Well, we had a drop in the market. Finally. Let’s be honest, it was long overdue. And actually it wasn’t even that much of a correction.
Being an active investor sinds 2000 this isn’t my first drop and it definitely wil not be my last one. But it was my first one with a huge leveraged position. Which did add a little bit extra spice to the whole experience.
The broad overview is this. On the first of February my stash stood at 289 722 euro. The 5th February it would reach a low of 253 860 euro. That is 35 862 euro gone poof.
The reason: the strong drop in AB Inbev which first eliminated my buffer and then continued to plunge down.
How did it feel? Well, imagine somebody putting on a glove with spikes on the inside and then cupping your balls.
Day 1: there is slight pressure. You are thinking you are not liking this (and if you are me, a small part of your brain is also thinking, ‘Hey, if it was a beautiful woman doing it, I might find this kinky’ 😉
Day 2: the pressure increases. Gone are all thoughts of it possibly being kinky. Ugly ogre or the most beautiful woman in the world. It doesn’t matter. There is pain, so much pain.
Day 3: you hear craking. There is not supposed to be any cracking down there! What the hell is making the cracking noise? Also pain, so much pain. Please, please let it stop!
After trading hours you take stock of the situation. The biggest question you have is this: have I been an idiot? How stupid was it to put a construction on AB Inbev with it trading around 95 euro? Was it a bad price?
Well it isn’t a really cheap price, I knew that going in. But they do make a ton of money. They will continue to make a ton of money. The dividend is healthy and assured. They will pay down there debt, making either room for more dividend or new acquisitions. I read Dream big and know those guys are efficiency freaks, squeezing an ever increasing free cash flow out of their operations. I read almost every interview with Alexander van Damme. He is smart, high up in the management and already owns a ton of shares of aB Inbev but on 10th January he bought an additional 500.000 shares via patrinvest (and the time before he even bought at 101 euro).
If there is one guy on this world who nows the value of AB Inbev it’s him. And he just put in 48 million euro at 95 per share.
Also, I knew there might me a change of a correction. It’s why I reduced my leverage. It’s why I chose a stable dividend paying stock for the construction because the dividend covers the financing fees. As long as I do not get a margin call I can keep the position for all eternity and even get some positive cash flow out of it! And a margin call was still a long way out!!
All of a sudden the pain was gone! My head cleared.
And then it hit me like a freight train! I actually could make a profit from this drop. If AB Inbev would eventually go back to the 95 euro level I now had an opportunity!
You see, the construction has two legs. And one of them had a very nice profit. The other leg just had an even larger loss. But that loss would disappear if AB Inbev rebounds. But part of the profit on the other leg would then also disappear. Solution: take the profits on the one leg. Then wait till AB Inbev rebounds enough and only then deploy the second leg again. I could actually make a lot of money of this drop!
So day 4, this morning, I woke up with a shiny new pair of metal balls and traded the shit out of the drop.
If it all works out, and AB Inbev does bounce back I will have made an extra 14.000 euro. If it starts dropping again I just sacrificied another 1,7 euro of downward protection because now I am fully exposed to any price movement in AB Inbev. Do me a favor: drink more beer!