Beginners’ Portfolio: After Blinkx Plc and Quindell PLC Failures, Why Sirius Minerals PLC?

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The Beginners’ Portfolio is a virtual portfolio, run as if based on real money with all costs, spreads and dividends accounted for. Transactions made for the portfolio are for educational purposes only and do not constitute advice to buy or sell.

Is Growth A Mistake?

With the losses we’ve made on Blinkx (LSE: BLNX) and Quindell (LSE: QPP), it would be hard to claim that the Beginners’ Portfolio’s growth strategy has been a success, so why am I persevering with Sirius Minerals (LSE: SXX)? After all, our foray into video technologist Blinkx left us 40% out of pocket, and auto insurance firm Quindell cranked up a 33% loss.

But the portfolio is built on a long-term strategy, and it’s aimed at beginners who have plenty of years ahead to deal with the greater volatility expected from a partial investment in smaller and higher-risk growth shares. So what do the risks look like for Sirius?

Desirable dirt

Sirius is sitting on a large deposit of high quality potash in Yorkshire, and the most obvious risk is that it won’t get all the approvals it needs to take it to production. But the risk of that is looking ever lower — the company even has local people on its side, presumably drawn to the large number of jobs that would be created.

There’s also a risk that the perceived levels of demand might not materialise, despite all of the firm’s tests on various crops having provided very favourable results. If the stuff is as good as it seems, that risk might not be too great — but it is there, and it needs to be considered

But the greatest risk is surely the unpredictable nature of the need for funding during this kind of project. There are all kinds of things that can cause delays, and most mineral-resource companies in their early days face a few setbacks and later funding ends up diluting the early investors’ ownership.

It is, however, impossible to quantify these risks — and with our buy price of 13.75p I’m comfortable that it’s not too big a gamble.

The best choice?

And I’m definitely happier holding Sirius than the previous two. Blinkx fluffed its response to the move to mobile video advertising, which was a pretty poor show for someone at the forefront of technology, and the company slumped back into loss this year.

There’s no profit now expected before 2017, and even then we’d have a P/E of 77. Blinkx may well come good, but its early-mover advantage has been frittered away and that was a large factor in my original investment decision.

As for Quindell, there’s a good argument that what’s left after its Professional Services Division was sold to Slater and Gordon is seriously undervalued, and that the shares could be a screaming bargain now. In fact, once you deduct the cash being handed back to shareholders from Quindell’s market cap, there’s really no extra value attributed to the company itself.

The problem with that is there’s no business strategy to examine right now and there isn’t even a CEO in place — and I certainly wouldn’t buy an unknown company on a blind hope, however cheap it might seem.

No, I’m happy with having a portion of the portfolio in a smaller growth company, and at the moment I’m happy for that company to be Sirius.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.