Sold: BCE

I hope this doesn't turn out to be a mistake. I am not good with timing and hopefully this wasn't done due to boredom and impatience. Whatever it is, I finally decided to get rid of my BCE position. This, long-time readers may recall, was a failed risk arbitrage investment (the original thesis is here.)

I have no idea why I'm selling this now because I don't really need the cash (I'm around 50% cash right now.) I think I pulled the trigger due to my bearish feelings. One shouldn't let emotions get in the way and I hope this doesn't turn out to be a mistake.


My initial guess was for a downside of around -11% but the price dropped 30% when the deal failed. There was a severe financial crisis unfolding in the background at that time—one I never imagined—and the big decline in price was partly due to that.

In the end, I am selling out with a loss close to my initial estimate (although it took 2 years.) The price dropped 30% from my purchase price when the deal failed but I held it given the quality of the business. I have to give credit to management and the workers for performing well throughout the recession. BCE was one of the few that was raising dividends over the last two years.

The fact that BCE was a big cash flow generator cushioned the loss. Dividends absorbed half the loss. This goes to show why I often say that I would prefer to buy a higher quality company and hold it if a risk arbitrage deal fails; than to pursue higher returns with lower quality companies.

Although losing money is never a good thing, I don't really think I made any mistakes that could be avoided in the future; I expect some risk arbitrage transactions to fail and my hope is to keep the failure rate below 10%. Overall, I am satisfied with how this turned out.

Purchase Price: $35.27
Sale Price: $31.52

Simple Return excluding dividends: -11.25%
Total Return: -5.73% (-2.59% annualized)

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