just don't see them as a vehicle for achieving capital gains and if the price falls back I won't be too concerned - as long as the income remains certain! And it's hard to see where such income would otherwise be sought.
So the plan I postulated was aimed at meeting my objective, while (perhaps greedily?) seeking a shortish-term advantage offered by the tender. Perhaps the answer is to tender and then be VERY patient until something (inflation/interest rates/scare stories from Lloyds) causes the price to fall significantly and to shake out the doubters you describe so well. If it doesn't happen, I will have been sitting on far more cash than now, having sacrificed the present 6% yield for who knows how long! Although I will have realised large (tax-free) capital gains as compensation, I would be very disappointed if the opportunity to re-purchase never arose.
I think that I am by nature a long-term holder (of most investments) and not a trader; perhaps that means I should forget my plan!
Sorry if this has become rather philosophical!