Beginners’ Lessons from Tesco PLC, Rio Tinto plc And Persimmon plc

Three lessons to take from Tesco plc (LON:TSCO), Rio Tinto plc (LON:RIO) and Persimmon plc (LON:PSON).

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The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for.

The Beginners’ Portfolio is about education, and I want to to help you to improve your investing abilities — I’m not telling you what to buy, but helping you to learn how to make your own buying decisions.

To that end, from time to time I’ll look back over some of the portfolio’s decisions to see what general investing lessons might be learned from them. Here are three:

Tesco

TescoWhen I added Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) at 305.5p, the supermarket giant had had a disappointing Christmas period and its share price had nosedived.

But, top company in its sector with a market share of around 30%, no suggestion of any dividend problems, and ace investor Warren Buffett likes it enough to own a chunk. Surely the problems will be quickly fixed and Tesco will be rapidly back to winning ways, right?

The truth is it’s taking longer than I thought. After earnings per share fell for the year to February 2013, we have no recovery expected this year, and analysts are forecasting only a modest 5% rise to follow. In fact, EPS for 2015 should be only modestly higher than in 2010. But you know what? The shares are cheaper now than they were in 2010 and looking better value, even if it may take a bit of time for that value to work its way out — though we are actually in profit with Tesco at 367p.

Problems at big companies can take time to manifest their effects, and it can take time for the fixes to work, too. I wouldn’t say don’t be optimistic about quick results from your investments — after all, if we weren’t optimists we wouldn’t be buying shares. But temper that optimism with reality, and don’t be disappointed if the results take longer than expected.

Rio Tinto

opencast.miningWhy did I choose Rio Tinto (LSE: RIO) (NYSE: RIO.US) a year ago at 3,048p? It’s in a cyclical sector that was depressed at the time, and it produces commodities that the world just can’t do without. The problem is, even though the shares did pick up pretty quickly after the purchase, they turned tail again and slumped by late June this year — and after the recent mini-rally has lost steam, the portfolio is still in losing territory at 2,993p.

Many people thought the mining shakeout had further to go and kept away from the sector. It turns out they were right. And they might still be right for some time to come.

At the time I said “I care little for the short-term price of metals and minerals — even if it does push miners down even further, in the short term“, and I stick by that. Trying to time the market is for mugs and experts, and I have met none of the latter — and if you’re either, you’ll have no use for my humble offerings anyway.

Persimmon

houseI chose housebuilder Persimmon (LSE: PSN) for a similar reason, and again I didn’t know when any recovery might happen — although at the time I thought I did see signs of a turn when I added them at 618p.

But my core reason was that housebuilders just seemed stupidly cheap. The buy-to-let craze had collapsed, the myth that house prices always rise had been well and truly shattered, and lying about your income to get a mortgage you couldn’t afford was but a distant memory. In fact, there were very few mortgages to be had even for honest folks.

In short, we were at a time of ‘Maximum Pessimism’.

Such times don’t come by that often, and they’re not always so easy to identify — but they present some of the best investing opportunities ever. At 1,145p, Persimmon has given us an 85% paper profit so far.

Finally, my idea of the kind of shares that should make up the core of a beginner’s portfolio is the same as my choice for an ISA, or a retirement portfolio — or in fact, any portfolio. I’d start with good strong companies that should stand the test of time and potentially reward you for decades.

Not surprisingly, the Fool’s top analysts think similarly, and they have put together a special report detailing five blue-chip shares that I think would be ideal for anyone at the start of their investing career.

But it will only be available for a limited period, so click here to get your hands on these great ideas that could start you on the road to long-term riches.

> Alan does not own any shares mentioned in this article. The Motley Fool owns shares in Tesco.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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