Sold Global Sources For 9.47% Total Return In 18 Months

By | December 1, 2015

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Admittedly, this investment did not work out the way that we wanted (very few do, some surprise to the upside and some not so much). The investment thesis was sound and we expected to exit at around $10/share which is still a good target. The reason we sold this stock was two-fold: 1. This took up almost 10% of the portfolio and we wanted to free up cash to be ready for the November/December funk in the stocks that we are seeing now as investors reposition their portfolios in preparation for the Fed rate hikes and also make their tax loss harvesting transactions, and, 2. We expected many better-valued opportunities to come to the forefront before the end of the year Given that the small cap value stocks have performed poorly during the holding period of this stock, the 9.47% return is respectable. INITIAL PURCHASE SALE Date April 7, 2014 Oct. 27, 2015 Average Cost 7.93 (Initial tranche was bought at $8.50/share) 8.65 Final Weight in the Portfolio 11.22% There are a few facts to keep in mind for this holding. This should also give you a better insight in the way I think as a value investor: In 2014, the company issued a tender offer to purchase about 14% of the outstanding common stock at $10/share. We participated in the tender offer and had approximately 14% of our shares repurchased by the company at $10/share. The profit from this above market tender offer is included in the Total Return of 9.47% Subsequent to this, the share price had declined to almost $5/share, giving us a paper loss of almost 40% at one time. At $6/share, we bought more. In 2015, the company issued another tender offer to purchase more stock at $7.5/share. We declined to participate in this tender offer deeming the offer insufficient. The stock rose to $7.5/share level by the time the tender was complete. After the tender was complete, the stock eventually rose above the $8/share mark and we decided to sell as the timing was right. Global Sources (NASDAQ: GSOL ) is one of the competitors to Alibaba (NYSE: BABA ) although the business model is slightly different, with it focusing more on high end and vetted buyers and sellers while Alibaba’s requirements are quite lax. GSOL also hosts sourcing fairs and exhibitions to bring the buyers and sellers together so a lot of the business on its platform is conducted offline as well as on its online marketplaces. During the holding period, Alibaba came to the market via its much awaited IPO. The BABA stock rose significantly upon going public. Over time though, when we sold GSOL, Alibaba was trading below its IPO price. We often chase the sexy in the high growth companies like Alibaba, but when it comes to investments, the boring value stocks more often than not end up delivering better. It is not all straight forward though, you do need to know what price moves to ignore and what price moves to take advantage of. Scalper1 News

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