CovOps
 Location : Ether-Sphere
Job/hobbies : Irrationality Exterminator
Humor : Über Serious
 |  Subject: Funny: 'I did my research and bought the shares. A week later they had halved'  Tue Feb 03, 2009 7:16 pm | |
| Diary of a private investor: There's no reasoning with a market that is panicking one moment and bargain-hunting the next
I don't normally manage to lose money quite so quickly.
Nearly three weeks ago, markets were picking up strongly. The shares rising fastest were the ones that had previously been hit hardest but it was difficult to buy such shares in quantity.
So I looked around for a big company whose shares had been pummelled and lighted upon Enterprise Inns, which owns pubs. I bought a reasonable number of them at 69.75p that Monday. By the end of the week, they had fallen by just over half, to 34.5p.
It is true that I have lost larger percentages. Indeed one of my shares, Oakdene – a house builder for which I once had high hopes – has recently called in the administrators. But normally my dud shares go down in a graceful slide rather than making a fool of me within five days. It feels like I threw open a window and spent the day chucking out £20 notes.
Astonished, as well as depressed, by the experience, I thought I would test part of the reasoning why I had bought the shares. This was the assumption that demand for drinking in pubs would not fall dramatically and therefore, the banks would be willing to go on lending to the company. So I visited the outfit's website and found two of its best gastropubs pubs not too far from home.
On the Thursday, I went on a modest pub crawl, entirely, you understand, in the cause of investment research. First I went to the Princess Victoria in Shepherd's Bush, London, an old place given a modern twist. The lighting was bleak but the wine list fancy. There were a fair number of people in the drinking part but the dining area had empty tables. Then I went to the Anglesea Arms in Hammersmith. It was heaving. I had to wait for a table. There were patrons of all ages.
I suppose if I were really serious about this research I would visit the other 7,000 pubs owned by Enterprise. But, for the time being, I was comforted to think that some, at least, of the company's pubs are ticking over at a minimum and, in some cases, thriving. I decided to hold onto the shares and last week the company issued a trading statement that was modestly encouraging and persuaded the shares to rally.
The most important part was probably the point that its banking facility does not come up for renewal until 2011. As a former banker who worked in credit analysis, I still think banks are likely to want to keep on supporting a company like Enterprise Inns on the basis that while some of its pubs will suffer, it takes a lot to stop people going out for a drink and a meal. The cash flow will keep coming.
The sharp fall in Enterprise Inns shares reflects the mentality of the market. One minute we are in panic mode and it feels that almost any company could go bust. Then, as the panic subsides, people look for bargains. Many companies are either going broke or else they are extremely cheap. The investor's job is to take a view on which it is.
It is certainly this way with the banks, which have rallied strongly at the beginning of the week. Their shares have collapsed, rallied dramatically, collapsed again and so on. I decided last year to get out of them when I became very fearful about asset-value destruction. The banks had lent a great deal based on asset values that were falling.
I had bought Lloyds Bank with the idea that it had made a terrific deal buying HBOS. But it quickly came to seem as though it had simply made itself weaker and more government-dependent. I sold at a loss at prices between 213p and 271p. Despite the rally, the shares stood at 68.5p early last week.
In these volatile times, I have repeatedly said to myself, "thank goodness I bought some yen". I put a lot of cash into my yen bonds a year and more ago and they have enjoyed an astonishing rise of 70pc.
Overall, I have one toe in the stock market and the other out. I have 29pc of my money in yen bonds and another 7pc in cash and corporate bonds. But I also have some fairly risky shares. My strategy is half-wrong but I don't know which half. In the meantime, I get to sleep at night.
http://www.telegraph.co.uk/finance/personalfinance/investing/4435927/I-did-my-research-and-bought-the-shares.-A-week-later-they-had-halved.html
Amateur... |
|
