What should you do if you’ve owned a stock for over ten years and it’s gone pretty much nowhere?
Do you operate with the belief that the company has fallen victim to circumstances and sit there, believing that eventually it will be time and you will see the profits you expected?
Or should you ditch the stock and move on to better opportunities elsewhere?
Like many British personal investors, I am a Lloyds shareholder.
And like many, I’ve been one for so long that I’m not just paid to wait – as the old stock market adage goes – but I’m not paid to wait, paid to wait, and then not paid to wait again. to wait.
Originally I had Halifax shares, then they merged with Lloyds and bought more for 37p in the financial crisis rights issue thinking the only way was up – how wrong I was
Meanwhile, despite a small bump this week, Lloyds’ share price, at 44p is currently below both the post-Brexit trough and much of 2009, when we were still in financial crisis mode.
The last time I wrote about this holding, in February 2019, Lloyds’ share price was close to 62 pence and investors had just received a dividend bump.
I then noted that I had been 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 a mockery of long-term thinking.”
And that’s true. There has been a lot of movement and if I had traded the stocks up and down with highs and lows, trying to time the markets with a few simple 200 day average buy and sell signals, I could have made a lot of money.
Instead, I did what you have to do. I invested long term and patiently waited for returns.
I held onto the stock assuming that once Brexit was done, Lloyds would rise again. I didn’t know what would happen next.
Still, a coronavirus pandemic and a crushing lockdown later, Lloyds is doing better than expected, with shares up 76 per cent from a Covid low of just below 25p.
So, what should I do now? Hold on for the recovery – despite the opportunity cost – or dump the stock and move on to a brighter outlook?
The This is Money charts don’t go back as far as the rights issue in 2009, but show Lloyds hasn’t been a great long-term investment in the past 11 years
We recently posted a number of articles on our Share Investing channel looking at different reasons for holding stocks too long – and how to know when to sell.
In the interest of how we investors can assess our behavior and biases, I will be using my Lloyds shares to investigate this in real life.
First of all, I have to look at my motivation to invest.
Do I want to hold shares in an old UK bank instead of putting my money to work elsewhere? Not really, I have a piece of Lloyds stock because of the history and circumstances.
First, I need to look at my motivation to invest
My stock ownership came from having HBOS stock initially, being just old enough as a Halifax savings account holder to get some free stock when it was demutated.
The early years were good and those shares rose in value, then came the credit crisis.
My Halifax shares then became Lloyds shares as part of the disastrous arranged marriage and I bought a few more in one of the financial crisis era rights issues for 37 pence – my reasoning was that the only way was possible.
Because it was Lloyds, the stock went up, then fell below that 37p level, then thankfully rose again, and then the Brexit vote took place and they sank again.
Long story short, I’ve had numerous opportunities over the past 12 years to sell for about 75 pence – which would have meant doubling my money for the rights issue investment.
It didn’t bother me and I held on to the belief that they could make it to 100p, based on that deadly combination of wishful thinking and a little bit of analysis.
But if I’d thought things through, I would have admitted to myself that a) I wasn’t too concerned about keeping a domestically oriented traditional UK bank and b) there were a lot of issues that allowed my investment to be better spent.
In short, Lloyds has had to deal with low interest rates, legacy technology, challenger banks, the insane PPI misselling, the public perception after the financial crisis that banks are the bad guys, and probably a lot of other problems I’ve had. missed there.
I’m a financial journalist, so I’m aware of all these things, but I still had the stock.
That is a classic example of the endowment effect, which makes us biased towards existing holdings.
On the plus side, while the 19 percent share price return over 12 years on those rights issue shares is bullshit, I’ve had some dividends.
At about 15 pence a share since Lloyds started paying them again in 2015, that’s another 40 percent return on investment.
The next question in behavioral investing is, ‘Would I buy Lloyds at this price now?’
It’s not a total dud, but it’s not great – especially when you compare the total return of 265 percent on the average UK equity income investment trust over the past 12 years.
The next behavioral investing question before deciding whether to throw it is, ‘Would I buy Lloyds at this price now?’
I just do not know. I still don’t think a major UK bank is the best prospect, but it’s a value recovery game.
My go-to site for in-depth stock analysis, Stockopedia, gives it a stock ranking of 92 (100 is best) and puts it at a 12-month moving PE of 7.
Not all of them have been solved by now, but Lloyds has spent the past decade solving many of those legacy problems, the lockdown hasn’t been as bad as people thought and the economy is rebounding.
It’s wishful thinking, but I’ll probably stick with it, maybe in 12 years.
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