Whether you own shares in Wesfarmers Ltd (ASX: WES), its move to sell its stake in supermarket chain Coles Group Ltd (ASX: COL) holds two interesting insights that will be relevant to all ASX investors.
The retail conglomerate said it sold a 5.2% stake in Coles on Monday to raise $1.06 billion in cash. This is on top of the $1.05 billion it received six weeks ago for selling 4.9% of its holdings in Coles.
Experts believe Wesfarmers will sell its remaining 4.9% ownership in the supermarket within the next two months, possibly raising a further billion.
Cash is king
This is a great time to be cashed up and Wesfarmers couldn't resist taking profit after the Coles share price rallied over 30% in the past year.
The COVID-19 pandemic may be extracting a big human toll but it's a big reason why the Coles and Woolworths Group Ltd (ASX: WOW) share price are outperforming the S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO).
Wesfarmers plans to use the excess cash strategically to purchase beaten down retail assets – and it knows there are plenty of bargains in this coronavirus-hit bear market.
Don't expect capital returns in 2020
What's more, management is ruling out returning any of the proceeds back to shareholders, according to the Australian Financial Review.
Why this should be of interest to all investors is because it shows that capital returns are going extinct. Investors have been spoilt by a cash splash in 2019 as companies had more cash than they knew what to do with.
Better uses for cash in this market
There are ASX companies with too much cash still, but the group is certainly a lot smaller today than just a few months ago!
But even those few remaining in the cashed-up club, such as Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG), are now less likely to be handing money back to shareholders outside of their dividend payments.
There just isn't much of an incentive to given the impossible task of predicting what the next three to six months will bring due to coronavirus.
Don't be afraid of putting your capital to work
The other relevant read-through from Wesfarmers is that investors shouldn't be afraid to put their capital to work if they see an opportunity.
There's still fear that we may see a second big market sell-off from a deep recession. The fact is, investors shouldn't be trying to pick the bottom of the market and they should be playing the long-game.
Buying the bottom is only important to day traders. For the rest of us, by this time next year, you'd probably be kicking yourself for not buying in the bear market.
