Today's Falling Knife: Hornby Crashes 37%

This is the third constituent of my share portfolio that has issued a profits warning in the last 12 months. The others being Tesco and Lamprell. I have only been investing for 18 months and hold 18 different stocks. Therefore i am starting to wonder if i might not be cut out for it.

That said, my portfolio is fairly well diversified and remains profitable and continues to slightly outperform the FTSE 100, thanks to few big wins (Robert Wiseman, Cookson, Dignity, GKN). Of course, with the exception of Wiseman, i still hold all of the above so other than dividends i have not actually banked a return on any of these stocks or banked a loss on the companies that issued profit warnings.

After Tesco issued their profit warning i averaged down and whilst still down overall the decision to buy more shares has so far proven to be a good one.

I chose not to average down on Lamprell. I bought in at 120p following the first 2 warnings (didn't heed the advice profit warnings come in 3's). However i now wish i had bought more as these have recovered almost to my purchase price.

So to the question; should i average down on Hornby? I seem to recall they came up with a new dividend policy last year to pay out half of their profits each year in dividends (although i can't find the article where i read this). If this is the case there will be no dividend this year. Moreover the market seems to like companies that deliver steady dividend growth which Hornby may find difficult to do if they adhere strictly to the above dividend policy. That said, the company is relatively sound financially (i seem to recall), and most of their problems should be short term from which i still think they will recover and most importantly little boys love toy trains, choo choo!

I'm still undecided and will clearly have to sleep on this and do a little more fundamental quantitative research.

Does anyone else hold hornby or have any views?

I have been investing in shares for approx 4years and I found that constantly tinkering with my share portfolio just seemed to increase my costs.Therefore I have decided to buy and sell less often.It is an investment approach which is favoured by successful investors such as Terry Smith(Fundsmith) for example who advocates holding a limited portfolio of sound companies for the very long time,less trading, and more reading,which I admit is not exciting but the best investment results are often made by being less active at trading.A lot of companies are reporting that earnings are down in the current climate of deleveraging. Hornby may benefit from the upcoming Christmas season if it can sort out its supplier issues.

Thegibb1. I suppose to answer your question about averaging down you must consider the reasons you bought the shares in the first place. Do those reasons still hold true? I see one risk here being a poor Christmas leading to further share price falls. Positives perhaps are that Hornby manages to come up with new and different products to boost revenue. However this ''redoubling'' of effort could sound like more of the same.