What should you do if you have held a stock for more than a decade and it hasn’t gone anywhere?
Do you act on the premise that the company has succumbed to circumstances and sit there believing that its time will eventually come and you will see the benefits you hoped for?
Or should you leave the stock and move to better opportunities elsewhere?
Like many other British private investors, I am a shareholder of Lloyds.
And like many people, I’ve been one for so long that I can’t get paid to wait — as the old dividend stock market says — but I’m not paid to wait, wait. Not paid to do, and then not paid to wait again.
Originally I owned shares in Halifax, then they merged with Lloyds and I bought more at 37p in the financial crisis rights issue, thinking that was the only way – how wrong I was
Meanwhile, despite a slight drop this week, Lloyd’s share price, at 44p, is currently down from both our post-Brexit votes and a large part of 2009, when we were still in financial crisis mode.
The last time I wrote about this shareholding, in February 2019, Lloyds’ share price was around 62p and investors had just received a dividend.
I then remarked that I was paid to wait, but it probably would have been better to wait elsewhere.
My favorite reader comment on the column simply said: ‘This stock makes fun of long-term thinking.’
And it’s true. There has been a lot of movement and I had traded stocks up and down peaks and troughs, trying to time the market with some simple 200 day average charts and sell signals, I could have made a lot of money.
Instead, I did what you’re supposed to do. I invested for the long term and waited patiently for the returns.
I took the stock on the premise that once Brexit happens, Lloyd’s will come back up. I didn’t know what would happen next.
Still, a coronavirus pandemic and economy-crushing lockdown followed and Lloyd’s is doing better than expected and its shares have climbed 76 percent from a Covid of just under 25p.
So what should I do now? Hold tight to the recovery — despite the opportunity cost — or give up the stocks and move on to brighter prospects?
This chart of the money doesn’t go as far back as the 2009 rights issue, but it shows that Lloyd’s hasn’t been a great long-term investment over the past 11 years.
Recently we ran a few articles on our stock investing channel that considered the various reasons to hold on to stocks for too long – and how to know when to sell.
In the interest of how we investors can assess our behavior and biases, I will use my Lloyds shares to explore this in real life.
First, I need to look at my motivation for investing.
Do I want to keep shares in an old British bank instead of working my money elsewhere? Not really, I’ve got a share of Lloyds shares because of history and circumstances.
My shareholding initially came from HBOS shares, as I was old enough as a Halifax Building Society savings account holder when it was demutualized.
The early years were good and the price of those stocks went up, then the credit crunch followed.
My Halifax shares then became Lloyds shares as part of a disastrous arranged marriage and I bought some more in one of the financial crisis-era rights at 37p – the only way I could argue.
Lloyds being, the shares went up, then fell below that 37p level, then luckily rose once again, and then the Brexit vote happened and they sank again.
To make a long story short, I’ve had several opportunities to sell over the past 12 years at around 75p – which would mean doubling my money on a rights issue investment.
Based on a deadly combination of wishful thinking and a little analysis, I didn’t bother, holding firmly to the belief that they could reach 100p.
Still, if I had thought about things properly, I would have admitted to myself that a) I wasn’t really that impatient about having a domestically focused traditional UK bank and b) there were a lot of issues that had to be addressed. Which meant that my investment could be better. deployed.
In short, Lloyds has had to deal with low interest rates, legacy technology, challenging banks, its silly PPI misselling, the post-financial crisis public perception that banks are the bad guys, and probably loads of other problems that I’ve had. Missed there.
I am a financial journalist, so I am aware of all these things, yet I have stocks.
This is a classic example of the endowment effect, which leads us to be biased towards the current shareholding.
On the plus side, although the 19 percent share price return over 12 years on those rights issue shares is rubbish, I have received some dividends.
Priced at around 15p per share since Lloyds resumed paying them in 2015, that’s another 40 percent return on investment.
It’s not a total, but it’s not great – especially when you compare it to the total 265 percent return on the average UK equity income investment trust over the past 12 years.
Before I leave it, the next practical investment question is: ‘Will I buy Lloyds now at this price?’
I just don’t know. I still don’t think a big UK bank is the best prospect, but it is a price recovery game.
For in-depth stock analysis visit my site, stockopedia, gives it a stock rank of 92 (100 is the best) and places it at a 12-month rolling PE of 7.
In the meantime, they’re not all sure, but Lloyds has spent the past decade tackling a lot of those legacy issues, the lockdown isn’t as bad as people thought it to be, and the economy is bouncing back.
It’s wishful thinking, but I’ll stick with it, probably not for the next 12 years.