While bartering for a cut-price telly or a holiday at a budget price can leave you satisfied for months or years after your negotiation, bargain hunting for shares is fraught with danger for investors.
Few things beat the feeling of getting a real bargain. But, no matter how big the company, shareholders need to be prepared for a bumpy ride.
Tesco shares have fallen in value by more than 35% so far this year. Shareholders will have found themselves wincing at the business pages on a regular basis, wondering when the bad news is going to stop. Profit warnings, departing CEOs and a chunky cut to the firm’s previously impressive dividend have all added to a bleak outlook for the supermarket giant.
This week, Tesco revealed that it overestimated its half-year profit projection by a staggering £250m, causing a further dramatic share price decline.
So now’s the time to buy, right? Buy low, sell high – isn’t that the idea? That’s what I thought in June, when investing in a marketleading supermarket at a share price last seen in 2004 seemed enticing.
So I bought some shares in my pension and have since watched my investment lose almost 30% in value. Doing my job, it’s easy to become blasé about the various investment clichés that do the rounds in the City of London, so it’s annoying when I’m reminded that they often contain a degree of wisdom. ‘Never catch a falling knife’, in this case.
Fortunately, I have more than 30 years to go until I’m likely to retire, so I can afford to take a very long-term view. However, the case of Tesco, as with those of BP, Lloyds and RBS before it, highlights that investing in even the biggest companies can be a risky business.
Have you ever made a bold investment decision? Did the risk pay off or are you playing it safe from now on?