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A 2016 Post Mortem on Super Group Ltd’s Buyout: When to Add to Your Investments

As I cross over to a new year, it seems like a good time to look back at the investment decisions that I have made over the past year to find lessons that could be useful for other investors.

One standout event from 2016 was the buyout of Super Group Ltd (SGX: S10). In early November, a subsidiary of Jacobs Douwe Egberts BV (JDE) offered to fully acquire Super Group’s shares for S$1.30. At the buyout price, my total profit (including dividends) will be around 20%.

A 20% increase seems like a fair gain, but my investment in Super Group did not always look in good shape.

A look back at what happened

In May 2014, I purchased my first position in Super Group at around S$1.48 per share. Yes, that’s right; this is a stock price that is above the buyout price of S$1.30. On 23 June 2016, I added to my position in Super Group at a price of S$0.81. The second position I took has delivered an overall gain of 58%, thereby resulting in a positive return of around 20% for my total investment in Super Group.

If you had looked closely though, you may have noticed that my initial position in Super Group had fallen by a gut-wrenching 45% when I bought my second position.

When to add to an investment

In a previous article on my takeaways from the Super Group buyout, I talked about putting the brutal truths on the table.

That means laying out both the bull case and bear case for a company, regardless of whether the stock price is doing well or doing badly. In another article, I talked about the dangers of the anchoring bias and why we should not consider our initial purchase price if we decide to increase our investment in a company.

All things considered, the burning question still remains: When should an investor decide to add to a company?

In my view, the decision ultimately is a judgement call.

In essence, we are considering all the facts (bull and bear) on the table and deciding, based on what we know, on what to do next.

In the case of my second purchase of Super Group’s shares, it was a combination of the company’s strong balance sheet, free cash flow growth, and new products that tipped the scale for me. Truth be told, the next two earnings reports from Super Group after I had bought shares the second time were not inspiring. The company reported an 8% decline in sales in the second quarter of 2016 and a 1% decline in sales for the third quarter of 2016.

So, it was entirely possible that my investment could have turned out differently.

Luck played a big part in my gains. If JDE’s offer did not appear, it is possible that Super Group’s stock price would still be languishing at lower levels now. What I can do as an investor is try to position my investments the best I can.

This brings an end to a series of articles I have put up on this post mortem of my experience with Super Group. You can check out the rest of the series below:

  1. How to invest fearlessly: go herehere and here
  2. A dangerous investing bias to avoid: go here
  3. The importance of the bull and the bear: go here

Thanks for sticking around.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Super Group.