The most depressing thing about the Quindell saga:

… if you haven’t been keeping up with Quindell, some might say you’re missing out – it sort of depends how you get your kicks in life.  It is rare you get to see such a public back and forth between the long and the short side of a stock; usually those bearish stay out and stay quiet, but in Quindell’s case you have a fistful of public legal spats, accusations of impropriety and the usual festival of characters wading in on either side of the debate.

I have nothing to add on the equity side; it’s either cheap and legit or it’s expensive and isn’t, and I look at situations like this with a shrug of my shoulders. Maybe I’m missing some value by permanently sitting on the sidelines, but the level of due diligence it’d take for me to get comfortable with a stock blasted with a reasonably convincing 74-page short manifesto just doesn’t appeal. It’s the same deal as I’ve said before with mining and exploration stocks – I find myself agreeing with most points I read. I lack the capacity to critically analyse the arguments, and I lack the desire to figure it all out. As far as I’m concerned, the returns to my time are much better looking for solid companies with good returns on capital at reasonable valuations – not looking for diamonds among the rubble and hoping for multi-baggers. Fortunately, it turns out more ‘boring’ companies might be a more reliable way of doing that.

Still, I had the misfortune at lunchtime of noticing Quindell had released a set of results today, and trotting over to everyone’s favourite stock message board to see what the word on the street was, since it was much of the same from the company but the price retreated 10%. Reading back was like witnessing a microcosm of a long-term stock cycle in action:

The joy pre-trading:


The confusion when it begins (I never understood this one..):


The embattled mentality:


The gloating:


It is just so far removed from how investors should be thinking about pieces of part-ownership in businesses. It’s breaking all the golden rules of investing – or any chance-based game, for that matter (I come from this as a poker player):

  • Don’t become emotionally invested in your decisions. When the facts change, change your mind. When new facts arrive, don’t mould them to your preconceptions.
  • Someone has to take the other side of every trade you make. You are not at war.
  • .. in fact, dissenting views are the best way to learn. Value the opinions of those who disagree with you, even if you still think they’re wrong.

Which is not, of course, to claim any sort of superiority. The holders of this stock in particular have obviously just caught up in a particularly vitriolic occasion, but in a less public way I think all investors have to battle with the emotional side of investing constantly. Falling in love with a stock ruins your decision making. I am guilty of all the investing sins.

There’s a more fundamental point underlying it, though, and it’s more or less the one Seth Klarman makes in Margin of Safety. This frenetic and obsessive focus on price movements and the buys and sells does suggest one thing about commenters – their interest in the worth of the underlying business is fairly fleeting. They are speculators, who want the price to go up, and as a consequence dislike anyone or anything which delays or prevents that outcome. If you believe that investing is an activity whereby, in the long-term, businesses will tend to revert to more or less a reasonable approximation of the value of their cash flows, this is all just noise.

If your faith in the value of the business is built on such shaky ground that a 10% drop in the share price winds you up or worries you enough to seek any possible justification for the fall – and not recheck your thesis and your figures and consider buying more, if warranted – one might think that you don’t have much business being in the stock at all.

No position, if that wasn’t clear.

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