Editor’s note: This article was first published in November 2014; the positions, prices, gains and Abengoa’s cut growth forecast are from mid-November 2014. Abengoa later went through a major financial crisis, including insolvency in 2021, which the article does not reflect. These are the author’s own trades from November 2014, kept as a historical record. They are not investment advice.
Things have “gone wrong”. On Thursday my Abengoa stop-loss was triggered, and on Friday the one on Ezentis went too, which means I no longer hold shares in either company, although in Ezentis’s case I still think it’s a company I want to have in my portfolio for the long term.
I only place these stop-losses because I refuse to watch shares on which I’ve had very large gains turn into losses. So in Ezentis’s case I wanted to make sure the gain didn’t fall below 10%, all the more so because it’s a company on which I was up as much as 200% at one point.
That way, when the time comes, you don’t have to think about what to do with the stock as it approaches a certain level. And these stop-losses have to be respected, to avoid the commitment bias we can develop towards our investments.
As for Abengoa, it now seems that everyone saw something odd in the business, a balance sheet that was hard to understand, and so on. But in fact the only person who warned me about this company and its dubious financing system was my friend Gregorio Horga of Finanzasmanagers.com, in a phone conversation. Ironically, he never published anything about it. After that conversation I decided to tighten the stop-loss, and luckily we avoided Friday’s brutal fall.
Abengoa, which I have referred to on other occasions as the new Gamesa, does have a business in the renewables sector that I like, and I think it could be a company with a future. But it’s also true that if it doesn’t keep that debt in check and find quick solutions, it could run into serious trouble. The company itself has lowered its growth expectations for next year.
As for Ezentis, the company is still doing well under García Durán, but his work has not yet translated into results. As we have mentioned on other occasions, Ezentis will only rise if the fundamentals back it up, and I trust that the new agreements and contracts will soon translate into results.
So now it will be a matter of seeing how the share price develops before buying in again.
And as for Abengoa, the truth is that right now, rather than investing in it, we will look for a way to speculate on it.
Navidea
Finally, we are taking advantage of Navidea’s sharp fall to average down again, right at $1.00.
As you can see, what promised to be a 2014 of very high returns has gone wrong at the last minute. We still think more companies are going to fall, so we need to be extra careful and avoid companies with shrinking businesses and high debt, whatever the expectations for economic growth, because the truth is that growth in Spain has stalled.
Featured image: LBM1948, CC BY-SA 4.0, via Wikimedia Commons.
