The Investor Diary Entry #12: February 7, 2023
While looking for companies with value stocks, I came across Gravity Co. Ltd. That was on the 15th of April 2022. Last week the prices went up, but Gravity Co. Ltd, did not follow suit as much as the market did. Finally, on Thursday, Gravity Co. Ltd stock price went up above the buying price. I sold my position right away.
What happened and why I did that?
Investing In Gravity Co. Ltd.
On the 15th of April 2022 I put Gravity Co. Ltd. on my list of stocks to study. Gravity Co. Ltd. stock price was at the time $53.53. The first thing that attracted me other than its fundamentals was the industry that Gravity Co. was working within.
Gravity Co. Ltd. is a gaming company. Until I landed on Gravity, not only that I didn’t have any gaming company in my portfolio, but also there was no gaming company listed within my list of companies to study.
Therefore, it was a gaming company with great fundamentals, I just needed to know the price that I am willing to pay for it. As I said, at the time of studying the company, Gravity Co. share price was at $53.53.
What was The Right Gravity Co. Ltd. Share Price?
My analysis of the stock came back with three number, as usual; high, medium and low prices at which I would consider buying Gravity.
The three prices that came out of analyzing Gravity Co. Ltd. were (from high to low): $76.92, $43.89 and $26.48. As you can see that the price at the time was below the high number, which indicated that based on my high assumptions the price was at a value level on the condition that my high assumption come true.
Well, I didn’t wait a lot, and I bought my position eleven days after my analysis; namely, on the 26th of April 2022 at $48.28.
Why I Decided To Close Gravity Position
Few months down the line, I discovered one thing about the increase in the userbase of sole game that Gravity has. The increase in the userbase was coming from opening new markets and not within the same market.
When I first bought Gravity, I knew that it had only one game, but thought that eventually they will increase the number of games, especially that their revenue and net income growth for the last five years were and still are great. Except that in the last three to four years we can see the revenue numbers fluctuating.
This fluctuation is normal especially that the period covers Covid-19 period. The return on invested capital; in addition to valuation figures including P/E and P/FCF were and still are great.
I am a long term value investor; therefore, one of the most important questions that I ask, whether I think the company is going to stay in the next 10 years, and whether the thesis that I bought the position on will hold all this time. In the case of Gravity after knowing where is the increase in userbase is coming from, the case became as follows.
Gravity has one game only, they are not increasing their userbase in the current markets, and all the increase is coming from expanding into new markets. If this thesis holds, which is the current situation, then this company is not a sure thing for the future.
Unless the case changes, for me today Gravity is not investable, but I do have a position in the company. Therefore, for the above reason I wanted to sell my position.
When Did I sell My Position
During the time of holding the position it went into profitable levels, but at the time I did not form my decision to drop Gravity from my portfolio.
Once I decided to let go of Gravity Co. Ltd. position, its per share price went down below my buying price. I was not willing to lose on the position, but I didn’t want to profit from it either. At least I did not have a target profit from that position. I also was not interested to make another valuation of the company.
The thesis didn’t change, the story of Gravity living off one game and its upgrades and increase of its userbase depending on new markets didn’t change for me. Therefore, no new valuation was necessary.
Once the share price went up a couple of Dollars above my buying price, I went to my station to close the position. When I first saw the price it was above the $50/share level. By the time I performed the closing, the final price changed and became $49.94. Remember I bought it at $48.28. I sold my Gravity Co. Ltd. position on the 1st of February 2023.
Yes, I would have loved to profit from the position, but as I said, my goal was to get out the stock without losing money, which I did.
Conclusion
I am following the long term active value investment steps. This mean that I invest in individual stocks for the long run. I enter a position because I think that the stock price is at a price level that is below its real value, and the story of the company is encouraging.
I get out of the position once I think its price reached overvalued levels and/or the story of the company has changed. In the case of Gravity Co. Ltd. the new information that I looked at changed the story of the company for me; accordingly I decided to get out of its stock.
I did that despite the fact that its fundamentals were great, and it is still undervalued. Another secondary reason is that I changed my investment strategy to target small cap companies so as to get as large as possible positions with the small investment amount that I have.
This is not to say that Gravity is a large cap company, but let us say that it is not small enough for me. Some will consider Gravity as a medium cap company.
Small cap companies are for sure riskier, but if the fundamentals are strong then that risk diminishes a little, and the return on investment is bigger.
Since it has been over a year since my evaluation of my portfolio, it is time to conduct a run of evaluations over my positive positions. I think I will start with META.
The Investor
Tuesday 7 February 2023
About The Author
I started to look into individual stocks in January 2022. I created this diary initially for myself to track my investing progress, and second as a place that I can share my ideas publicly hoping that others will share their ideas and learn from each other, and lastly as an online business where some links that I share are affiliate links, and if anybody bought anything by clicking those links I will get a commission based on that successful sale, which of course will not affect the price that you are buying the product or service at.
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