Investing sounds simple, buy low, sell high but we all know it isn’t, especially as some investors never sell… And even if you spend the time working out trading systems, researching net asset values etc a slice of luck is still needed. Below is an investment decision by Biznews community member Ross Malt. He talks about how he bought shares in a hotel property group at a third of the price. And how he’s going to hold onto the stock for years to come, in typical Warren Buffett fashion. And how when you buy a share you become an owner of the company, so make sure you believe in it. Some good old investment speak. – Stuart Lowman
By Ross Malt*
This may sound like the catch phrase of an investment scam or ponzi scheme, but is in fact the truth, and the amazing thing is it was done without paying huge commissions to brokers or financial advisers, nor is it an unregulated investment.
So how did i do it? I bought a share of a hotel business on the Johannesburg Stock Exchange, therefore I am the part owner of the business and the properties which it owns, albeit a part of a percentage of the hotels and resorts in question.
The hotels and resorts in question are all part of the Gooderson Leisure Corporation Limited (share code: GDN). Now many share market observers may well sigh and say “oh that old dog”, “the share price has done nothing for years”, and in a sense they are right. It is a small cap, or more aptly a micro cap, it is illiquid, and the share price has hardly moved in years. However, none of these arguments phase me, because my philosophy when it comes to my long term share investments is that i am buying businesses, not pieces of paper to buy and sell. I would be willing to hold Gooderson for 20 years or more if it continues to do what it does well. I have my own hotel chain without ever having to get up at 4am and start preparing breakfast and washing linen, why would i ever sell it? The only reason to ever sell would be if the value appreciates significantly, and better opportunities present themselves, but in the meantime, i collect a dividend and am being paid to wait.
One of the assets is the 168 room Tropicana Hotel, right on the Durban golden mile. How much is this property worth? How much would it cost you to build the same thing? I bet you would not get much change from the entire current market cap of Gooderson, currently around the R60m mark. Therefore the other 9 hotels and resorts are effectively free! This includes resorts such as the Drakensburg Gardens Golf & Spa Resort, currently valued at R44m on the balance sheet, but that is most likely conservative. The last reported Net Asset Value (NAV) of Gooderson was R1.55, and one has been able to buy the share at around 50c of late.
I find comfort in buying the assets at a third of the price, certainly it feels safer and easier than buying a hotel at full asset value, and having to run it yourself, but perhaps I have watched Fawlty Towers too many times.
- Ross Malt has a Bcomm from the University of Cape Town and has been a full time investor for two years. He won the JSE Investment challenge in 2014 where he turned R1 million into R2.2 million in three months.
- Not a recommendation to buy, small caps are risky. More a way to think about shares. I currently own shares in Gooderson.
