This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.
The Beginners’ Portfolio is a virtual portfolio, run as if based on real money with all costs, spreads and dividends accounted for. Transactions made for the portfolio are for educational purposes only and do not constitute advice to buy or sell.
After you’ve sold a share, are you always wondering whether you’ve made a mistake and looking back to see how it’s done? Well, while we shouldn’t dwell too much on them, it’s always good to re-evaluate our decisions with the benefit of history.
On that score, I’m satisfied I dumped Vodafone (LSE: VOD) at the right time. Since selling in December 2013 at a price of 234p, the share price has fallen to today’s 216p. Had I held, we’d have had an extra 19p to add in dividends to bring us back to the selling price, but I think the decision was still the right one.
At the time I thought the earlier undervaluation was out, while the shares were on a rising P/E with earnings falling, and nothing since then has changed my mind. In fact, I recently rated Vodafone a Sell based mainly on my inability to get a clear view of its strategy, coupled with the company’s policy of paying dividends far in excess of earnings. The City has a strong Buy rating out on Vodafone, but I’d always caution beginners to never buy something if they can’t understand it.
I have the opposite problem with Tesco (LSE: TSCO), in that I think I do understand its business pretty well — but I don’t like what I see. I hung on until March this year before I got rid of the FTSE 100‘s biggest supermarket. That was way too long, and I kick myself now when I think of my failure to see how badly things really were going.
Since selling at 232p, the price has slipped a further 19% to 188p, so at least I reduced what could have been a much bigger loss. Although the share price has been erratic, it’s actually up 12% over the past year, so would I consider buying Tesco today? No, not a chance.
Small cap disasters
My biggest mistake since the launch of this portfolio was buying into the Quindell (LSE: QPP) story and not paying enough attention to the company’s critics at the time. But as soon as I saw the obvious and realised I wouldn’t trust the company’s management with my dinner money, I dropped it like a hot potato.
That was in October 2014, and dumping at a price of 139p left a hole in the 196.5p I bought at, but today the price stands at 101p, so it was clearly a good call at the time — and during the depths of the crisis, when ex-chairman Rob Terry was telling us he was buying shares when he was in fact selling, the price crashed as low as 24p.
The subsequent rewriting of Quindell’s accounts proved my decision right, and my only puzzle now is why there’s anyone paying more than £1 a share for what I see as junk — they’re hoping for the promised cash handout, but I can’t see them getting it.
The only share I’ve sold that has since risen is Blinkx (LSE: BLNX), which was ejected in December 2014 after a meteoric price rise came crashing down. At 25.5p today the shares are up 8.5% on my 23.5p sell price, so was I wrong to sell? No, the firm’s catastrophic failure to meet mobile computing demands in timely fashion forfeited its early-mover advantage, and that’s what I’d bought in to — and when what you bought no longer exists or has changed unrecognizably, it’s time to sell.