In the short run, the market is a voting machine. In the long run, its a weighing machine Warren Buffett.
The thing about investing in real life is that sometimes your shares do well, and sometimes they do badly. Just like anything in life, you have highs and you have lows.
Wilting in the summer sun
Earlier this year I was ecstatic as so many of my shares were soaring. In particular, my bet on insurance outsourcerQuindell (LSE: QPP) was paying off, with the share triple-bagging.
Emboldened by my success with Quindell, I bought into more small-cap growth stocks such as mobile innovator Globo and internet betting company GVC.
But now I am finding that many small caps, including Quindell and Globo, have been wilting in the summer sun. It has beena sobering few months for my portfolio. I guess its just something you have to take on the chin.
Quindell in particular is sitting at a mere one third of its all-time high. Its been aterrible few months, and yet, Im not panicking. In fact, the thought of selling my holding in these shareshas hardly crossed my mind. If you look at the fundamentals, I hope you will understand why.
At its current price of 167p, consensus estimates that Quindell is on a 2014 P/E ratio of 3, falling to 2 in 2015. Here is the earnings per share progression:
2011: 5.14, 2012: 14.97, 2013: 29.28, 2014: 54.55, 2015: 81.60
If the consensus is right, thats an astonishing 16-fold increase in profits. And Quindell at the moment is on course to meet its earnings targets.
Amidst all the negativity about this company, I have not read a single article thatputs together a clear and coherentargument as towhy these figures are wrong. The company is astoundingly cheap, and no-one says these earnings are wrong. So why sell?
Why is this company so cheap?
The more interesting question for me is: why is this company so cheap?
Well, I have an answer, butthis is a difficult concept to explain. Lets put it this way: for most people, now is right. People generally think that now, whether you are talking about fashion, music or investing,is always right.
In other words, people believe that if something is this way now, it will always be this way. But in reality, and particularly in investing,things change very quickly.
Quindell investors need tohave the faith that it wont always be this way; they needthe confidence and the unflappability to sit out the bad times patiently, knowing that, eventually, the share price will recover.
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Prabhat Sakyaowns shares in Quindell, Globo and GVC. 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.
