Without question, buying shares in Cineworld Group (LSE: CINE) is the worst investment decision I’ve ever made. And by some distance.
I finally bit the bullet on Monday morning and sold up while the Cineworld share price was worth something. At 25.8p per share, I sold them for 91% less than I bought them in October 2018. Here, I explain why I decided to sell up when I did.
More bad news for Cineworld
For those out the loop, rumours swirled over the weekend that Cineworld was taking the drastic step of shuttering all its cinemas in the US and UK. It followed news that the latest money-spinning James Bond outing No Time To Die was being put back again — one of many major releases to be postponed in recent months — as huge markets like the US remain closed.
Cineworld confirmed the news on Monday, saying it’ll be closing its transatlantic estate of 650-plus theatres from today. It said that “[we] cannot provide customers in… the company’s primary markets with the breadth of strong commercial films necessary for them to consider coming back to theatres against the backdrop of Covid-19.”
Last week, Cineworld warned it would have to raise additional liquidity if its theatres were closed again. And so the chain advised on Monday that it’s “assessing several sources of additional liquidity and all liquidity raising options are being considered.”
Packed with risk
Maybe Cineworld will seek a new debt facility to repair its battered balance sheet like it did over the summer. Or, perhaps, it will be forced to issue new shares at a big discount to their current bombed-out price, to the chagrin of its already-beleaguered shareholders.
This is one of the reasons why I sold my shares in the chain. But it’s not the only one. Glass-half-full investors hope that a packed Christmas film schedule will mean Cineworld’s theatres will be closed for only a matter of weeks. My view is that, with Covid-19 infection rates spiking again, cinemagoers are likely to stay away and more movie releases could be postponed.
I’ve also become more sceptical that a major film studio, or a streaming giant like Netflix or Amazon, could make Cineworld a takeover target. A move that could sweep the Cineworld share price from recent lows. Who’d want to buy a huge estate of theatres right now? Besides, studios are already strapped for cash because of those delayed releases.
I’m moving on!
Sure, I’ve been burnt badly by the Cineworld share price. However, as I’ve explained before, I haven’t lost any sleep over it. The cinema chain constituted only a small part of my shares portfolio, after all. The episode illustrates the importance of building a broad and diversified portfolio.
I still believe the rationale behind my original decision to buy Cineworld shares was sound. I just didn’t see the Covid-19 crisis coming. But I’m not down in the dumps. History shows us that investors who build a diversified stock portfolio can still expect to make big returns.
And I’ll be using the capital I’ve salvaged by selling Cineworld to buy UK shares in better shape to thrive in a post-coronavirus landscape.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Netflix and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.