One of the most difficult aspects of being an investor is maintaining discipline. Buying shares is theoretically easy today: a few clicks of a mouse button and you own a slice of a business. However, forcing yourself to buy at the right time is much more difficult, since emotions inevitably play a role in all of our decision-making.
However, as Warren Buffett famously said, the ability to be greedy when others are fearful (and vice versa) is a means of locking in significant share price growth in the long run. At least that’s the logic behind it, although in the shorter term paper losses can be experienced and cause feelings of fear, regret and guilt for ‘wasting’ hard-earned cash.
This strategy, though, is the most obvious way to make money from shares and one stock which seems to be ripe for investment on this basis is Lloyds (LSE: LLOY). Certainly, the level of fear experienced by investors towards Lloyds is now lower than during the credit crunch when the bank was bailed out by the government. However, the optimism surrounding the bank’s future which was deemed to be very bright just a couple of years ago has faded, to be replaced by antipathy.
In other words, nobody seems to be all that interested in Lloyds at the moment. For example, sector peers such as RBS, Barclays and Standard Chartered seem to be much more interesting to investors right now. Respectively, they are more interesting than Lloyds due to the commencement of the government’s share sale (Lloyds is already partway through this), the seeking of a new CEO (Lloyds already has a very capable management team) and the turnaround prospects amidst disappointing profitability numbers (Lloyds is already turned around and has a very competitive cost:income ratio).
Furthermore, other sectors are now dominating investors’ thoughts. The mining and oil industries, for example, are grabbing all of the headlines even though commodity prices have been low for some time. Retailers are also more interesting to most investors due to UK disposable incomes rising in real terms for the first time in a handful of years. And, even within banking, challenger banks appear to be more exciting than traditional banks such as Lloyds since they are growing faster than their long-time incumbent peers.
This lack of interest in Lloyds is a key reason why its shares have fallen by 5% since the start of 2014, which leaves them trading on a price to earnings (P/E) ratio of just 8.8. For a bank which has already turned itself around, is intent on paying up to two-thirds of its profit as a dividend and has a hugely efficient and lean business model, such a low rating is unlikely to last over the medium to long term.
As such, buying now while Lloyds is unloved by most investors seems to be a very sound move which could make a hugely positive impact on your portfolio returns.