It should come as no surprise to see Quindell (LSE: QPP) described as a casino stock.
On the basis of fundamentals, it’s uninvestable. Edgy if not creative accounting, incredible rates of growth driven by obscure equity-funded acquisitions and a troubled management history would be sufficient to guarantee that, without the litany of other issues.
The company has its supporters, though, attracted by its investment story and paradigm-breaking business model. Bulls and bears make a market, and the ultimate measure of a successful investment is to make money from it.
Quindell is a casino stock because of the disconnect between reality and the company’s opaque investor communications. The stock fluctuates in parallel with investors reading the runes. Right now, the share price is buoyant after the company hinted Australian law firm Slater & Gordon might pay more than £640m for its legal services division. We might see PwC’s report on Quindell’s accounting before the Australian’s exclusivity period ends on 31 March. If you’re feeling lucky, place your bets now. Rien ne va plus!
Can you be sure of Shell?
Is Shell (LSE: RDSB) (NYSE: RDS-B.US) also a casino stock? Surely not. But just last week Ibrahim al-Muhanna, advisor to Saudi Arabia’s oil minister, revealed that he’d told Bank of England Governor Mark Carney that trying to predict oil prices is like betting in a Las Vegas casino.
And Shell’s share price rises and falls with the price of oil. As oil has halved since last July, Shell’s stock has fallen as much as 20%. Big oil and the pundits, none of whom foresaw the drop in prices, now expect them to remain low. Interestingly, this week, T. Boone Pickens — the Texan billionaire who is to oil tycoons what Warren Buffett is to private investors — announced that he’d placed bets on oil being back at $70 per barrel by December.
If forecasting oil prices is like a casino for these people, it’s impossible for the likes of you and me. So trying to time the market when buying oil shares is a mug’s game. But Shell most definitely is an investable stock: a global super major, biggest company in the FTSE 100, unbroken dividend record since at least 1948, and with more than enough levers — cutting operating costs and capex, asset sales and borrowing capacity — to pull it through the downturn in oil prices.
Triple your money
With the stock yielding 5.7% you would triple your money in 20 years just by reinvesting dividends, even if the share price doesn’t increase at all in that time. Add in share price appreciation, and you can start to see how investments like that can seriously grow. My hunch is that we’ll look back at 2015 as a great time to buy oil stocks — but choosing to invest in Shell doesn’t depend on that being correct.
Of course, you won’t get the exciting roller-coaster ride enjoyed by Quindell investors. But this is a case where the tortoise is pretty sure to beat the hare.