I never thought I’d be investing in something like Sirius Minerals (LSE: SXX) at this stage in my life, not when my early days as a growth investor are way behind me and I’ve turned mainly to blue-chip FTSE 100 shares paying good dividends.
But I’d been following Sirius for some time, regretting not getting in after the shares soared to 45p in July 2016. And my long experience of early growth candidates that are years away from profitability has taught me that early good news often tends to cause price spikes which then fall right back down again.
So it was with Sirius, and I subsequently bought at 18p after that irrational rise had collapsed
What would make me sell?
I do expect to see the share price rocking up and down again many times before the company reports its first profit — and full production is not expected until 2027. So am I tempted to try to ride the roller coaster, sell when the price gets high and buy back in again when it drops?
My answer is no, because, tempting though it is, my experience tells me that I really am very poor at timing things like this — and the great majority of investors are no better than me.
But I definitely do want to sell my Sirius shares at some point, for the reason that the company would have come good, would be shipping vast quantities of top-quality polyhalite potash for fertiliser around the world, and its share price would have multi-bagged.
Now, I know that might sound obvious, but getting there can take a steely nerve and an ability to ignore short-term emotion. In fact, just as I expect to see irrational share price rises in the coming years, so I also expect to see irrational falls. The key here is not to be spooked either way, but it does bring me to the other reason I would sell.
My second reason comes straight from Warren Buffett, and I’d sell if I decided my original analysis was wrong, if I became convinced the company did not have the potential I’d initially thought. In the same way that Mr Buffett dropped Tesco like a hot thing when he came to understand its underlying problems, so I like to think I’ll be able to spot core problems should they come up at Sirius.
Will I be able to? I’m reasonably confident I will, as a number of times in my investing life I’ve been able to re-examine my original understanding, decide I was completely wrong, and come clean about it publicly.
My most recent example was the insurance-to-kitchen-sink mess that was Quindell, now renamed to Watchstone Group, when I was taken in by my analysis of the firm’s early promise. But when wiser heads than mine dug into the accounts, exposed their true reality, and made it clear I was wrong, I was happy to hold my hands up to my early mistake and reverse my opinion 100%.
I really don’t expect that to happen with Sirius, partly because the company’s management appears to be of the highest quality and has been very open with us about its progress so far and its potential. So roll on the multi-bagger I’m hoping for, and the very best reason for selling.
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Alan Oscroft owns shares of Sirius Minerals. 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.