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Here on Reel From The Real, i write what i’ve learned in investing x personal finance.
My goal is to:
share optimistic and positive energy - because the hustle is real x rough enough
personalise personal finance that bit more.
😎 To your wealth,
Aila Obiocha
“Investment success does not come
from “buying good things,”
but from “buying things well.”
- Howard Marks
In other words, price matters. You can buy a “bad” investment asset and still profit. You can make a wrong judgement call and still make bank.
You can be wrong - and still win.
What a delicious idea.
Take SABR as an example. Based in the USA, Sabre Corporation (SABR) provides travel solutions and hospitality solutions globally. Steady company, capable management, good profits, healthy dividends. Practically a SAAS business. But in the wake of the covid pandemic, SABR was having a hard time.
I bought a few shares of the company’s stock in April 2020 when it was trading at $4.75 on the NASDAQ.
One look at the price chart showed that SABR had traded at ~ $22 for the past 5 years, from mid-2014 onwards. Steady company, capable management, good profits, healthy dividends.
The company describes itself as a “software and technology company that powers the global travel industry”. So when the whole world went into shutdown, and then lockdown, you can see why the stock price declined so badly, thanks to the effect of covid on the travel and tourism sector (airlines, cruise ships, hotels). No travel, no tourism, no demand for SABR’s services, no revenue. The rest is evident in the stock price.
When I discovered SABR, the thesis surrounding my decision to invest was simple. It was 8 sentences long. Negative momentum has rendered a potentially good company much cheaper than it has ever been over the past 5 years. The company does not need to regain its “previous glory” share price of $22, for investors to profit from this trade. In fact, SABR may never trade as high as $22 ever again. But it doesn’t need to. It just needs to do better than the current price of $4.75. Unless the entire travel industry (SABR’s clients) permanently go out of business, the probability of this “doing better” is quite high. The company’s future will be restored, and investors’ fortunes will rise. Conclusion: BUY.
My entry price of $4.75 was a 78% discount from SABR’s 5-year average price of $22.
I call this the price at which a thousand sins can be forgiven.
At this price, anything can become a source of profit. All I needed was something, some news, a change in fundamentals to prove out the thesis and cause the stock to trade at a price higher than $4.75, and I would be 📈 📈 📈 in the black.
It could have been speculation about travel stocks, airline companies, information about the American economy, or news about improved company performance. Literally anything, except for bankruptcy, (which is a whole other scenario) would have proven the thesis out.
Thesis x Time = 📈 and 💃🏽 to the 🏦
Here’s what happened. The world began to talk about a vaccine for the coronavirus. Covid PCR test kits were developed. We began issuing test-to-fly certificates in countries reopening borders, and taking our first doses of Pfizer and Moderna vaccines around late 2020 / early 2021.
SABR’s stock price responded to these improved developments, and began trading in the $9-$11 range.
Countries began to reopen international flights, lift domestic lockdowns. Again, SABR’s stock price responded, trading in the $12-$14 range.
In April 2021, I finally sold SABR stock at $11.50 a share, making a 242% return on investment**. Between April 2020 and April 2021, every $1 I placed in $SABR had become $2.42 dollars. My money had made its own money. Thesis x Time had seen SABR 📈 and me 💃🏽 to the 🏦
As you can see from the charts, SABR is currently trading at $7.05. It’s having a hard time, like all investment assets today (stock markets, crypto, etc etc). But I used the company as a example for this post because price matters.
“Well Bought is Half Sold”
- Howard Marks
Price matters. Your entry price level on a stock could be another person’s profit exit level, and vice versa. When people ask me about investments, or tell me they are thinking of buying a few shares of ABC or XYZ company, the next question they ask is almost always some version of: is this the right price for me to buy? A Labyrinthian question.
What they want to know is if the price is too high for them to make a profit. What they should want to know is if the price is right. Right, not High. Right, so that even if they are wrong, they can still win. Right, so that the investment is still attractive to a buyer (preferably more than one), because the only wrong price is a price at which you become a desperate seller.
“Do you wanna be right,
or
Do you wanna be rich?
- Felix Dennis
Investing is one of the few games on earth where you can be wrong about nearly everything and still make money - if the price is right. The right price is essential. You don’t have to be right about every single detail concerning the investment in order to profit from it. As far as I know, no career rewards you for being (partially) wrong. Investing is not University. It is not important to be right. It is important to be rewarded.
** Pls note that not every investment works out like SABR. There are some that 📉, some that 📉 📉 📉 and some that 😭 😭 😭 .
** Also, I could not predict how long it would take the SABR thesis to work out. I had to be patient. Even if I was right about the stock, timing matters. You can be right on the direction of an investment, and be wrong on the timing.