Lloyds Banking Group (LSE: LLOY) is the poorest performing stock in my portfolio right now. I bought when the financial crisis was receding, and bank dividends were starting to come back. I was, I thought, looking at a reasonably safe investment that would provide me with dividends for years to come. And hopefully some share price growth too. Since then, the Lloyds share price has fallen by two thirds. And my dividends have dried up completely.
Do I look back on the chart and wish I’d sold before things got this bad? You bet I do. So why didn’t I?
Knowing when to sell can be one of the hardest things in investing. If you’re choosing between a range of options for a purchase, it’s relatively easy to weigh them against each other without any emotional attachment. But after you’ve bought, it’s a different proposition. You’ve made your decision, and you really don’t want to give up on it.
When I buy shares, the company becomes my company. I really do think of it as my very own, and it’s hard to let it go. But I’ve been re-examining my Lloyds purchase, as I think we should do with all our investments. So why did I watch the Lloyds share price in its inexorable slide and not sell?
Well, the first thing I do when I see a share price fall is look for a reason. Has the outlook for the company changed in any real way? Or is it just the vagaries of market sentiment?
The latter probably has more short-term effect on share prices than anything. And we should ignore it. Bullish sentiment towards banks did start to fall off a few years ago, and share prices fell. But Lloyds and the other banks hadn’t changed. And, if anything, that’s a sign to buy more rather than sell.
But we’ve had genuine problems too. London’s position as the centre of European banking was destroyed overnight by the Brexit referendum. And the Lloyds share price crashed. That’s just one example, but what do you do when something like that happens?
I approach it by trying to think as if I don’t own the shares. I then examine the company and its new valuation, and compare it to its altered outlook. If I think I’d still buy the shares at the lower price with their potentially diminished prospects, I’ll hold. And, because markets typically overreact to bad news, I very often conclude that the price fall is overdone and the shares are good value in the new circumstances.
Lloyds share price slide
Things have continued to go wrong for the banks, with the Covid-19 pandemic the latest calamity. And the Lloyds share price has continued on down.
But, you know, I can’t shake off the conviction, once again, that Lloyds shares are good value. Sure, the next few years are set to be tougher than I’d ever imagined. But, once again, I think all the bad news is fully built into today’s share price. And Lloyds is a buy for me now.
I’m still holding. Surely nothing else can go wrong…
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.