Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
If You Don’t Understand Bonds, You Don’t Understand Investing - 25th Aug 19
Gold's Next Move - 25th Aug 19
Fresh Water Crisis Unfolding - 25th Aug 19
Newbie Guide to Currency Pairs in Forex Trading – Review - 25th Aug 19
When A 16-Year-Old Earns $3 Million, You Know It's Not A 'Silly Fad' - 24th Aug 19
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Why Gordon Gekko Was Wrong, Greed is Not Always Good

Companies / Mergers & Acquisitions Oct 29, 2012 - 08:39 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleAs longtime readers know, I have a real affinity for old investing adages - in large part because of the very real lessons the best ones convey.

And one of my favorites tells us that "Bulls make money, bears make money - and pigs get slaughtered."


With apologies to Gordon Gekko, while greed may be good, excessive greed can be hazardous to your health - and to your portfolio.

And a news item I spotted last week drove that point home.

Last Monday, the trade journal Canadian Business reported that Canada has issued a "thumbs-down" verdict on a deal that calls for Malaysian state-run energy giant Petronas to pay $6 billion for Progress Energy Resources Corp. (PINK: PRQNF), a natural-gas producer that's based in Calgary.

Canadian Industry Minister Christian Paradis said Ottawa nixed the deal because the administration of Prime Minister Stephen Harper was "not satisfied that the proposed settlement is likely to be of net benefit to Canada," Canadian Business said.

Needless to say, the free-market crowd is using the Harper Administration for target practice - alleging the rejection will have a chilling effect on all foreign investment north of the border.

Greed is Not Always Good

Of course, that's a political concern. My focus today is on the investing fallout ... and the lesson we can learn from it.

As a result of the decision, the value of other resource companies - especially ones investors thought might serve as decent takeover candidates (at a nice premium) - have also been hit.

Investors are also worried the decision also puts at risk the proposal by China's CNOOC Ltd. (NYSE ADR: CEO) to buy Canadian oil-sands player Nexen Inc. (NYSE: NXY).

And that brings me back to my "pigs get slaughtered" point.

You see, Permanent Wealth Investor Editor Martin Hutchinson twice recommended Nexen shares to Private Briefing subscribers - first in early September 2011 and then again in early July of this year ... just two weeks before CNOOC offered to buy Nexen for $15.1 billion, or $27.50 a share.

Afterwards, the stock jumped to $26 - 33% and 54% above where he'd recommended it to you, but a full 6% below the "offer" price of $27.50.

When the Nexen deal was announced, a lot of folks asked us whether they should cash out and take their winnings, or hold out for that last 6% - which, admittedly, is a significant amount of money in today's zero-interest-rate world.

Martin didn't hesitate. In fact, he gave readers the same advice he gave his own subscribers (who, by the way, pocketed 68% on the deal).

Sell.

"There's an old investing adage that says you'll never buy at the very bottom and you'll never sell at the very top," Martin said at the time. "And this is one case where I think that investors would be very wise to take what the market is giving them."

Martin's reasoning was based on two things.

First, any takeover - especially one this large - would take many months to consummate. So you could end up waiting a very long time for that small bit of additional cash. With time comes "exposure" to potential risks - including unforeseen events that could change the deal's financial terms, or scuttle it altogether.

With the Nexen deal, the No. 1 worry was government resistance.

And that risk was well-known, thanks to a law called the "Investment Canada Act," which requires government leaders to "evaluate whether individual transactions are in the net benefit of Canada."

If Ottawa decides there's no benefit to the Nexen buyout - as it did with the Petronas/Progress deal - then the deal gets scuttled. And if the deal is nixed, the share price of the target company probably plunges back down to pre-deal levels.

If that happens, that 30%, 40% or 50% windfall profit you were holding in your hands gets whisked away on the wind.

What You Lose When the Deal Falls Apart

It's happened before.

Various miscues helped kill the $40 billion BHP Billiton Ltd. (NYSE ADR: BHP) bid for Potash Corp. (NYSE: POT) in 2010, as well as the $19 billion CNOOC bid for California's Unocal Corp. in 2005. Ultimately, however, it was resistance from the target companies - as well as from government leaders - that combined to sink both deals.

Thanks to the rejection of the Petronas deal, Nexen shares closed the week near $23.30 a share. That means that any investor who held on for the extra 6% is now actually 10.4 % below where they were when the deal was announced in late July.

And that 10.4% drop in your profit doesn't include the "time value" of the money that was sacrificed.

By "time value," I'm referring to the profits you could've made by investing that money elsewhere in the months that followed the Nexen buyout announcement.

For instance, the Standard & Poor's 500 Index gained 6% during that three-month stretch. If you'd just invested in that, instead of sitting and absorbing the 10% decline, you're talking about a "relative gain" of 16% on your money.

And that relative gain will get even bigger if the CNOOC/Nexen deal is axed, and the stock sinks back to the $17 level.

There are buyouts where it might be worth holding on - such as deals where you'll end up owning stock in the newly merged venture. But even there you have to be careful.

When Private Briefing recommendation Pentair Inc. (NYSE: PNR) linked up with a Tyco International Ltd. unit in a merger designed to create a new water-equipment giant, Pentair's stock spiked to $47.61.

Now, with the merger done and the company facing its best-ever prospects, the stock is trading at $42.16 - or 11% below where it was before the deal was announced.

Subscribers who took our advice and cashed out ended up making about 48% (not including dividends) on the stock recommended by Chief Investment Strategist Keith Fitz-Gerald. Now that profit is down to only 32%.

The bottom line: In a straight buyout like the one involving Nexen, you're probably not going to get every dollar. So don't try for it.

Be happy with what you get, sell out and look for new profit opportunities for your money.

Just remember: Pigs who remain too long at the table end up being part of the meal.

Source :http://moneymorning.com/2012/10/29/gordon-gekko-was-wrong-sometimes-the-pig-gets-eaten/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules