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Does MM believe I should cut my losses with WAM Research (WAX)?

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Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

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Question asked 20/05/2023

Does MM believe I should cut my losses with WAM Research (WAX)?

I am a long term investor with a SMSF in retirement phase and am not adverse to risk. I understand about not being in love with your shares etc. and if my shares have underperformed I'm usually more than happy to sell. However, I purchased WAX at $1.50 a while ago and they are now sitting at $1.13. As I have 70,000 shares I am in the red to the tune of $26,000. As the dividends and Franking Credits seem to be holding up I am willing to hold. However, I have to say that I am getting a little nervous as they continue to slip lower. I understand that at a recent roadshow briefing, investors in WAX expressed their disapproval with the results of the small caps WAX was investing in. My question is - Do you think I should cut my losses and look for something with more immediate potential?

Answer

Hi Brian,

At MM we cannot provide Personal Advice hence I have answered this question from a general perspective. When asked about cut losses, the answer is always the same:

We cut positions when the reason we entered the stock in first place no longer holds firm – this can also be applied to taking profit i.e. if a stock is no longer “cheap” and the risk/reward is no longer compelling.
Also with regard to small caps they have struggled of late as the markets adopted a more “risk off” approach, if/when investors turn bullish this underperformance could be reversed extremely quickly.
With regard to WAX and other Wilson LICs, they do dip into capital to pay dividends if retained earnings are not enough – it allows them to smooth out their payments. I suspect this would be happening now hence the decline in the SP whilst the dividend is being maintained. It’s not something that I applaud but income investors seem to like it.

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WAM Research Ltd (WAX)

LAST UPDATED 18/05/2023 16:20

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