subject: Managed Accounts Share Trading Notification - Wpl Purchase [print this page] Good afternoon,
last Friday, the position in we held in Woodside Petroleum was re-purchased at $42.78 for our Managed Accounts. The rational behind this particular investment is the same as when it was first transacted on two months ago. WPL has a rising production profile and the price of crude oil and natural gas is expected to rise over the long term so the base fundamentals of WPL are very solid.
Although the market is down 60 points this morning, the portfolio is mostly protected by the put options we hold and the Australian market is holding up extremely well considering the larger fall in the US and Europe.
The rationale behind an additional purchase follows two lines:
Firstly, we had been holding only 35% stock, and this is a little underweight on our overall strategy of being overweight stock after market selloffs. This is particularly so given the fact that the recent purchase of index put options further reduced this exposure. We purchased WPL in part because it is cheap and represents excellent value, but also in part to ensure we will make money if the current selloff does not continue.
If the market does continue to fall, we will make money on the put options, meanwhile the stock that we do hold will lose value. The loss of value will be offset by the fact that we still hold around 45% of the portfolio in cash, and so once the put options have made a profit, we can use it in addition to the significant cash holding to purchase much cheaper stock.
We have our eyes on names such as BHP around $36.00, and WOW near $25.50.
We would like to briefly touch on the topic of market psychology here once again. Most investors (our clients being no exception) tend to worry more about the economy and financial markets the further that the market falls. When markets bottom, people's concerns are the worst, but of course this is when absolute risk is lowest because markets can only fall so far. News articles are at their most fearful, but not because things will continue to be bad but because reporters reflect markets, not forecast them.
At the current time we are continuing to weigh up the risks to financial markets. We are protected out to December against a serious collapse in the Australian index through index put options and can of course add to this position should research back that decision up.
After this purchase, we will remain very cautious on the remainder of the available cash, and once again should we see further substantial falls in the market look to make a profit on the options while scouring the market for opportunities.
by: Hayden Kerr
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