What You Were Buying Last Week: Quindell PLC

One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful”. Or, in other words, sell when others are buying and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.

The long and short of it

If you’ve read much business news in the past week or so, it’ll have been hard to have missed coverage of Quindell (LSE: QPP), the provider of software, consultancy and technology-enabled outsourcing in the insurance, telecommunications and related sectors.

The company’s share price plummeted close to 54% at one point a week ago, following a report published by an outfit with the unlikely name of “Gotham City Research”, which branded Quindell a “country club built on quicksand“, said its profits were “suspect” and made various allegations regarding the company’s operations. In short — and I use the word advisedly, as Gotham’s website includes the disclaimer ““As of the publication date of our articles, we may have long or short equity positions in the companies covered” — the report completely damned Quindell.

Quindell’s share price has recovered a little since then, but at 22.25p at the time of writing it’s still over 48% off its 2014 high of 43.75p.  

However, Gotham City Research’s allegations clearly haven’t troubled a lot of Fool ShareDealing customers, who put Quindell firmly in the number one spot in our latest ‘Top Ten Buys’ list*.   (For the sake of balance, it’s only fair to mention that Quindell was also in the number two spot in the ‘Top Ten Sells’ list, too — but the fact that the number of buyers was more than six times the number of sellers tells its own story.)

Trouncing the FTSE 100

So what might have convinced so many people to buy Quindell in the face of a falling share price?

Well, it could have been the detailed rebuttal (12,500 words, 22 pages) that Quindell issued in the wake of Gotham’s report. In its response, Quindell said that it considered Gotham’s report to be “highly defamatory” and “deliberately misrepresentative” and that it would be initiating legal action against those responsible for what what it described as a “coordinated shorting attack“.

Or it could have been Quindell’s performance over the past year, during which time (but prior to last week’s nose-dive) its share price increased by 206%, utterly trouncing the FTSE 100’s mere 4.4% over the same period.  And even after the recent drop, Quindell’s share price is still up over 60% since the end of April 2013.

Quindell’s soaring share price was built on a raft of multi-million pound contract wins and deals with major clients, including Zurich Canada and Endsleigh (both part of the global Zurich Insurance Group), AvivaDirect Line, Renault UK, Swinton and Honda UK, and the company recently announced a joint venture with the RAC  — “Connected Car Solutions” — that Quindell says is “the world’s largest telematics contract“.  

So, perhaps last week’s buyers of Quindell were minded to give more credence to the due diligence such companies would have performed than to the accusations of a largely unknown “research group” that may well have stood to profit from the share price collapse its report was clearly designed to bring about.

If they’re correct, and there’s little or no substance to Gotham’s accusations, then last week’s buyers could profit very handsomely from Quindell’s eventual recovery. 

But of course, no matter what other people were doing last week, only you can decide if Quindell really is a ‘buy’ right now.

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Jon doesn't have any position in Quindell, long or short.

* based on aggregate data from The Motley Fool ShareDealing Service.