When I entered my position in Clear Leisure a bit more than a year ago I realized that it was a hairy situation, but I couldn’t resist buying a company at 2p/share that announced a 2p/share dividend. The dividend payment never materialized, and in the past year the stock was more often suspended for trading than not. When you have an investment that isn’t working out you are in a tough spot: you don’t want to sell at the point of maximum pessimism, but you also don’t want to hold on to a loser. Behavioral finance suggests that this is a common mistake that is made by investors but knowing this fact doesn’t really provide a solution.
I guess I didn’t sell at the point of maximum pessimism because the 52 week low is 0.51p/share and I sold yesterday at 1.30p/share for a realized loss of 35%. But you could make a good case for the fact that I should have sold a lot earlier in 2014 when it became apparent that the 2p dividend was unlikely to happen, and perhaps in the future this sale will appear ill-timed as well. But when the stock suddenly jumped yesterday on no news I thought it was a good moment to take my losses. Fundamentally the company is not a lot different than a year ago, but the potential upside will probably be diluted soon since they are planning to raise equity.
Whether or not Clear Leisure was a bad investment remains a tough question to answer. It certainly didn’t go my way, but I recognized it as a high-risk situation and you can’t determine what the probability of a favorable outcome was ex-post. I’m inclined to think that my Clear Leisure bet was a mistake, but not because of fundamental reasons related to the company.
The biggest problem is the fact that it was trading on the AIM market in London, and that market has ridiculous trading costs because it does not have an electronic order book in which your orders can be matched against other investors. You can only execute your orders against a market maker, and as a result you are forced to pay the wide bid/ask spread. This makes it very costly to change your opinion, something that is likely to happen when you invest in a hairy situation. To make things worse, I bought this position at the new Dutch broker “DeGiro” and their trading system is so crappy that you often have to e-mail their helpdesk just to get an order accepted by their system. Otherwise, I would probably have been able to exit earlier.
No position in Clear Leisure anymore