Investing legend Warren Buffets advice to be greedy when others are fearful is overused and withgood reason. But thanksto our all-too-human desire to avoid losses however, following itis easier said than done.
This is particularly problematic at the current time as I think recent events havethrown upa number of opportunities for private investors to pounce on. Lets look at two examples.
Same ol story
Now that the open offer hasbeen and gone, shares in Aim-listedSirius Minerals (LSE: SXX) haveplummeted to levels not seensince mid-June.
Whether we put the drop to below the open offer price down to the vagaries of the stock market, heavy short selling, long-term holders misjudging quite how long they wanted to hold the shares for, or a combination of all the above, it doesnt change the fact that a lot of investorswill be nursing heavy losses right now. This is particularly true if they bought into the company when its shares peaked in value back in August.
Could shares in Sirius remain volatile for some time to come? Quite possibly, although yesterdays rise of 7% will no doubt have raised hopes that the company is set for a sustained rise after such a dramatic fall. Has the story changed? Not unless you count the fact that Siriusnow has funding to build its polyhalite mine, something it didnt haveearlier in the year.
To be sure, those considering retainingtheir shares until the mine becomes operational will need a truckload of patience. But when was it ever not the case with a company like Sirius?So long as an investors actionsmatch his or herstrategy, there should be no reason to change course. Indeed, if ever there was a time to be greedy about Sirius, now I submit is that time. Buy the company and its prospects, not itsshare price.
What goes up
At completely the opposite end of the market spectrum, we have FTSE 100 stalwartUnilever (LSE: UVLR).
In the months following the referendum, shares in the Anglo-Dutch giant roseover 18%to 3,763pin October as investors reduced their holdings in UK-focused stocks and piled into multinational businesses with operations and markets all around the world. As an exercise in risk management, it was a no-brainer.
Since then, and somewhat understandably, Unilevers shares have come off the boil. After all, theres only so high a 40bn cap giantcan climbbefore it starts to run out of steam. A very public spat with Tesco over pricing didnthelp. A general and perhaps unexpected shift by investors into riskier shares following Trumps election triumph may havebeen another factor.
Nevertheless, having returned to pre-referendum levels, I think itsshares are now worth picking up. A forecast price-to-earnings (P/E) ratio of just under 18 for 2017 may not sound particularly cheap but, due to the predictability of its earnings, a portfolio of brands that consumers cant help returning to and a proven ability to withstand economic wobbles, shares in Unilever have rarely traded for much less. Factor-in a relatively safe 3.7% yield, excellent history of returns on capital, decent operating margins and a hugely impressive management team and I think you would struggle to find many better companies in the FTSE 100.
Buying companies after sudden price drops can take a lot of courage. However, so long as the investment case hasn’t changed and the rest of your portfolio is sufficiently diversified, this can be a very profitable strategy over time.
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Paul Summers owns shares in Sirius Minerals. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
