Last year my portfolio took quite a beating. While my holding in Fidelity China Special Situations soared, most of my other investments were on the slide. Overall, it was a sobering experience. So this year has been a year of recovery.
Bear markets are the time fortunes are made
When my shares are reaching record highs, theres nothing I enjoy more than checking my investments and seeing how much they have risen. But when share prices are falling, I tend to forget that I own shares at all. Im not sure how my investments are progressing, and Im not sure I want to know.
Yet its exactly these times when you should be checking your portfolio and your watchlist. Because this is the time when real bargains can be unearthed. As someone once said, bear markets are the time fortunes are made you just wont know it at the time.
Lets take the example of Quindell (LSE: QPP). This was a share that just kept on falling, even though the fundamentals said that the value of the company should be rising.
Early last year the share price peaked at 660p. I was thinking about taking profits, when the share price started falling. And falling. And falling. Iteventually reaching a low of 29p around December 2014.
Yet, and this is the bizarre thing: at no point was I ever considering selling. After all, this was a cheap company which had just got cheaper. Instead, when Quindells share price reached its low,I sort ofknew that this was the time to buy.
Investing is much more difficult than it seems
I suspect many of the companys shareholders were more likely to be panic selling than buying. But then this is why, in essence, investing is much more difficult than it seems.
As it happened, I hesitated about buying Quindell.During that moments hesitation, the share price rose to 80p. But I knew this was still dirt cheap.Although I still believe in the recovery story of the banks,Ifigureditmight be time to take profits on some of my holding in Barclays (LSE: BARC). With this cash,I bought some Quindell shares.
Compare the financials of these companies, and you will understand why I made the trade: Barclays is on a very reasonable 2014 P/E ratio of 10.8, and a 2015 multiple of 8.9, with a dividend yield of 2.7%, rising to 3.8%. This is still a very worthwhile investment, butI have reduced my holding and bought some Quindell, which is priced at a 2014 P/E ratio of 2.0, falling to 1.3 in 2015, with an expected dividend yield of 1.9% rising to 3.8%. This gives you an idea how cheap this firm is. You could argue that the risk with Quindell is much higher, but the potential return is that much greater.
So far this year, thisinsurance outsourcerhas already more than double-bagged, and its still January. Crazy, isnt it? But thenits often the craziest shares thatare the most profitable.
Each individual has their own approach to investing. You might choose to buy risky but fast-moving shares like Quindell, or you might invest in blue-chips like Barclays. But, at the end of the day, your aim is to make future riches. And we at the Fool want to help you reach your goal.
That’s why we have written a guide which gives ten practical steps to making a million from your investments. And you can read it here. The report is called “How to make a million in the market”, and it’s available free and without obligation.
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Prabhat Sakyaowns shares in Quindell and Barclays. 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.
