Section Items

Long Term Share Trading Example - Carillion

This is a typical example of what I am talking about when I express concerns about long term holding.

Carillion were a FTSE 250 company during the middle of July 2017 and at this time the FTSE 250 index was close to a record high.

Some of Carillion's problems may have been sector specific as they were followed by Interserve who survived for a little while longer by doing a share issue.

After a long term share price of between 200p-375p and paying dividends every year, the price drops to about 50p in a few days in June 2017 and then the company ends up bankrupt in Jan 2018.

Carillion Long Term Share Price chart

CLLN Share Price Graph
Source - Google

We All Knew This Was About To Happen!

As often happens after the disaster a whole load of people came out of the woodwork to say that "This is no surprise we all knew that they were in trouble".

Yet oddly all this information didn't seem to filter down to the normal retail investor.

Auditors weren't qualifying their audits, brokers were still publishing their positive recommendations and there were no big contracts suddenly going badly wrong.

If you dug around enough you could find some commentaries that point to signs that things weren't going well, things like the squeezing of suppliers, directors selling shares as soon as they could etc.

If you were to decide not to buy shares in a company because of a few negative reports then you would not buy any shares.

No, I'm not bitter as I didn't have any holdings.

Broker Views

As a cautious trader you may be in the habit of looking at Broker Views, after all brokers spend a lot of time constructing them.

As you can see there was no hint that the brokers covering Carillion were terribly concerned.

Clearly it was possible that this was a short term blip and in a few months everything would have been back to normal.

The drop was caused by an unexpected reporting of an expected reduction in revenue of £875m, this was not just jitters by spooked traders this was something fundamentally wrong.

If you hadn't got out before the drop and closure:
  • If you had split your share holdings into five different companies then you would have lost 20% of your total capital.

  • If you had split your share holdings into ten different companies then you would have lost 10% of your total capital.
If you have been following conventional thinking, holding long term and reinvesting your dividends then you have lost all of your dividend income as well.

Date	Broker	                Recommendation	New target price
26-Jun	Liberum Capital	        Hold	        180
25-Apr	JP Morgan Cazenove      Overweight      292
10-Apr	Liberum Capital	        Hold	        200
29-Mar	Liberum Capital	        Hold	        200
28-Mar	Jefferies International	Hold	        230
14-Mar	Peel Hunt               Reduce	        200
07-Mar	Liberum Capital	        Hold	        200
02-Mar	JP Morgan Cazenove      Neutral	        231
01-Mar	Peel Hunt               Reduce	        200
01-Mar	Liberum Capital	        Hold	        200
09-Feb	Berenberg               Hold	        260
02-Feb	Liberum Capital	        Hold	        200
24-Jan	Peel Hunt               Reduce	        225

Long Term Share Trading Example - Barclays

Alternatively we can look at Barclays Bank over the long term, buying in during 2002 when the share price was around 500p which is about two thirds of its peak price of around 720p.

In this example we are reinvesting the dividends in more Barclays shares.

As you can see apart form a short period after purchase the shares are showing a continual loss.

BARC Share Price Graph

For more details on the above chart.