A Lesson on Opportunity Risk

Opportunity risk is the money that you lost because you didn’t grab the opportunity. Its the money that you should have gotten, have you been able to take advantage of it. In Value Investing Philippines parlance, “pera na naging bato pa” :smiley face 🙂

I Sold My MER Shares and It Went Up

So what? I sold it. And I sold it real good. And I liked it. The proceeds that I have gotten from the sale of my MER shares were placed in a better investment, FB, that proved to be correct. So let’s do the math shall we?

I sold my MER shares at 355. But it went up after I sold, to a price of 368.20. The difference is P13.2 and in percentage terms thats 3.72% increase in price. This 3.72% is also my lost. Its an opportunity cost because I sold out. Now the problem was that, can you beat that 3.72% to this new investment that you’re going to put it in? If not, then you just lost money. If better, then great, you shouldn’t be sad and you should be happy.

So, the money was invested into FB at price 62.19 (I detailed the analysis San Miguel Food and Beverage Analysis). Today, the price of FB is 80. The difference is P17.81 or 28.64% in percent return. So did I do a good job of investing the money better than the return, should have I stayed in MER? Yes! Did I beat the return of 3.72%? You’re goddamn right! Almost 10 times. I beat it by a mile.

The Lesson on Opportunity Risk…

…is that, sometimes you can see it clearly if the current investment can be beaten by a better investment. Just in the case of FB vs MER. The only lesson I learned about that is, I should have bought more. The reason I did not bought more is because I don’t want to get rid of the fat dividends I’m going to receive from MER. Its a very generous dividend giver and I don’t want to give up my income. But in the future, I wish I could teach myself to be less emotional about income, and more focused on absolute returns. I only placed 10% of my entire portfolio on FB. Which I could have done better.

Either way, I am happy that I made better investment decision than staying in MER. Even for that 10%. In the next opportunity that will come, I hope I can be better prepared and ready.

Of course, we could be wrong. We could, in an instant, lose all the profits because the stocks went crashing down or I was wrong in my assessment. Or I am just fooling you that I know what I’m talking about. 🙂

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