The Trader vs Investment Perspective
Quote:
Originally Posted by
Snoopy
When going through my 'Contact' folder today I came across an extraordinary fact. I had thought of my self as a 'buy and hold' investor as regards Contact. It would be more truthful to say I am a 'buy and buy' investor. Incredibly I have now bought into Contact on 18 separate occasions and never sold any! Granted many of those buys were for very modest amounts when I was participating in the dividend reinvestment plan. So I am not quite the gazillionaire you might think. But it is an extraordinary record for me nevertheless.
The main objective of the trader as I understand it, is to sell out at a profit. By contrast the main objective of an investor like me is to gain the lowest possible average entry price. For someone like me, that means I have no plan to ever sell out of CEN completely. So the idea of a particular share purcahse having a 'beginning' and an 'end' ceases to have meaning. As long as the good dividend flow remains I will ride the ups and downs. If along the way my share starts to look cheap I will buy some more to lower my average entry price. By contrast, if the price goes up above what I deem fair value, I may look at selling a few to lower my average entry price (hasn't happened yet!).
It is true that in theory I could have sold all of my CEN shares back in May 2011 at $5.84 equivalent. But as a long term investor I would never have done that. As it happens my average purchase price today is $4.82, and back then it was even less. As I did not judge $5.84 to be overpriced at the time, there was no reason for me to sell at the time. As you can see my current CEN fair valuation is $5.87. So I am very comfortable with not selling at $5.84, even all these years later.
Fixing on a particular price on a particular date is to me not significant. Sure people remember their first buy in price and some, like me, keep a record of their average buy in price. But when you have bought into a share eighteen times, a particular partial purchase at $5.84 (nominal) on a particular day ceases to have any relevance. Of course from a traders perspective I fully understand that they may have a different view!
SNOOPY
Snoopy's Contact Energy Investment Return
Quote:
Originally Posted by
Snoopy
My fifteen years with the company have had their (relative) highs and lows. Although I have been with Contact for 15 years, half of my purchases (in terms of the total number of shares bought) were over the last four and one quater years. IOW my median purchase timing was back in May 2011. So how have I done? A quick look at the historical chart would show that I made my time based theortical equivalent single purchase (median purchase) when the share price was at $5.92. The current share price is $5.11 - not good! But is this really a good measure of how I have done? Let's see.
Following my 'median' purchase of shares, I banked three more dividends through the dividend reinvestment plan. I did this at the time because I wanted to increase my CEN holding, but also for 'tax reasons'. I was able to get my DRP dividends completely tax free. Looking back this wan't a smart move overall. Invariably once my DRP shares came to me, the market share price had already declined below the price my new shares were issued at! I made a note to myself not to do stuff for tax reasons again! I suppose I will though, because I always fall for that! The IRD decided this Contact DRP was a rort as set up, so cash dividends soon resumed.
Here is the dividend stream I got:
11cps, 14cps, 11cps, 15cps, 11cps, 50cps (special), 15cps (unimputed due to special dividend clearing out all the imputation credits).
If I replace that last dividend of 15c with a tax paid equivalent:
15c x 0.72 = 10.8c
then the total net dividends add up to $1.228 over the median four and one quarter years holding period. At $5.10 (the CEN share price as I write this), my capital gain over my average purchase price is:
$5.10 - $4.82 = 28c
Add this to the net gain from dividends over the period of $1.228 and the total net gain per share is $1.508. $4.82+$1.508=$6.328. This gain is over 4.25 years. So we can work out the compounding annual return as follows:
$4.82(1+i)^4.25= $6.328 => i=6.6% (net) or 9.2% gross
9.2% is not a get rich quick scheme. But it is an excellent return for a utility type asset. However, if you were shallow enough to do no homework and just look at the chart over that four year period, you might convince yourself that I had made a significant loss over the same timeframe! This kind of thing is why I don't use charts when I make my high dividend yielding investments.
SNOOPY