And God shall wipe away all tears from their eyes; and there shall be no more death, neither sorrow, nor crying, neither shall there be any more pain: for the former things are passed away.
It is with no small sense of humility that I disclose a token short position in Gulf Keystone Petroleum.
After all, it is already very late.
It is one year and eleven months since Todd Kozel left the company to work on his complicated personal affairs.
It is one year and one month since the weakening Gulf balance sheet resulted in a security interest over the Kurdistan assets being granted to the bondholders.
It is ten months since Jon Ferrier told the Telegraph that the company faced a “perfect storm.”
We are some 175p lower than when Tom Winnifrith originally identified this as a sell. Others, notably including Lucian Miers, have analysed this stock superbly over the period.
The amazing thing about the stock market (and in my view, the greatest thing about it) is the assuredness, within reason, of liquidity on every single business day.
For long-only investors, like Terry Smith, this means buying the shares of proven success stories many years after they have already won the competition to dominate their particular industry. To quote the great man:
"We do not seek to pick winners in the sense that most punters do, which is studying form, viewing the horses in the ring and then betting.
We wait until we know who has won and then wait for the bookmakers to offer us odds against them winning. In our case there are not bookmakers in the sense of a racecourse, we are talking about the market mispricing shares." (Bold is mine.)
This has proven to be an excellent approach to stock market investment. You can wait for a company to have an unassailable competitive position, buy shares in them even if they are vastly more expensive than they used to be, and still make a lot of money.
I suspect that it also works well in reverse.
In other words, I suspect that the strategy of waiting for utterly hopeless situations to emerge and then shorting them, even if the share price has already collapsed by more than 99%, is a worthwhile strategy.
Why this might be the case is less important than whether it is true or not. However, one simple explanation would be the counter-productive yet all-too-common instinct to trade counter-trend. On the way up, investors tell themselves “nobody ever went broke taking a profit”, so they sell shares in successful companies which would have happily continued generating wealth for them for perhaps decades to come. On the way down, they tell themselves that shares in a busted business are “cheap” when the unfortunate truth is that they are worthless.
I know, because I’ve made these errors in each direction.
Next time you have money to spare, put it in the bank. I don't think you have learned much in the past 5 years ... the ego and arrogance tells it all. I wouldn't be surprised if another GKP comes up in the future in another shape or form, you will fall for it all over again.
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