This basket of cheap shares is up over 46% in the last seven months.
Hindsight is wonderful.
If we knew what we know now, we'd have backed up the lorry and loaded up on cheap shares back in March this year.
Some people have already made fortunes. You may have read the story on our popular discussion boards of user Mansarde's massive success story…
"Back in March I was living in a small 3 bed end-of-terrace, today I'm writing this from the 6 bedroom house we moved into a week ago. The cost of that house move plus the pot of cash to renovate the new place has come entirely from the profits I've banked on preference shares, with enough left over that going to work is now pretty much optional. Phrases such as "life-changing" are a bit clichéd, but it has literally changed my life."
In mid-March, after the market had jumped of its absolute lows, but still in the midst of uncertainty, panic and fear, I wrote a piece titled 5 Shares Trading Below 50p, concluding the article by saying…
"These 5 companies offer the prospect of good to very good returns, hopefully with limited downside. That said, this economy has had a habit of making a mockery of such statements, and each company will face significant challenges as the year progresses. But hopefully those difficulties are already well and truly baked into their sub-50p share prices."
The Forgotten Shares
I had somewhat forgotten about the companies since I wrote the article. With so much happening, and so much to write about, I moved onto other riveting topics and themes, such as the popular Banking Bonuses Must Be Capped and the revelation of a lifetime, Official: It's Not Armageddon.
But today I had reason to go back and check out the 5 shares under 50p article. You see, I was going to write similar article, updating the shares, looking for another quintet of cheap yet promising companies.
Then I looked at the companies I featured almost seven months ago. I at least hoped they had made some progress. After all, the FTSE 100 had risen over 35% in the same period, with the share prices of many companies, including Barclays (LSE: BARC) and Vedanta Resources (LSE: VED), flying much higher.
I must say, I was pleasantly surprised by the gains in most of the share prices.
| Company | Mar 18
share price | Oct 9
share price | Change |
|---|
| Spirent (LSE: SPT) | 49.75p | 92p | 85% |
| DSG Int'l (LSE: DSGI) | 20.75p | 27p | 30% |
| Sportingbet (LSE: SBT) | 43p | 77p | 79% |
| Galliford Try (LSE: GFRD) | 377.5p | 382.75p | 1% |
| Tenon Group (LSE: TNO) | 43p | 59p | 37% |
The average gain across the group was over 46%, pretty good going in under 7 months. Galliford Try consolidated its shares on a 1 for 10 basis earlier this month -- it's price was 37.75p when the article was written.
A Rising Tide
It should be said of course that the past few months have been amongst the easiest ever times to be a stock picker. As the saying goes, a rising tide lifts all boats, and the share prices of most companies have risen from what in hindsight were incredibly low levels.
I'm certainly not professing to be some stock picking genius. I'm happy to leave that to others here at The Motley Fool. But it is a reminder of two important points…
1) Market panics are a great time to be buying shares. You may not pick the bottom of the market, and there are risks, but as you can see, the rewards can be substantial.
2) Diversification is vital. Of the five companies highlighted, if you'd have just bought Galliford Try, you'd be more than a little disappointed. But over a basket of companies, the gains have been excellent.
Now For The Hard Part…
These days, with the market having risen strongly from its March lows, finding cheap, good quality shares is quite a bit more difficult.
But it's certainly not impossible. Part of the mental investing challenge now is to set your expectations appropriately.
It is doubtful you'll get the instant share-price gratification, like investors in companies like four out of the five listed above have just enjoyed.
Remember, your investing goal should be to achieve returns of around 10%-15% per annum. In some periods, like the one we've just had, the returns will come very quickly. In others, it will take more time, and involve some ups and downs. In all times, skill and patience are required.
More on the economy and the markets:
> If you're in the market for buying and selling shares, consider opening an online broker account with The Motley Fool's Share Dealing Service. You can buy and sell shares in real time for a flat rate of just £10. Find out how you can open an account for free today. There is no obligation to trade.
> Bruce Jackson doesn't have an interest in any of the companies mentioned in this article.
