RE: North21 Feb 2020 08:18
Photo......”Really, so they sold all the way up to now and now they are buying back in again? That’s it, I will never be rich at this as I don’t understand the logic behind that idea...”
My opinion. North have a finite amount of high risk money much of it in TXP. At say 30p they were selling because they saw the downside risk there as a placing at say 25p. By taking a top slice they could either self fund a placing, put it back in TXP at a new alpha, or do something else with the money.
The sp since took off on the back of Cascadura and PB interview. When they sold they had no way of knowing that Cascadura would reset alpha at a much higher level. So previously at 30p the downside risk was to say 25p. The landscape changed and now at 40p with an oversubscribed placing fully funded and a near 100% Cos on the 2nd test the risk is to the upside so alpha is now 40p for them. So why would you not want to take part in a placing at a higher level which also ensures the placings success, covers your position and if they didn’t take part someone else would.
If you compare to say Edale, they may have a different risk profile and may not of sold any shares and indeed may be buying more.
Following the placing we may find that North may be selling placing shares again even to reinvest at higher levels or to keep the cash. Let’s say they sell at 44p. That’s 10% profit. The Sp gets to £1.50 because, hypothetically, Coho and Cascadura are producing so much cash that Royston is paid for up front and they have drilled extra wells on Cascadura. They see alpha now as £1.50 as TXP are a different investment, they’re looking at a divi paying stock now so they buy in at £1.50.
There are different ways of managing risk. Imo some PI’s go wrong by not seeing the new alpha, or not adapting. They look at rising SP’s thinking they’ll pull back to what they bought in at or they see falling prices as a good investment and average down. I get that in reality we never know who is right but in the main it tends to pay not to fight the market. Buy the dip when it’s going up sell when it’s going down but be mindful of where you see alpha and how much of the sp is froth and sentiment.
To illustrate look at NCYT, I bought at 49p sold at £1, £1.50, bought at £1.52 sold everything at £1.62. When I sold the sp was £2 but I had NT and had to take market best. I sold because I realised sentiment had run its course for now and I had no idea where alpha was. NCYT may go on to do great things but it’s not for me. Compare that to TXP which is a progressive steady growth play, with risk, but you can see how each value point appears on the stair case. The knack is to have your average a few steps behind the sp. atm I actually think the company has made more steps than the sp so it’s cheap and that doesn’t matter if it’s at 50p, £1 or £10! Of course if you take some money out along the way all well and good but then you can be missing a big payday! All fun and imo!
Trek
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