One problem with investing in companies with jumpy share prices like Quindell (LSE: QPP) is that you can end up chasing the last burst of activity.
Bandwagon jumpers climb on board after the share price has surged, while contrarians dive in when it tumbles. Both are reacting to share price movement, rather than company fundamentals.
The other challenge is that you can get addicted to the short-term hyperactivity, when you should be thinking long term.
Which may be one reason why AIM-listed Quindell was knocked so hard at the end of February after it asked shareholders to be “patient”.
That’s the last word they wanted to hear.
The Long Haul
It’s hard to be patient with a stock that has performed like Quindell lately. At today’s 92p, it is trading at a fraction of its 52-week high of 682p.
Yet it is up 60% over the last three months, rewarding contrarians who got their timing right.
Management at the insurance claims processor is waiting for the outcome of an independent review by PricewaterhouseCoopers, which has dragged on due to “high levels of corporate activity of the group”.
Buying Quindell today is purely guesswork.
Excitement Overload
Richard Rose and Jim Sutcliffe at Quindell are said to be working with PwC on plans to shrink the group to two operating divisions, its professional services division and the technology division.
Investors briefly became excited by reports that Slater & Gordon is lining up a bid for its legal services arm, then got even more excited by rumours that it was planning to buy the entire group.
I’m always reluctant to buy on takeover talk, because so often it leads to nothing but a share price hangover.
With Slater & Gordon apparently pouring cold water on the speculation, investors should block their ears.
Cash In
Quindell is at least trying to simplify its unreadable business. It has enjoyed a £7.1 million cash injection after offloading its 25% stake in the National Accident Repair Service.
It has also settled a $1m legal suit in the US, not because it thought it would lose, but to avoid the cost and uncertainty litigation always brings.
None of that really matters. Right now, the stock all boils down to the outcome over a report about which investors can know nothing.
That makes the company a known unknown. That might encourage speculators, but investors have surely had their patience tried enough already.
