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Read on to see an article from the archive of Clem's Diary of a Contrarian Investor blog:

RSA/Zurich Merger Collapses

I very often sell as soon as a takeover approach is announced. You’ve seen me do this recently with Promethean World.

I generally don’t ask questions, I just sell. I might hold for a few days to see the takeover discount narrow, but I rarely hold to the bitter end to get the full offered price. Sometimes bad things happen between offer and closing.

Today the RSA/Zurich merger fell apart and those still holding RSA just took a 20% knock. We would have likely been already out if we had held RSA.

In the PLC world things are put forwards as more certain than they really are and to an extent that is what the board are paid to do, keep things running smoothly. However, reality intrudes.

In this case the huge explosion in China we all saw care of YouTube punched a $200 million dollar hole in Zurich’s game and may have helped derail the takeover.

Personally I think RSA is a big bag of nails, which is why we don’t hold it. This might have put off Zurich. If you look at their long term chart up close, in recent years the performance has been very unusual when compared to others in the FTSE 100. I found this unsettling. You can see for yourself.

The period between 2007 and 2011, before the wheels came off, is very odd. I took that as a red flag and stayed away.

A 20% dump when a takeover collapses counteracts a lot of takeover discounts.

The message is to never be confident about the future of any one situation. There are so many opportunities in the market, or usually are in normal times, that a fat profit is best banked. It is obeying the rule of old and bold pilots; there are no old bold pilots. This applies to investors and traders too.

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Don’t Trust the Miners

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