Wednesday, January 25, 2017

IWG Technologies Goes Private

Two years ago I wrote about a tiny company called IWG Technologies (IWG) that makes water systems for aircraft. It had a net cash position, traded at a single-digit P/E for much of that year, and had decent growth prospects. The company was just taken private at a 75% premium to its price two years ago.

Unfortunately, I didn't manage to book every percent of that gain, as I sold a lot of it on the way up. The trade-off that occurs between value and momentum continues to play tricks on me, and probably will for the rest of time. I've become more patient in letting positions run up before selling (though that might just be a symptom of the fact that I'm finding it harder to find value, and therefore there is less pressure to sell existing positions), but of course that has left me more susceptible to corrections where I could have booked gains but prices came back down before I could.

So I'm not sure what lesson to take here. I could have made a lot more by being more patient, but if the buyout hadn't happened, that strategy may have cost me. Nevertheless, statistically, stocks that are going up do tend to keep going up, so holding on is probably a better idea if there are no other companies one wants to buy, so I'll keep trying to do that even if it hurts me sometimes.

The lesson for all investors though is that low EV/EBIT generates good returns versus the risk, with IWG Technologies just being the latest example.

2 comments:

Unknown said...

Hi Saj, I have often struggled with the same question and actually posed the "when do you sell question" to Seth Klarman when I had the chance to ask once. In a hypothetical situation where you value a company at $20/share and purchase it at $10/share when do you sell. He told me at $18/share. I have always found that rule of thumb useful.

Saj Karsan said...

Hi Unknown,

Thanks. I don't love that approach, however, because it doesn't take other things into consideration like your current portfolio (cash balance etc) and the wider opportunity set.

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