spiderbill wrote:However there is a larger point in there too - one that I mentioned a few times on the old TMF boards. How long and how big a sustained drop does there have to be for an investor to think that maybe the market either just doesn't like a share and isn't going to change its mind, or knows something that the rest of us don't? ...
As regards the first possibility, if the only problem with a share is that the market just doesn't like it, it's the ideal HYP purchase! And if the market additionally wasn't going to change its mind, well, that would just mean that it will remain such a purchase indefinitely... But in practice, the market always will change its mind eventually - or it will be revealed that there is some other problem with the share.
As regards the second possibility, in the case of Centrica why go looking for something the market knows and we don't when there are clear things that both the market and we do
know that explain the sustained drop? First dwindling earnings and dividend cover in 2013 and 2014, then the dividend cut in early 2015, then the succession of held dividends since, making a quick recovery look unlikely, and all along a steadily worsening political climate towards the utilities, to the extent that now even the political party which one would expect to be friendliest towards them is taking concrete measures against them... The dividend cut was by about a third and all else being equal, would explain a similar drop in capital value, while the other factors could IMHO easily explain the fact that the capital value drop is greater than that at a bit over a half.
To be clear, I'm not arguing against the notion that major drops in capital value need looking at. But on its own, the fact that another investor has experienced an N% capital drop isn't helpful: one needs to know over what period to be able to see what the reasons might be. And while one can sometimes deduce that information reasonably accurately from the implied price and looking at a share price chart, that won't usually be the case. (Your particular case comes close, as you must have bought near all-time highs - but it could still be in either about 2007 or about 2013, or of course parts of it in one and parts in the other. My 17% drop has vastly more possible explanations...)
And one always has to consider "irrational exuberance on the purchaser's part" as the explanation! Even when one is the purchaser oneself, in fact, but it will generally take longer to deal with the possibility when someone else is the purchaser.
Basically, my point is that if one wants to start a discussion about a share's prolonged decline, it's much better to 'de-personalise' and disambiguate it with an objective description of the drop: "Centrica has fallen by over 50% over the last four years" is a better invitation for such a discussion than "my Centrica holding is over 50% down" because it gets everyone talking about the same drop, doesn't require them to go looking at share price charts to try to see what period is being talked about and is less likely to head in the unproductive direction of everyone giving the percentages for their own holdings...
Anyway, as indicated above, I think the reasons for that drop are fairly clear and known to us as well as the market, so neither of your two possibilities applies in this case. The question now is whether those reasons will continue... My own view is that the company seems to have worked its way through the difficulties of a few years ago and if left to its own devices, would be a decent investment. BUT
it seems very unlikely indeed to be left to its own devices by the politicians, and the range of reasonably realistic possibilities in the current political climate is a very broad one. That makes it a pretty big gamble in my view - which reduces its attractiveness as a HYP share anywhere from considerably to totally, depending on the HYPer.