Breaking News
LAST CHANCE for Cyber Monday SALE: Up to 54% off InvestingPro! Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

The Reject Shop - Strong Upside, Limited Downside

By CMC Markets (Michael McCarthy)Stock MarketsDec 21, 2018 12:56
au.investing.com/analysis/the-reject-shop--strong-upside-limited-downside-200199508
The Reject Shop - Strong Upside, Limited Downside
By CMC Markets (Michael McCarthy)   |  Dec 21, 2018 12:56
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Originally published by CMC Markets

The Reject Shop
The Reject Shop

The principles of successful investing are very straightforward. Cut losses, run profits. Any investor that can jump out of losing positions cheaply, while sticking with winners, will do well over almost any timeframe.

The challenge is in implementing the principles. Cutting losses and admitting we’re wrong runs against our nature. Similarly, it’s human nature to jump on a profit, rather than allowing it to run. Overcoming our own instincts is one of the single most important challenges on the path to a high performing portfolio.

It’s one of the reasons that some market professionals seek “asymmetric risk”. An investment where potential losses are limited, and potential gains are significantly larger, offers a better opportunity to cut losses and run profits. While many of these one-sided investment exposures are constructed using options, investors don’t need a degree in rocket surgery to identify these types of opportunities. A good example is the current situation in The Reject Shop (AX:TRS) shares.

In an announcement on 21 November the Allensford Unit Trustee announced an on-market takeover bid for TRS. Apart from stirring nostalgia in still extant older brokers (most takeovers are off-market bids these days) it raised a number of important considerations.

Naturally TRS shares immediately rocketed higher. However an on market bid means the bidder will stand in the market at the bid price ($2.70 per share) until a specified 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 (*ahem*) the takeover bid.

TRS shares are trading around $2.75. The backstop of the takeover bid means investors buying at this price have a limited loss potential of 5 cents per share, at least until 7 January. They can simply turnaround and sell into the on-market bid at $2.70. However if another bidder emerges, or the shares simply recover some ground lost over the last 9 months, a TRS shareholder may see significant further gains. This limited loss, higher potential profit structure is a neat example of the one sided risk that can deliver portfolio outperformance over the long term.

The Reject Shop - Strong Upside, Limited Downside
 

Related Articles

The Reject Shop - Strong Upside, Limited Downside

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email