Is the party over for the Healthscope Ltd and Nine Entertainment Co Holdings Ltd share price?

Shares in private hospital operator Healthscope Ltd (ASX: HSO) and television network owner Nine Entertainment Co Holdings Ltd (ASX: NEC) are trading around 6% and 3% lower respectively today after recent announcements from both companies that major shareholders have sold down substantial stakes.

There are plenty of “rules of thumb” in investing that can be handy short cut ways to avoiding investment mistakes.

One of those “rules” could arguably be to avoid buying from a more knowledgeable seller.

While it would be wrong to suggest that in all instances buying what private equity (PE) is selling will turn out badly it would be fair to say that a high degree of caution should be exercised.

The reason caution should be used is because these sellers – the “smart” money – have intimate financial and operational knowledge of the businesses and there have been numerous instances where buying scrip from PE sellers has turned out badly for the buyers.

Two recent examples

Two recent private equity sell-downs which are still sore-points with many Australian shareholders are Myer Holdings Ltd (ASX: MYR) and Dick Smith Holdings Ltd (ASX: DSH). Since their respective initial public offerings (IPO) the share prices of Myer and Dick Smith have fallen 72% and 68% respectively. In other words, buying from these informed PE sellers has not gone well. For the record the PE seller of Myer was TPG (Texas Pacific Group), while Anchorage was behind the Disk Smith IPO.

Best days gone?

With news just out that private equity backers – TPG and Carlyle – have sold their remaining shares in Healthscope and news also released that investment group Apollo has offloaded its 9.8% shareholding in Nine Entertainment Co, investors should think twice about the outlook for the share price performance of these two stocks considering the actions of these informed sellers.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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