How I Made 50% in 6 Months with Care.com
28 April 2020
Today I want to share with you my thought processes when I first initiated a position in Care.com (NYSE: CRCM) on 28 May 2019 – and less than 6 months later on 20 December 2019 – overall at an average cost of $10.07, I sold off all of it at $15.05.
My valuation for care was higher than $15.05; it was about $19 conservatively. But the fact is that care agreed to be bought over by IAC at $15, and the deal is to be closed by the first quarter of 2020.
So I decided to sell off all my stake – which ultimately to be about 27%-30% of my portfolio when I sold it off.
Here’s the flow of events that made me a 50% gain in less than 6 months:
On 28 May 2019, I initiated a small position for care at $14.42.
On 29 May 2015, I made some money by selling care put options to expire 21 June 2019 at a strike price of $12.50 (which did not get exercised).
On 26 June 2019, I bought more of care at $11.39 and sold more care put options to expire on 19 July 2019 (which did not get exercised).
On 25 July 2019, I bought more of care at $10.75 and sold more put options expiring 16 August 2019 (which did not get exercised).
6 August 2019 was the turning moment when care stock price crashed, and I more than doubled my stake at $7.95. At this point, my average cost for care, excluding premiums I got from selling put options becomes $10.07.
On 20 December 2019, when the acquisition was announced, I sold off all my care stake for about 50% return in less than 6 months.
The key lesson to learn here is that:
Learn from your mistakes: I made some mistake some time back with GameStop in trying to buy a so-so company at an extremely cheap price.
They, too was a candidate for sale, but the sale did not go through, and the share price tanked from about $14 to $10.
I sold off almost all of my stake at about $10.
Now with care, I knew when I bought it at $7.95, it was a solid business at a reasonable price – instead of a so-so business at a cheap price – it paid off.
Intrinsic value is vague, buy in batches: I would not have made a good gain on care, if I bought most of my stake initially at $14.42 on 28 May 2019, I have had an average cost for care at $10.07 because I bought in batches.
The more fearful the market, the more I buy.
In fact, I sold off some of my Facebook stock to fund the care stake on 20 December 2019.
In hindsight, it was a great decision – but again, the framework is clear – when the price to value diverged more, buy more of that stock instead of others.
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