Back in June I thought I saw one of those rare events a company being unduly hammered after a scathing report by a not-disinterested party. The company was Quindell (LSE: QPP), and the report was by Gotham City Research who admitted that they would benefit from a falling share price.
So I took a risk and added Quindell to the Beginners Portfolio. I know long-term investing is best, but I do think theres room for the occasional high-risk punt in unusual circumstances, providing its done with a small portion of your portfolio that youre prepared to take a hit on if it goes wrong.
Well, it went wrong and Ive taken the hit Ive dumped Quindell from the portfolio and have recorded the sale at 139p per share, which is the bid price at the time of writing a significant loss on my buy price of 196.5p. Ill tot up the cash and see what it does to the whole portfolio next time, but today I want to explain why Ive waved goodbye to Quindell.
You need trust
In short, its because I do not trust the companys management.
My doubts first surfaced when the RAC telematics rollout was cancelled. Originally, Quindell was touting the deal as being worth around 1bn. Yet after it had been canned, chairman and major shareholder Robert Terry was reported in the Telegraph as saying the contract was hardly a focus! One minute its worth 1bn, and then when it goes wrong its of no importance? I thought that dismissive volte-face was insulting to shareholders, and at the time I commented on what I saw as evasiveness.
The company later crowed about a legal victory it won over Gotham City Research however, Gotham City simply didnt turn up and the UK ruling has no practical effect on the US firm.
Meanwhile, others in the UK, including the respected stock market commentator Tom Winnifrith, have been withering in their criticism of Quindells management. After that rapid legal response to Gotham City, one might even expect Quindells board to sue over some of the claims that have been made but they have remained silent.
A third-quarter update on Monday seemed confused. On the one hand, the company gave its revenue guidance as 750m to 800m, though it did not explicitly state that that was in fact a drop from the 800m to 900m predicted at first-half time. But at the same time we heard that the company remains confident of meeting all of its FY2014 key performance indicators. Revenue not a key performance indicator? Hmm.
If theres one thing I want from the managers of companies I invest in, its openness in its communications with its shareholders. But Im just not seeing that from Quindell instead Im still seeing evasiveness, and I want no part of it.
I sincerely hope my fears are unfounded and that Quindell achieves great success. But Im out.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.