One thing I can confirm is that choosing my own investments is never easy, even after 35 years of practice. Sometimes, I buy shares and they soar. Occasionally, I buy a dog and it crashes. Maybe that’s why so many investors prefer to buy the whole market through cheap index-tracking funds. For example, here’s a tale of one howler — a FTSE 250 share I bought recently that blew up in my face.
We bought 17 new stocks
Over the past seven months, my wife and I bought a total of 17 new stocks. These comprise seven FTSE 100 shares, three FTSE 250 shares, and seven US stocks. We bought the 10 UK shares to generate extra dividend income, while the seven American stocks were a bet on global recovery and growth.
All but one of our new US holdings were bought on 3 November, the week before the US midterm elections. The good news is that these six stocks have since registered solid gains, especially the four mega-tech giants we bought for their sheer size and strength.
A FTSE 250 flop
Elsewhere in our new portfolio, our FTSE 100 stocks are mostly showing early paper gains, with the notable exception of one property share that has dived. But most disappointing so far has been the showing of our new FTSE 250 shares, only one of which has pulled ahead of our buying price. Here is one FTSE 250 faller I’m deeply disappointed in.
Direct Line dives
At their 52-week high, Direct Line Insurance Group (LSE: DLG) shares hit 312.7p on 10 February 2022 — two weeks before Russia invaded Ukraine. After they plunged below £2 last summer, we snapped up some shares in late July at a whisker above this level.
Initially, the stock bounced back, rising as high as 15% or so above our buy price. But in a trading update released on 11 January, the group announced that it was scrapping its cash dividend in order to rebuild its weakening balance sheet. This grim news sent the stock plunging by almost a quarter (-23.5%) that day. Urgh.
To be honest, I was furious with this decision, because the insurance group’s CEO had stated as recently as November that Direct Line’s dividend was safe. Then a blast of severely cold weather in December sent its insurance claims soaring by £90m. One piece of good news is that chief executive Penny James stepped down on Friday — most likely at the request of angry shareholders (including me).
On Friday, this FTSE 250 share closed at 173.8p, down 43.1% over one year and 13.2% below our buy price. Thus, what initially started out as a good buy has turned into a disappointment. I guess that’s just one of the hazards of investing in shares during periods of volatility.
This latest news has reduced the company’s market value to under £2.3bn — a far cry from the days it was a FTSE 100 firm. Encouragingly, this stock has rebounded by 7.3% from its 2023 low of 161.95p on 11 January. In summary, though the dividend is gone, the CEO’s departure offers some hope for a turnaround. Therefore, I will stick with this no-dividend FTSE 250 stock for now, despite my loss to date!
