Looking For Advice - New Situation For Me
So I am invested in $Y which was recently agreed to be bought out by Mr. Buffett a month or so ago for an agreed upon price of $848.02 a share. I have personally never had a stock bought out from under me like this.
My question is this:
Do I sell now or is there any advantage in waiting to hold it longer now that a buyer is in place?
12 VotesPoll ended on: 05/14/22
Ah, ye olde merger arbitrage. Hold on for an additional $18 per share, or sell now? How likely is the deal to go through? And do you know when you'll get the money from closing?
@valuabl the merger seems to be pretty locked in and Buffett rarely backs out especially from a mini Berkshire like company such as $Y. However I do not know when the deal will formally go through. I’ve had it for years.. so, it’d be long term cap gains which is good 👍🏻 maybe I sell and use the cash on some beaten down names. I’ll see how the poll turns out!
Was that recent 19% bounce after Buffet announced he was buying? Looks like a great time to exit, depending on how long I’d been holding. Got back to the highs. Would depend a lot on my entry point. If id bought I prior to Covid and went off a cliff, I’d be happy to get out even. If I’d bought after Covid, I’d be happy with that profit. So personally, either way, I don’t know how much more juice you’ll get out this squeeze. Any reason to believe you’ll get more than the Buffet bounce?
So my apologies, I trigger finger voted hold, because it was Buffet buying and he’s kinda my thing, but I would sell after looking at it a little more closely. Like you said, probably better opportunities elsewhere in portfolio where you can reduce your price point.
In this situation I like to think about what the downside is if the company is not bought, where would the valuation drop to in this environment, if this is too big then I normally sell out. Also never question the M&A discount it is there for a reason and it always portrays the % chance that the deal doesn't pass.
Weigh out the return you think you'd get based on IRR. would the IRR of holding it or selling and using elsewhere be more or less?
@paulcerro I suppose the hurdle rate would just be 2% difference in the buyout price and price today, correct? So said another way, do I think I can beat 2% redeploying the cash elsewhere.. and in this market… that’s up for grabs lol.
Am I at least understanding your thought process correctly?
@strib Just did the math for you. If you think you can get at least to BE post paying capital gains then looks like selling might be worth it given IRR perspective
However, given this market, the odds of you losing it are high too (not to knock your investing ability, everyone hurting)
So you also have to way out downside risk, mental sanity, etc.
None of this is financial advice so take it with a grain of salt and do what you think is best based on what you do on your end for calculations