Heat Map Of Corruption
May 5, 2014
May 26, 2014



I’ll be the first to admit that I have no idea how to value Twitter (TWTR: USA). For that matter, I don’t even know how to tweet. However, if you liked the stock on Monday, you must really like it today (Wednesday)—two days later—nothing has changed at the business, yet the shares are down by nearly 25%.

Why are the shares down so much on no corporate news? On Tuesday the 6th of May, 480 million previously restricted shares became unlocked and eligible for selling. Let’s just say that a whole lot of venture capital types decided to liquidate a very successful investment on the same day. Anyone buying shares on Monday should have read the corporate filings—this unlock of stock was clearly telegraphed. In fact, if you bought shares on any date in the past few weeks, shame on you—it was pretty obvious that you should have waited.

As investors, we spend so much time focused on the fundamentals of a business that we sometimes forget that the price paid for an investment is a key determiner of future investment returns. Timing your entry is a factor that is rarely appreciated—especially amongst long-term investors that have multi-year time horizons. While news can impact share-price, people tend to forget that other factors like large sellers, equity offerings and the unlocking of restricted shares also impact share-price.

Some of this is predictable, some of it isn’t. I’m not suggesting that you should sell shares before a stock unlock, but I am strongly suggesting that you be aware of events that may impact the share price if you are looking to purchase shares. From my own experience, I have found that a combination of awareness and patience can often get you a better price, particularly with less liquid securities.

When I like a smaller company, I often let the CEO know that I’m looking to buy a block of stock—though only at a discount to market. More often than not, the CEO knows who is selling his shares, or who wants to sell his shares. If he is unaware of a seller, he may save my information and get back to me in the future. You would be surprised how often it is that I get a very lucky phone call about a seller looking for liquidity—especially near year-end. There’s nothing like buying your shares at a 5% to 10% discount to the market to start off a very successful investment—it sure beats paying a premium as you bid up an illiquid stock.

This week’s trading in Twitter proves that you don’t need to run a fund to get a bargain price by being aware of potential sellers. Is 30.5 the right price for Twitter? I have no idea, but it’s much less than the 39 that it closed at on Monday, before 480 million shares unlocked.

Categories: Comments On Events
Positions Mentioned: none

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