Real-Life Investing: Taking Profits On Carillion plc

In investing, I tend to be a pragmatist. People often debate about whether you should be a investor or a trader, and you should be one and not the other.

But personally, my approach is to sometimes invest and sometimes trade. Most of the time I am a investor, but occasionally I will trade. In any case, to me it’s not a case of investing vs trading. It’s more a case of long-term prospects vs short-term opportunity.

Snapping up a bargain

A year ago I bought shares in building services provider Carillion (LSE: CLLN). Now Carillion is a mid-cap company in a business that has suffered during the recession. The share price had fallen to bargain levels. I bought into Carillion at a price of 260p, after the share price had fallen from a high of 390p which it had reached in 2011. At a P/E ratio of 7, the company was very cheap.

The share price had been driven down to these levels because of fears of a prolonged slowdown in infrastructure and building spending. But as the recession has ended we have seen an upturn in building spend. The Carillion share price has been steadily recovering. Earlier this month the share price reached 375p.

So should I sell? Well, I was wavering. What was the valuation of the company now? A 2014 P/E ratio of 11 is still cheap, but I’m just wondering whether there will be much progression in profitability in the next few years.

Made my wife smile

The investor in me is telling me to hold, after all the company is still cheap. But the trader in me is telling me to sell — after all, I would be locking in a nearly 50% profit (if you include dividends) after just a year.

Now you could say that I am missing out on a better return if we look years into the future. But I felt I had enough confidence in my investing skills that the money could be better invested in some of the prospects I’ve been considering buying into.

So I sold. It was a quick win and I had no regrets. And suddenly I have some money to spend on a few luxuries at home — and earn a few brownie points with my better half.

Carillion is still on my watch list. If it falls to near its 2013 lows, I might just jump on the merry-go-round again.

When I think of investing, I’m not thinking of being a value investor, a growth investor, a trader or anything else. I’m thinking about being pragmatic and flexible.

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Prabhat does not own shares in Carillion.