When is a profit not a profit?
Welcome to the first of the blogs from the CF team at BHP where we plan to give you our take on one or more of the business stories that caught our attention.
The Government announced recently that they were to sell part of their stake in Lloyds, as they had now reached the point where they were in profit. As a Scotsman in Yorkshire, and given we all paid for the shares, my attention was grabbed.
It turns out the profit is not the sales price less the cost. It is the sales price less part of the cost. They can’t have a very good audit team!
They used part of the cost because, at the time they bought the shares, some of the cost was written off. When I have invested in shares at too high a price in hindsight, I always make a loss. Perhaps I am just envious.
My other observation is that to sell the shares you need to find a buyer who believes they are going to increase in value. In my experience no turnaround investors make high risk investments and then settle for getting their money back when the worst of the problems seem to be behind them. What would be wrong with holding on to the shares, leaving the directors to continue the turnaround and benefiting from a significant longer term gain? Perhaps they need to speak to the British Venture Capital Association who would tell them any return of less than 3 times their money is below the pass mark in the investing world!