Woodford Concerns

masonic

talexuser wrote: »

The top investment trust bought in June turns out to be Patient Capital (beating Scottish Mortgage). So a lot of people are willing to juggle the falling knife, and there are opportunities at ~33% discount.

Is it not the case that every trade in an investment trust involves both a buy and a sell, so it necessarily follows that the top investment trust sold in June is also WPCT? So an equal volume of sales by people unwilling to sit the current situation out.

AnotherJoe

talexuser wrote: »

The top investment trust bought in June turns out to be Patient Capital (beating Scottish Mortgage). So a lot of people are willing to juggle the falling knife, and there are opportunities at ~33% discount.

Opportunities at a ~33% discount to a wholly fictional NAV based upon literally made up numbers (which IMNSHO will eventually turn out to be roughly double the "real" NAV)
At the moment WPCT buys are running on the Greater Fool theory of stock trading.

londoninvestor

masonic wrote: »

Is it not the case that every trade in an investment trust involves both a buy and a sell, so it necessarily follows that the top investment trust sold in June is also WPCT?

Some trusts (like CTY) do regularly issue new shares and sell them into the market to prevent a premium from developing.

In WPCT's case your reasoning is quite correct though.

Malthusian

masonic wrote: »

Is it not the case that every trade in an investment trust involves both a buy and a sell, so it necessarily follows that the top investment trust sold in June is also WPCT?

In the absence of share buybacks or similar (not relevant to WPCT) I think you are right.

It is not like an open-ended fund when you can talk about inflows and outflows.

to_jackie_too

A lot of people seem be under the misapprehension that a share price goes down because people are selling, and rises because people are buying. Despite the fact (with certain exceptions as already mentioned) that the number of shares bought always equals the number of shares sold.

In theory, no trading at all is necessary for a share price to move. When there is news affecting a share's value, all investors who follow a share can mentally adjust the prices they would be prepared to sell or buy some of it. And if they are market makers or have live orders in the order book, they'll amend the bid/offer prices they are currently making. That can change the price, without any trading.

In practice, there is usually some difference of opinion about just how far the price should move, so there may be a little flurry of trading before the price settles down. That is probably what we're seeing with WPCT. Clearly, recent news is negative for the share price, but there's a lot of uncertainty about just how negative.

Can WPCT stick to its strategy, since it does not have WEI's problem of holding illiquid assets in an open-ended vehicle? Even if it can, ITs holding unquoted assets often have large and persistent discounts to their NAV; and the threat of WEI holding a fire sale of some of the same shares WPCT holds means that discount should be wider now. But if WPCT does change its strategy, that may involve choosing to hold its own fire sale of some of its holdings (or just writing them off).

There's plenty for investors to disagree about there, so it's not surprising that there are a lot of buyers and a lot of sellers.

Brian65

Good points made. I think it all depends on whether you believe the asset valuations. Those who do are buying. Those who don't are selling.

Malthusian

to_jackie_too wrote: »

A lot of people seem be under the misapprehension that a share price goes down because people are selling, and rises because people are buying. Despite the fact (with certain exceptions as already mentioned) that the number of shares bought always equals the number of shares sold.

If every morning I bake 100 cakes, and yesterday I sold them all for £1 each by 4pm, and they were so tasty that tomorrow I've got 200 people queuing outside my door, by the end of the day I will have sold exactly as many cakes as yesterday, 100. Doesn't mean demand wasn't higher.

If I take advantage by raising the price to £2 then maybe 100 people will drift away and I'll then only have 100 people queuing and they'll all get one cake. Demand was still higher, because more people wanted a cake if they could get it for the same price and people were willing to spend more money on the same amount of cakes. Demand is measured in £s, not people.

The people who mill around outside the door of stock exchanges can never be counted, but nonetheless it is a fact that when share prices rise there are usually more people clamouring to buy, and when they fall there are usually more people clamouring to sell. Not all of them will actually buy or sell because the fact that there are so many of them hollering means they will not get the price they wanted to buy or sell at.

You are right that it's not necessary for prices to rise and fall - two people trading shares between themselves can set the price if they like - but it's still an important part of how liquid stockmarkets work.

If the price of WPCT was set by a communist politburo at its 2018 level then literally every single investor would want to get out and nobody would want to get in. Naturally we don't have communism on the stock exchange so a price equilibrium is swiftly reached where equal number of investors want to get in and out. When more people want to get out of an investment if they could get the price it is at now, the price falls. And falls until enough of those sellers throw their hands up and decide to hold on that the remainder matches the number of newly interested buyers.

It's a slight oversimplification to talk about prices falling because everyone wants to get out rather than in (without qualifying that it's assuming they could get the old price) but it's not far from the truth.

Brian65 wrote:

Good points made. I think it all depends on whether you believe the asset valuations. Those who do are buying. Those who don't are selling.

I think at this stage of the game, the only person who believes the NAV is Neil Woodford. And probably not even him. Woodford's career is over so Bogle's adage "It is very difficult to get a man to understand something when his salary depends on not understanding it" no longer applies.

Those buying into WPCT will say that they know the NAV is hallucinogenic, but they don't think it's as bad as the current discount implies.

Or they are hoping to sell to a Greater Fool.

jaybeetoo

WPCT - bargain or falling knife?

https://www.moneyobserver.com/woodford-patient-capital-bargain-or-falling-knife

Brian65

So Woodford chucks another £10million into the lossmaking Atom Bank. Don't know where the money has come from as WPCT is already leveraged 17%?
I suppose its inevitable with the start ups he invests in that some will need more funding before they come good. Lets hope some start paying off before that happens.

ColdIron

The pain continues

• Neil Woodford's flagship Woodford Equity Income fund is likely to remain suspended until early December, administrator Link Fund Solutions has said.

https://citywire.co.uk/funds-insider/news/woodford-fund-freeze-extended-to-december/a1254274