The shares that got away—and what I learned from themby Andy Davis / July 20, 2011 / Leave a comment
Published in August 2011 issue of Prospect Magazine
Galliford Try, which built the Centre Court roof at Wimbledon, has proved a sound investment
Hindsight can be cruel. Most of us can endure only a partial version—we block out really unpleasant episodes, allow selective memory to do its work and rewrite history into a more palatable form. And why not? Looking back is often painful and the only lesson most investors take away is that we can’t forecast the direction of the markets.
But refusing to rake over the coals in search of insight is an opportunity lost. I’ve spent plenty of time trying to work out why I sold investments that went on to increase in value. This taught me that greed and fear must both be treated as imposters (good luck with that) and that we all have to take decisions in the knowledge that subsequent events might prove us wrong.
Similarly, I always try to do a post-mortem when an investment doesn’t work out. Did I do my homework properly? Did I stick to my own rules or bend them to make an excuse to buy? Sometimes this yields a useful lesson, sometimes just regret.
But what about things I didn’t do? Again, there’s plenty of material to reflect on. I can think of several shares I looked at carefully, concluded were attractive and yet didn’t buy. Had I done so, they would now be showing large profits. What stopped me?
The first was a company called Diploma, about which I knew nothing when I came across it. Diploma turned up as one of a small number of shares that fitted the criteria I had set for a screen of the British stock market in late 2009. It had a robust balance sheet, a history of steadily increasing earnings per share and dividends and what looked like a very undemanding valuation. I liked it even more once I read its annual reports and saw that a key performance indicator for management was total shareholder return (capital appreciation plus dividend payments). At the time, the shares were trading at about 170p. I made a mental note—and did nothing. Recently, the shares have been above 350p as Diploma has reported robust profits growth. Ouch.