Despite owning some superstar shares, I’ve made my share of investing mistakes, because some stocks become shocks. My latest horror show lies in the FTSE 250.
My FTSE flop
I’ve just conducted a review of my family portfolio — which includes 27 individual shares — to find our winners and losers. While I’m delighted at the ‘jumpers’, I need to watch the ‘slumpers’.
We hold seven mega-cap US stocks (including four of the ‘Magnificent Seven’), six of which have done incredibly well. Our UK holdings include 15 FTSE 100 shares, plus five FTSE 250 stocks.
Among our five mid-sized company stocks, we have two big winners. These businesses are being taken over at large premiums to our entry prices. Hence, we need to decide where to invest this cash when it arrives. Two other shares are doing okay, but nothing fancy.
My FTSE 250 flop
Now for by far the worst share I have bought in the last 15 years. Winner of my wooden spoon for investment performance is financial firm Close Brothers Group (LSE: CBG). Founded 147 years ago in 1878, Close is a mid-tier player in merchant banking, business and consumer lending, wealth management, and securities trading. It first listed its shares in London in 1984.
The past five years have been brutal for Close shareholders. Close to its all-time high, the share price closed at 1,685p on 12 March 2021. Unfortunately, it’s been steeply downhill for this stock ever since. Currently, the share price stands at 320p, valuing this business at £488m — a shadow of its former self. Over five years, the stock has collapsed, plunging 77.8%. Over one year, the decline is 1.1%.
That said, things have been a lot worse for Close shareholders, including me. At their 52-week low on 13 November 2024, the shares crashed as low as 179.83p, before bouncing back to current levels.
What crashed Close?
We bought Close for its attractive dividend yield. At our buy price of 790.8p, this cash yield was 8.5% a year. Then it cancelled its dividend in a shock announcement on 15 February 2024.
Sadly, the stock fell into a sinkhole last year, driven down by Close’s involvement in a growing mis-selling scandal involving car loans. For many years, it allowed car dealers to charge customers higher rates of interest, without revealing these hidden charges to buyers.
The Financial Conduct Authority is conducting a wide-ranging regulatory review of this issue, while several important legal cases around this mis-selling are going through the courts. Estimates for potential consumer compensation run into tens of billions of pounds.
I bought Close thinking it was a classic ‘fallen angel’ stock, but it turned out to be a little devil. My biggest regret is that I didn’t sell out as soon as this reputational issue emerged in 2023. To date, we have lost 59.5% of our investment, leaving less than two-fifths remaining.
Do I sell our holding in this floundering FTSE 250 business? To be honest, I don’t know, as I’m equally pessimistic and optimistic about this company’s future. If key court cases go Close’s way, then total compensation could be greatly reduced. Close is also selling its wealth-management arm for up to £200m. Hence, we’ve decided to sit tight and await developments!
