Originally published by CMC Markets
The principles for successful investing are very simple. Losing losses, winning profit. Any investor who can jump out of the losing positions cheaply while holding on to the winners will do well in almost any time frame.
The challenge lies in implementing the principles. Losing less and admitting that we are wrong, goes against our nature. Likewise, it is human nature to make a profit instead of letting it run. Overcoming our own instincts is one of the most important challenges towards a well-performing portfolio.
It is one of the reasons that some market professionals are looking for "asymmetric risk". An investment where potential losses are limited and potential gains are significantly greater offers a better opportunity to limit losses and gain profits. Although many of these unilateral investment positions are built using options, investors do not need a degree in missile surgery to identify this type of opportunity. A good example is the current situation in The Reject Shop (AX 🙂 shares.
In an announcement on November 21, the Allensford Unit Trustee announced a takeover bid on the market for TRS. Apart from generating nostalgia with existing older brokers (most acquisitions are off-market bids nowadays), it has put forward a number of important considerations
.
Of course the shares of TRS increased immediately higher. However, bidding on the public market means that the bidder will remain on the market at the offer price ($ 2.70 per share) until a certain date, which in this case is 7 January 2019. That date may be extended at the discretion of the bidder. The TRS board has recommended that shareholders reject the takeover bid (* ahem *).
TRS shares trade around $ 2.75. The backstop of the takeover bid means that investors who buy at this price have a limited loss potential of 5 cents per share, at least until 7 January. They can easily be turned over and sold for the bid on the market for $ 2.70. However, if another bidder shows up, or the stock simply regains some lost ground in the past 9 months, a TRS shareholder can see significant further benefits. This limited loss, a higher potential profit structure is a good example of the one-sided risk that can outperform the portfolio in the long term.
Liability: Fusion Media wants to remind you that the information on this website is not necessarily real-time or accurate. All CFDs (equities, indexes, futures) and Forex prices are not provided by exchanges, but rather by market makers, and therefore the prices may not be accurate and may differ from the current market price, which means that prices are indicative and are not suitable for trading purposes. Fusion Media therefore does not accept any responsibility for possible business losses that you may suffer as a result of the use of this data.
Fusion Media or anyone involved in Fusion Media accepts no liability for loss or damage resulting from reliance on the information including data, quotes, graphs and buy / sell signals on this website. Be fully aware of the risks and costs associated with trading on the financial markets, it is one of the riskiest possible types of investment.
