Whether to sell shares and stess less?

[ENP]

I'm hoping you have all been through something similar and can help me out with this one.

I bought some shares in a smaller cap company about 3-4 months ago. I have taken out a small loan of 15k to aid in my purchase of these. Since I work at a bank, the loan is only charged at the floating home loan rate, althogh it is classified as a personal loan.

Everything looked rosy when I bought into the shares, they had a good history of growing their financials and the balance sheets and ROE are quite good.

The price of the shares has hovered around my purchase price since purchase.

However, whilst doing more and more research into the company and it's prospects for the future, there are a few things that have begun to worry me quite a lot. This, combined with the fact that I'm not as bigger fan as I originally thought about being in debt has me very worried. I'm pretty stressed out about the whole process, the worry of this keeps me up at night and makes me very very stressed out during the day.

I keep running pro's vs con's of whether I should sell and financially, it makes sense to use the debt and leaverage my exposure to the stock, but on the other hand it is causing me lots of worry about it's future and whether the decision to take out the debt and invest in the company was a good move.

I hold two other large cap stocks and am not worried about these at all and am happy to keep them.

Please help!

[fungus pudding]

I'm hoping you have all been through something similar and can help me out with this one.

I bought some shares in a smaller cap company about 3-4 months ago. I have taken out a small loan of 15k to aid in my purchase of these. Since I work at a bank, the loan is only charged at the floating home loan rate, althogh it is classified as a personal loan.




Sorry, I can't help at all, but I'm curious about your loan. Does the bank normally give unsecured loans to staff, and if not, what security have you given them?

[CJ]

Sorry, I can't help at all, but I'm curious about your loan. Does the bank normally give unsecured loans to staff, and if not, what security have you given them?He works for a bank so I assume they have taken his soul as security. Even if he pays back the loan, they may still keep it as part payment.

ENP - First, do think of things on a portfolio basis or an individual share basis. Ie. do you think of that loan as just against the one share or the whole portfolio. You should be taking a portfolio approach. You have some safe shares and you have some risky shares but as a porfolio, because of you wise selection, hopefully they grow faster that the NZX50 index with less volatility of choosing just one stock. The large caps should give you some sleep as it means if things go bad, you can sell out and still repay the loan. If you dont have enough equity for this to be the case, I would either repay some of the loan or move some of the high risk/high growth stock to a blue chip.

Second - If you bought a high risk/high return share and you no longer think it is going to be high return, all you are left with is a high risk share. Get rid of it or put a stop loss on it at least.

Third - if it really is keeping you awake at night, repay the loan, in part or in full or use it to buy something safer (a yield portfolio maybe that return more than the floating rate - RBD, WHS, TEL all above 5.5% yeild). You are still young and your health is more important.

Disclosure: have margin lending at about 35% of portfolio value. Porfolio is a mixture of bluechip infrastructure (IFT, CEN, TPW, FBU), high yeild (RBD) and high growth (DIL, XRO) among others. Ironically it is my blue chips (CEN and FBU) that cause me the most stress at this stage though I watch the growth ones most closely as they are high risk.

[fungus pudding]

He works for a bank so I assume they have taken his soul as security. Even if he pays back the loan, they may still keep it as part payment.


:D:D Possibly. :t_up::t_up: I just wonder what a personal loan is? Do banks ask, or need to know what the loan is for?
Any banks I have dealt with only care about the security offered.

[Aaron]

Maybe you could tell us what company it is. I am just being nosey but there are experienced investors on this site who could give you their views on the company(buy/sell/hold $value). If you think you have valued the company right price variations shouldn't matter.
How do most people establish a value for a company. I have been meaning to get around to this for a number of years now.What is your discount rate. ENP what factors/calculations do you use to establish the share value?

[h2so4]

Doing things that aren’t comfortable has a tendency to cause other areas of your life to become uncomfortable.

I would pay back the loan. Not because it is the right thing to do but because you can’t move forward if you don’t feel comfortable. I wouldn’t worry about the original decision you made either for the same reason that looking back may make you feel uncomfortable.

Just a bump in the road, whatever your decision get comfy enp and stress will be gone.

[ENP]

Maybe you could tell us what company it is. How do most people establish a value for a company. I have been meaning to get around to this for a number of years now.What is your discount rate. ENP what factors/calculations do you use to establish the share value?

Company is EMB Embelton Ltd

If it has ROE of 14% or more, debt/equity less than 1, growth of all above 10% or above.

If I think it is a great blue chip 14 P/E or less, 12 P/E or less for less than great company, but I think it good value.

Pretty simple.

[steve fleming]

Company is EMB Embelton Ltd

If it has ROE of 14% or more, debt/equity less than 1, growth of all above 10% or above.

If I think it is a great blue chip 14 P/E or less, 12 P/E or less for less than great company, but I think it good value.

Pretty simple.

A Roger Montgomery favourite I recall??

(http://blog.rogermontgomery.com/wp-content/uploads/2012/06/Money-Mag-Best-Dec-2011.pdf

http://blog.rogermontgomery.com/why-does-embelton-tick-all-of-roger-montgomerys-boxes/)

I generally wouldn't touch anything Roger recommends, but each to their own.

But seriously, small cap investing is a high risk game - I hold largeish positions in various small caps which, if they issue a downgrade or negative update, given the lack of liquidity, I will be (and have been) substantially impacted.

Over the years I have got used to the risk and have done well out of investing in illiquid small caps, but until you can accept the risk, probably better off avoiding them.

[Lizard]

Personally, I think that if the loan is causing stress, get rid of it. It is likely your career is going to be a bigger contributor to your wealth in life at this point, so not worth undermining it by reducing your ability to focus at work.

I am at the extremes of "debt-shy" though. My only serious foray into debt beyond a credit card was to buy a first home - and I probably paid it off at record speed (18 months).

[BIRMANBOY]

Look on the bright side...$15,000 is a relatively small amount to learn an important lesson about yourself. Although you probably could have learnt it equally well with $5000.
I'm hoping you have all been through something similar and can help me out with this one.

I bought some shares in a smaller cap company about 3-4 months ago. I have taken out a small loan of 15k to aid in my purchase of these. Since I work at a bank, the loan is only charged at the floating home loan rate, althogh it is classified as a personal loan.

Everything looked rosy when I bought into the shares, they had a good history of growing their financials and the balance sheets and ROE are quite good.

The price of the shares has hovered around my purchase price since purchase.

However, whilst doing more and more research into the company and it's prospects for the future, there are a few things that have begun to worry me quite a lot. This, combined with the fact that I'm not as bigger fan as I originally thought about being in debt has me very worried. I'm pretty stressed out about the whole process, the worry of this keeps me up at night and makes me very very stressed out during the day.

I keep running pro's vs con's of whether I should sell and financially, it makes sense to use the debt and leaverage my exposure to the stock, but on the other hand it is causing me lots of worry about it's future and whether the decision to take out the debt and invest in the company was a good move.

I hold two other large cap stocks and am not worried about these at all and am happy to keep them.

Please help!

[Snoopy]

I bought some shares in a smaller cap company about 3-4 months ago. I have taken out a small loan of 15k to aid in my purchase of these. Since I work at a bank, the loan is only charged at the floating home loan rate, although it is classified as a personal loan.

Everything looked rosy when I bought into the shares, they had a good history of growing their financials and the balance sheets and ROE are quite good.

The price of the shares has hovered around my purchase price since purchase.

However, whilst doing more and more research into the company and it's prospects for the future, there are a few things that have begun to worry me quite a lot.


Several issues here, so I will throw in my opinion, for what it is worth on each one.

I think when you invest in any company you need to write some kind of diary entry on why you chose to do so. If market or company specific circumstances change, you should review if those changes would have altered your investment decision, had they been known at the time of your original investment. If you believe the investment no longer stacks up against your original decision purchase strategy, you should then draw up a sell strategy for this investment.

Notice I did not say you should immediately sell the doubtful investment. That's because if the share price has declined since your purchase, that decline may fully reflect the new information that has become available. Thus although the prospects are not so good, it may be that the share price decline has fully reflected this. So the price/value equation still stacks up. If this has happened I would wait until the market becomes 'slightly irrationally exhuberant' before you sell. This may take some time. But hopefully your original due diligence gave you a big enough margin of safety to allow you to wait out this time.

ENP writes.
"whilst doing more and more research into the company and it's prospects for the future, there are a few things that have begun to worry me quite a lot."

What you are saying here ENP is that you are no longer happy with your original due diligence investigation of the company. If you are only partly unhappy, I would suggest drawing up an exit strategy as I have described.



I hold two other large cap stocks and am not worried about these at all and am happy to keep them.


I think you should take on CJs point that what you have is a portfolio investment. That means divide your total loan amount by 3 (assuming you have a roughly equal amount in all three shares) and think of your loan as being shared equally between your three investments. Thinking that your whole loan is supporting just one investment you are not happy with is not a true reflection of your situation.



This, combined with the fact that I'm not as bigger fan as I originally thought about being in debt has me very worried


This is a separate issue as I see it. If you find you are not comfortable with personal debt then you should get out of it. You can draw up all kinds of rational arguments, reflect on what others do in a similar situation. But in the end 'others' are not 'you'. There is good stress and bad stress. If debt stress is spilling over into other areas of your life in a negative way I would cut your losses and get rid of the debt, regardless of the underlying investment.



Company is EMB Embelton Ltd

If it has ROE of 14% or more, debt/equity less than 1, growth of all above 10% or above.


I am not an expert on EMB, but I have taken a quick 'google finance' look at it.

Dividend yield 3.68% Earnings yield roughly double that. If the dividend payout ratio remains and growth contiues at the historic pace it looks like that in 3-5 years that dividend might get close to covering your interest costs. Of course it would probably make more sense to look at your dividend income over your whole portfolio and see how close that comes to knocking your interest bill on the head.

I can't get inside your head ENP. But from an outsiders viewpoint, and especially considering your youth, where you are looks OK to me.

SNOOPY

[Serpie]

Personally, I think that if the loan is causing stress, get rid of it. It is likely your career is going to be a bigger contributor to your wealth in life at this point, so not worth undermining it by reducing your ability to focus at work.

Agree 110% Liz. Focus on what makes you money and pays the bills first, and recognise the symptoms that may suggest that you're gambling (not healthy) rather than investing (healthy).

[Stranger_Danger]

Banks lending money at the floating mortgage rate to buy microcap shares? To - judging from a previous post or two from ENP -a fairly young bloke who still has student debt.

Not knocking you ENP and you were right to take the opportunity, but sheesh, how much of this sort of lending are banks doing I wonder?

[fungus pudding]

Banks lending money at the floating mortgage rate to buy microcap shares? To - judging from a previous post or two from ENP -a fairly young bloke who still has student debt.

Not knocking you ENP and you were right to take the opportunity, but sheesh, how much of this sort of lending are banks doing I wonder?

That's what I was getting at in an earlier post. I doubt that banks would know where money they lend goes. Most bank lending to individuals is secured by mortgage, and in my experience the banks don't ask, or don't care what the money is for. The security is all that concerns them.

[Stranger_Danger]

Yeah, but what I took from ENP's post is that perhaps the rules are different for bank staff? I'd be keen to learn a little more about the specifics of this, if true.

[ENP]

When I got the loan, my manager told me I should have said it was for an overseas holiday as I would have got the loan easier. Go figure.

15k was the most they would lend me. It was unsecured, but with my saving history and proof or current portfolio of stocks they were happy to go ahead. And yes, they are a bit more flexible if it is staff going for the loan.

Sold the shares today also by the way and paid off just about all of loan other than 2k which will be paid off in 2-3 months.