As a Foolish investor, I believe it?s good to share experiences, especially ones I’ve learned from. Of course, all investors can and do make lots of mistakes when they buy and sell shares. Today, however, I’ll be reflecting on three occasions in which I neither bought nor sold.
Lights, camera, inaction
Back in April 2014, Cineworld?s (LSE:CINE) share price dropped to below 291p. This appeared to be nothing to do with the company but was the result of macroeconomic factors impacting all share prices at the time. Despite knowing the following year would see a number of blockbusters released, including the seventh Star…
As a Foolish investor, I believe it’s good to share experiences, especially ones I’ve learned from. Of course, all investors can and do make lots of mistakes when they buy and sell shares. Today, however, I’ll be reflecting on three occasions in which I neither bought nor sold.
Lights, camera, inaction
Back in April 2014, Cineworld’s (LSE:CINE) share price dropped to below 291p. This appeared to be nothing to do with the company but was the result of macroeconomic factors impacting all share prices at the time. Despite knowing the following year would see a number of blockbusters released, including the seventh Star Wars film, Spectre and the conclusion to the Hunger Games series, I chose not to invest, believing that a price-to-earnings ratio (P/E) of just over 20 was too steep.
Today, Cineworld’s share price stands at 563p, having briefly peaked at 597p last October. Dividends have continued to rise (last year’s increase of just under 30% is noteworthy) and all have been comfortably covered by earnings. Although fans may have been divided on the quality of the aforementioned movies, their contribution to Cineworld’s excellent rise in earnings is clear. Two lessons: recognise that a high P/E doesn’t always signal an overvalued share and that the market doesn’t tend to look that far into the future.
Sausage rolls going cheap
In April 2013, the share price of Greggs (LSE:GRG) dropped to around 400p following a profit warning. The company blamed difficult conditions on the high street but also stated that these were likely to be short term. I didn’t notice the reduction in trade when I frequently visited the shops yet I did nothing.
Fast forward to December 2015 and the shares peaked at 1,308p. Yes, the value of the company had tripled since I decided not to invest. They’ve gone slightly lukewarm since, trading at 1,139p on a P/E of just under 20. But still, what a turnaround.
My lessons here: assuming the company has a high street presence, pay attention to what’s actually happening there. Also, one profit warning doesn’t necessarily signal the beginning of the end. If you have faith in the board, this could be an opportunity to grab a slice of a great company.
Like the product? Research the company
Last on my list of regrets is ARM Holdings (LSE:ARM). In contrast to the other two companies, my reason for failing to invest here was a result of ignorance rather than believing the shares were too expensive.
I clearly remember receiving my first iPod nano back in 2008, looking at my stack of CDs and recognising that Apple’s device was infinitely more convenient. Had I undertaken more research and discovered ARM’s involvement in providing the processors used by the former, I may have been able to profit from buying the latter’s shares. Back then, they were exchanging hands for around 90p. Now at 982p, ARM has grown into one of the most respected companies in the FTSE universe. While hindsight is a wonderful thing, this experience has taught me the importance of looking into companies that have some involvement in making the products I enjoy using.
ARM currently trades on a forecast P/E of 28. Despite the high price and my general reluctance to go near the technology sector, this superb company remains on my watchlist.
Investors shouldn't be afraid to trust their convictions as long as they've conducted a good amount of research and are confident that the companies they're interested in have bright futures. Sometimes it's simply best to act, especially if an opportunity to purchase discounted shares in attractive businesses comes along.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.