Last year my portfolio took quite a beating. While my holding in Fidelity China Special Situations soared, most of my other investments were on the slide. Overall, it was a sobering experience. So this year has been a year of recovery.
Bear markets are the time fortunes are made
When my shares are reaching record highs, there’s nothing I enjoy more than checking my investments and seeing how much they have risen. But when share prices are falling, I tend to forget that I own shares at all. I’m not sure how my investments are progressing, and I’m not sure I want to know.
Yet it’s exactly these times when you should be checking your portfolio and your watchlist. Because this is the time when real bargains can be unearthed. As someone once said, bear markets are the time fortunes are made â you just won’t know it at the time.
Let’s take the example of Quindell (LSE: QPP). This was a share that just kept on falling, even though the fundamentals said that the value of the company should be rising.
Early last year the share price peaked at 660p. I was thinking about taking profits, when the share price started falling. And falling. And falling. It eventually reached a low of 24p around December 2014.
Yet, and this is the bizarre thing: at no point was I ever considering selling. After all, this was a cheap company which had just got cheaper. Instead, when Quindell’s share price reached its low, I sort of knew that this was the time to buy.
Investing is much more difficult than it seems
I suspect many of the company’s shareholders were more likely to be panic selling than buying. But then this is why, in essence, investing is much more difficult than it seems.
As it happened, I hesitated about buying Quindell. During that moment’s hesitation, the share price rose to 80p. But I knew this was still dirt cheap. Although I still believe in the recovery story of the banks, I figured it might be time to take profits on some of my holding in Barclays (LSE: BARC). With this cash, I bought some Quindell shares.
Compare the financials of these companies, and you will understand why I made the trade: Barclays is on a very reasonable 2014 P/E ratio of 10.8, and a 2015 multiple of 8.9, with a dividend yield of 2.7%, rising to 3.8%. This is still a very worthwhile investment, but I have reduced my holding and bought some Quindell, which is priced at a 2014 P/E ratio of 2.0, falling to 1.3 in 2015, with an expected dividend yield of 1.9% rising to 3.8%. This gives you an idea how cheap this firm is. You could argue that the risk with Quindell is much higher, but the potential return is that much greater.
So far this year, this insurance outsourcer has already more than double-bagged, and it’s still January. Crazy, isn’t it? But then it’s often the craziest shares that are the most profitable.